Moving Money 2025 The future of payments and what it means to you

Expert opinions on innovation in the UK PAGE 1 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 2

Foreword

Payments are an essential part of our lives and there the UK economy. As well as boosting payments efficiency, has never been a greater choice of ways to pay. Almost this technology is driving payments innovation throughout everyone in the UK makes several payments each day and financial services and beyond. New mobile payment services electronic payments have recently overtaken cash as the such as Paym and Zapp are firmly rooted in VocaLink’s real- most popular payment method. In 2014, the average total time technology, as are many other payment innovations. number of transactions per person processed by VocaLink was 196, with an average of 57 Direct Debits throughout In practical terms, a real-time payments system is the bridge the year. between the digital economy and the real economy. With the growth of mobile, people expect to be able to make But making a payment is seldom an end in itself. It is payments while they are on the go. This is reflected in the invariably part of a bigger transaction, for example paying exponential growth of new payment services and mobile for groceries, transferring money to friends or making phone apps that promise to make payment easier than ever. a charitable donation. Making a payment is a means to So what about the future? an end, because all transactions end with a payment. Most people simply want to make and receive payments The global payments industry is in a state of constant flux conveniently, securely and with certainty. and there are many disruptive forces. These include the disappearance of geographical borders with SEPA; the Research carried out by VocaLink in August 2015 reveals appearance of new market entrants; and the arrival of new that 65% of people cite transaction security as the most technologies such as biometrics. This paper comprises a important factor when making a payment, with another collection of expert views from those at the heart of the UK 20% reporting ease of payment as a high priority. In payments industry. It offers a glimpse of the future – of what many instances electronic payments have become a cash might happen and how. We hope you find it interesting and replacement and alternative payments, such as mobile, offer that it encourages you to join in the discussion. all the benefits of cash with none of the drawbacks.

A successful payments system requires a robust technical infrastructure to provide universal connectivity and to inspire user confidence. This infrastructure must also be scalable, secure and available 24x7x365 to enable consumers and business to pay who they want, when they want. The growth Paul Stoddart of online, and increasingly mobile commerce has driven Managing Director, Strategy, Products, Marketing & the demand for immediate payment solutions. An entire Business Development, VocaLink generation (Generation Y) has grown up with unlimited internet access and ‘one-click’ purchasing. They expect to make and receive immediate payments and anything less is simply unacceptable.

With the launch of the Faster Payments Service (FPS) in 2008, the UK led the world in adopting immediate payments running on real-time technology. VocaLink designed, built and operates the technology infrastructure that powers FPS. This also provides a real-time processing backbone for PAGE 3 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 4

Contents Executive summary

An efficient and resilient payments system is critical to the functioning of our economy. Everyone expects to be paid on time, all the time. Without the means to make and receive payments, business cannot function, consumers are unable to purchase the goods and services they need, and those reliant upon state funding are deprived of a lifeline.

Foreword 2 There is much more to payments than This paper comprises a collection of • The employment market is shifting Executive summary 4 the bank card you carry or the mobile short articles from a wide range of towards a situation where we see app on your Smartphone. These are specialists. It includes a number of a larger number of workers who Part 1: Introduction 5 just the tip of the iceberg. The rest of predictions and an aspirational ‘wish are reliant on multiple income Part 2: Contributor articles 13 it, below the waterline, is the network list’ of innovations that could deliver flows, rather than having one The advance of push payment technology 14 of connections from banks and significant end-user benefit by 2025. predictable and periodic source David G.W. Birch, Consult Hyperion building societies where your funds of income. By 2025 this are held, to the businesses, charities, Key predictions include: unpredictability of income will be Simplifying payments for consumers 17 government departments and all other even greater and should be Nick Middleton, Nationwide organisations that make and receive • Push Payment Platforms–built on matched by greater flexibility and The future of payments in retail 19 transactions. Without a universal instant payments –will be at the more tools for people to manage heart of a significantly changed David Baker, The UK Cards Assocation infrastructure, payments simply could their payments and finances. [Sian not be sent or received. payment system, catalysed by Williams, Toynbee Hall] Katy Worobec, Financial Fraud Action UK technology advances such as Diversifying payments for modern ways of working 21 This infrastructure is invisible but biometrics, the blockchain and • The most attractive future Sian Williams, Toynbee Hall critical to our modern day-to-day lives, the ‘Thingternet’. [Dave Birch, innovation in the payments system from receiving our salary payments Consult Hyperion] from a recent survey was “having Towards world class: the consumer view of current 24 to paying our gas bill on time. The UK all payments clear immediately accounts and payments payments infrastructure is truly world • As Smartphone security increases, and shown in my account Tooley Street Research class – it is one of the very few real-time credit and debit card information straightaway” followed by will merely be stored on the Back to the infrastructure (for the future) 28 24x7x365 payments systems in the “knowing I’ll get the money back world and it has set the standard for device itself, making the actual easily and without stress, if I Chris Dunne, VocaLink other economies to follow. In addition cards themselves redundant. accidentally send it to the wrong Part 3: What next then? 31 to facilitating payments processing, the Beyond this, the potential of facial account”. [Tooley Street Research] Conclusions and summary 33 UK real-time infrastructure provides recognition technology for the foundation for future payments reducing the friction of ‘paying’ is However if these aspirations are innovation that will deliver strategic huge. [Nick Middleton, to be realised, the UK payments benefits to the entire economy. Nationwide] infrastructure must provide the stable platform for much of this future The challenge is to identify these • There will need to be stronger innovation. We are fortunate to be benefits – as a collective comprising authentication processes to building on a firm foundation that is banks, technology companies, underpin payments innovation in already trusted by consumers, business retailers, consumer groups, charities, the future. The use of dynamic and government. Disclaimer government and more – and then to processes, including the use of work together to maximise the benefits biometrics, will most likely VocaLink does not necessarily agree with the views set out for all. VocaLink will play a leading become part of a multi-factor in each of the articles below, nor do any of the contributors role in facilitating this change, which is process to confirm the customer’s necessarily agree with the views that VocaLink sets out in this already underway. An important part identity. [David Baker, UK Cards paper, or in other documents or mediums. of our strategy is to facilitate discussion Association; & Katy Worobec, and to encourage collaboration Financial Fraud Action UK] By contributing to this paper, each of the external contributors between payments experts. do not necessarily agree or support the views of their fellow contributors or those of VocaLink, and vice versa. PAGE 5 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 6

Part 1 Introduction In today’s always-on society people expect their money to move where they need it to go, when they want it to, with a certainty that it will get there.

Government Banks

Businesses Citizens

What is the payments system and how does it work? transactions each year, with a combined value of about Paying the piper (and the supermarket, gas bill, Cheque & Credit Clearing Company £6 trillion. VocaLink provides the central infrastructure for The payments system is the mechanism that facilitates Bacs Direct Debit and Credit payments (VocaLink facilitates cousin Tommy, etc…) The Cheque and Credit Clearing Company (C&CCC) daily transactions whereby money is transferred from one 90% of the UK’s salaries and virtually all state benefits) and operates the UK’s cheque clearing system. Cheque usage While cash use in the UK remains high, with over 18 billion account to another. It provides the network of connections the Faster Payments Service (online and mobile payments), has been in decline for more than 20 years, falling from 4 payments made last year, it has declined in recent years. In through which transfers are made from payers to payees as well as managing the world’s busiest ATM network (LINK), billion cheques written in 1990 to 644 million in 2014. It is 2014, for the first time ever, cash represented just under half across the UK economy. It is essentially the ‘bit in the which connects over 70,000 ATMs. forecast that around 253 million cheques will be written in of all payments made. 1 middle’ that connects the banks, building societies and 2024. However C&CCC will be responsible for the future VocaLink also operates the banking industry’s 7-day Current other organisations with whom you have an account and In fact, the UK is one of the highest non-cash users in the EU. operation of the UK’s cheque imaging system, which will Account Switching Service and the Cash ISA Transfer from which these payments are made. Similarly, it is this In terms of non-cash transactions on a per capita basis, the allow users to take a digital image of a cheque (with their Service, as well as being a key platform for the banking infrastructure that thousands of corporate organisations UK is above both France and Germany and has more than smartphone) and send this image to their bank for payment, industry’s mobile consumer payments service Paym. The connect to directly so they can conduct their daily business. double the number of transactions of Spain and more than reducing the time it takes for cheque payments to be future launch of Zapp, which will allow consumers and four times that of Italy. 2 completed. Whilst remaining largely unseen, it is this infrastructure businesses to make real-time payments to retailers or other that is critical to the functioning of the UK’s economy and businesses when shopping online or in-store via a smart In the UK, individuals and businesses are comfortable with CHAPS society and is relied on 24 hours a day, 7 days a week. phone app. handling and using multiple methods of making payments. This infrastructure has facilitated everything we have This ranges from paying with a contactless card for a journey Launched in 1984, CHAPS (Clearing House Automated As many countries across the world – developed and come to take for granted in recent decades, from salaries to work, buying a coffee with cash, buying your weekly Payment System) operates in a similar way to Faster developing economies alike – are recognising, having a real paid directly into our bank accounts, to buying shopping grocery shop with a credit card and paying your utility bill by Payments but focuses on high value transactions over time system that is interoperable is the foundation upon online to withdrawing cash from an ATM abroad. This Direct Debit. £100,000 – such as a deposit for a house or business which future innovation can be built. It is this interoperability infrastructure, one of the very few real-time 24x7 payments payments. It also has an international service that allows, that gives the UK an advantage over the rest of the world. systems in the world, means that the UK payments In today’s always-on society people expect their money to most notably, financial institutions operating around We can start planning now how end users of payments infrastructure is widely regarded as world class. move where they need it to go, when they want it to, with a the world to make high value sterling transfers. CHAPS systems – from individuals to businesses, charities to the state certainty that it will get there. However, most people have payments usually clear the same day. VocaLink currently operates significant elements of this – can most benefit from the ways that they pay and get paid. little idea how the payments system itself actually operates. payments infrastructure, processing around 10 billion To ensure that the payments system operates effectively, Card schemes there are a number of infrastructures, each run by an Visa Europe and MasterCard provide the means for bank oversight body or ‘scheme’. Each scheme runs a particular current account customers – and indeed customers of payment service – such as Bacs, Faster Payments, LINK Did you know? In 2014: other payment methods run by these two organisations – to and CHAPS – and sets the rules for how that payment make purchases in shops, online and over the phone. And service operates. These systems are built and run by the • More than 22 billion transactions were processed alongside this, AMEX allows customers to make purchases infrastructure providers, including VocaLink. In some cases by the UK’s payments system and the on credit, with balances due monthly. infrastructure that supports it. 1 the scheme and the infrastructure provider are the same, such as Visa and MasterCard. • Of these, over 10 billion were processed by VocaLink; that’s the equivalent of 3.7 times the UK’s GDP, with a value of £6 trillion. 2

• The infrastructure VocaLink runs processed on average 196 transactions per individual. 3

1 Payment Systems Regulator, 2015 1 2015 UK Payment Statistics, Payments UK 2 VocaLink data, 2014; HM Treasury 2 ECB Payments and Clearing Statistics 2014 3 VocaLink data, 2014 PAGE 7 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 8

Individual to energy company payment Individual to supplier payment Direct Debit FPS

1 2 3 4 1 2 3 4

Electricity provider VocaLink on behalf Sharon’s bank Electricity Michael initiates VocaLink verifies Supplier’s bank Michael receives sends Direct Debit of Bacs sends debit checks Direct Debit provider’s bank payment to the payment and confirms receipt of confirmation from to Bacs to Sharon’s bank instruction and credits their supplier through sends to supplier’s payment his bank and credit to debits Sharon’s account his bank bank electricity account provider’s bank NEAR REAL-TIME

VocaLink enables the sharing of Direct Debit information between the originator and the bank so it is always up to date.

Bacs Did you know? Faster Payments Did you know?

One important use for Bacs is to enable Direct Debits, such • Setting up a Direct Debit for the payment of some Faster Payments, operated by VocaLink for the Faster • The Faster Payments infrastructure is one of the as those to your electricity or gas supplier. Through the Bacs regular bills can often mean reductions in the Payments Scheme (FPS), is the UK’s immediate payment few 24/7 real time payment system in the world 1 system, it is possible for you to put in place a system that amount you pay compared to making one-off system that enables individuals, businesses and government automatically credits your utility company’s account when payments to make payments up to the value of £100,000 with the • The maximum transaction time is 15 seconds, you are billed for their services. certainty that it will reach its destination in near real-time. although the average is lower • Bacs processes £8.4 million a minute; that’s £1 a Virtually all internet and telephone banking payments in the The Bacs system also processes Direct Credits, which minute for every person living in London 1 UK are now processed via this system. It allows individuals to • Over £103 million of Faster Payments transactions includes 90% of all UK salary payments, and virtually all state transfer money to friends and family via their account details, are processed by VocaLink every hour 2 benefits. The payment effectively takes three days to reach • On average, VocaLink processes over 10 million and can be used for making immediate or one-off payments, you after being initiated, but can be scheduled in advance direct debits every day from energy bills to as well as arranging forward-dated payments. • Transactions are irreversible – once it’s gone, it’s so that you can receive or send the same payment with mobile phone payments 2 gone – so always check the receiving account certainty of the timing. details before confirming the transaction • Every year, equivalent to 2/3rd of the average salary is spent through Direct Debits 3 • The current maximum transfer is £100,000, but this is expected to rise to £250,000 • The total amount processed by the Bacs system in 2014 (including salaries, standing orders and • The 4 billionth Faster Payment was made in welfare payments) is equivalent to the combined October 2014, and we are racing towards 5 billion wealth of all living billionaires 4

1 Bacs data, VocaLink 2014; London population, ONS 2014 4 Bacs data, VocaLink data 2014; The World’s Billionaires, Forbes 2015 1 As at August 2015 2 VocaLink data, 2014 2 VocaLink data, 2014 3 Direct Debit data, VocaLink 2014; salary data, ONS 2014 PAGE 9 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 10

Mobile to mobile payments Cash withdrawal Paym LINK

1 2 3 4 5 1 2 3 4 5 6

Steve uses a bank The ATM provider VocaLink for LINK Steve’s bank VocaLink for LINK Steve gets cash at Michael chooses Michael’s bank Michael verifies VocaLink confirms Money is received card at any ATM to sends request to routes request to confirms Steve’s sends approval to ATM Liz’s number from issues request for details and transaction by Liz’s bank and request cash LINK Steve’s bank identity and ATM provider and the Paym app and payment to Paym instructs his bank between banks therefore Liz confirms request moves funds to enters amount to database to LINK ATM provider’s transfer account (from Steve’s bank)

ALMOST INSTANTLY IN SECONDS

Mobile-to-mobile payments Did you know? LINK ATMs Did you know?

FPS is also the platform that powers mobile payments • Like Faster Payments, transaction time is almost LINK is the network of ATMs, operated by VocaLink, that • There are nearly 100 million LINK-enabled cards through Paym and Barclay’s PingIt. Whilst you need to instantaneous allow current account holders to withdraw cash from any of in circulation in the UK register first, this can be done in minutes via your bank’s the 70,000 machines across the UK regardless of who an website, or in some cases via your bank’s mobile app. • Paym protects your financial details as payees individual banks with. • It is not the LINK connectivity that lets you only need your name and phone number withdraw cash overseas, instead it is the card You can also use LINK ATMs to top up pre-pay mobile infrastructure that services your bank (VISA or • Since its launch on 29th April 2014, Paym has phones and make donations directly to a number of MasterCard) processed nearly £70 million of payments charities, and foreign account holders are able to make sterling withdrawals from their accounts abroad. • The average amount of cash withdrawn by a single • Paym is available through 16 banks and building individual via a LINK ATM in 2014 was £1,944 1 societies covering more than 90% of current accounts, with 2.25 million customers’ mobile • There are 39,000 cash withdrawals from LINK numbers now registered ATMs every minute

• If the upper limit of a Faster Payment increases • Every hour, an average of £14 million is withdrawn from £100,000 to £250,000 (as expected), you from LINK ATMs across the UK. £662 million was could buy a 3 bed semi-detached house using dispensed by ATMs on the busiest day of the year your mobile phone…if you have £230,000 of (24 December 2014), with an average withdrawal course 1 of £82 2

1 House price, 3 bed house in Leeds, August 2015 1 VocaLink data, 2014 2 VocaLink data, 2014 65% 20% 83%

are concerned are concerned check their bank by security by ease of use balance before making a significant purchase

44% 50% 41% PAGE 11 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 12 % % % 17% Consumer21% attitudes1 to2 payments% 17 21 12 have paid using of females have never of males have never VocaLink commissioned OnePoll research to speak to 2,000 Use ofcontactless contactless card cards used contactless tech used contactless tech technology consumers about their attitudes towards payments. Some of of people have paid of males have of females have of people have paid theof males key have findings are below.of females have using a mobile phone used mobile phone used mobile phone using a mobile phone used mobile phone used mobile phone payment technology payment technology payment technology payment technology % % % Most popular apps 65 20 £381m83

was spent in the UK in December 2014 using a contactless card, an increase of 28% on the previous are concerned are concerned check their bank Balance checking month and 331% over the year. 1 Balance checking by security by ease of use balance before making apps apps a significant purchase Over Over % 50% 50 Budgeting Budgeting apps apps of people would be of people would be interested in using a interested in using a % % % payment or banking4 4 50 41 payment or banking app of some kind. app of some kind.

Rewards and Rewards and loyalty bonuses loyalty bonuses have paid using of females have never of males have never contactless card used contactless tech used contactless tech technology Paying by mobile technology Concerns for consumers making payments £381m

was spent in the UK in December 2014 using a contactless card, an increase of 28% on the previous 17% 21% 12% 65% 20%month and 331% over8 the3 year.% 1

of people have paid of males have of females have are concerned are concerned check their bank using a mobile phone used mobile phone used mobile phone by security by ease of use balance before making payment technology payment technology a significant purchase

1 UK Card Payments 2015, UK Cards Association

Balance checking 44% 50% 41% apps Over

have paid using of females have never of males have never 50% contactless card used contactless tech used contactless tech Budgeting technology apps of people would be interested in using a payment or banking app of some kind.

Rewards and £381m loyalty bonuses was spent in the UK in December 2014 using a contactless card, an increase of 28% on the previous month and 331% over the year. 1 PAGE 13 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 14

Part 2 Contributor articles The advance of push payment technology

Author: David G.W. Birch, Director of Innovation, Consult Hyperion VocaLink approached a number of experts from across the payments system to give their views on how they saw the way we pay and get paid would and should change by 2025. These articles represent those views.

The advance of push payment technology 14 Fifty years ago, in April 1965, an article compare with. If you want to imagine The rise of the internet led consumers David G.W. Birch, Consult Hyperion in the New Scientist magazine about the changes coming a generation and business to want new solutions, the automation of cheque clearing from now, they would argue, you have yet it was another decade before work Simplifying payments for consumers 17 predicted that in a generation the to look back two generations into started on the immediate payments Nick Middleton, Nationwide transfer of money would be completely the past in order to correct for the system that became the Faster Payments The future of payments in retail 19 automatic and “the payment of a accelerating pace of change. Service (FPS). The UK then led the world David Baker, The UK Cards Assocation birthday fiver from an uncle to a in introducing what we will call instant favourite nephew merely a matter That line of thinking suggests that if we payments. FPS has been an outstanding Katy Worobec, Financial Fraud Action UK of direction and timing of electronic want to imagine the world of payments success, bringing us to the point where Diversifying payments for modern ways of working 21 impulses”. Within a year of this, the a decade from now, we need to look British consumers expect to be able to Sian Williams, Toynbee Hall first Barclaycards were in customers’ back two decades into the past and use their mobile phones to send money understand that landscape and the Towards world class: the consumer view of current 24 hands and a year after that Reg Varney from one account to another, instantly was launching the first ATM (in Enfield, dynamics that changed it. A simple way and reliably. Around the world, other accounts and payments North London). A year later, in 1968, of doing this, shown in Figure 1 below, countries are following in these footsteps Tooley Street Research the precursor to Bacs was formed is to look at the technologies that and evolving that infrastructure still Back to the infrastructure (for the future) 28 and direct debits were launched. Yet support products in the marketplace further by bringing in more sophisticated and, particularly, the security needed Chris Dunne, VocaLink that birthday fiver was still sent by data representation and management to post. As it was in 1975. And 1985. to make them useful. add the ability to carry value-adding data And 1995. Perhaps, just perhaps, it along with the payment. By 2025, the UK went by PayPal in 2005, by which time This perspective-led approach makes will have refreshed and done the same, Bacs was processing two billion direct good sense for the topic at hand completely transforming the potential for credits per annum. But today? In 2015, because 1995 was a cusp in the co- the infrastructure to support individuals, it could well be by Paym or the Faster evolution of payments, technology organisations and government to Payments Service (FPS), WeChat or and security. Twenty years ago, the automate around payments. Venmo, Facebook or M-PESA. The world was experimenting with different payment times are finally changing. kinds of debit proposition, smart card This perspective also delivers an So how will that birthday five hundred technology, offline operation and important lesson about the interaction pounds (adjusted for inflation) wend its electronification in the mass-market between payments and technology: way in 2025? (salaries, benefits, bill payments and so in Europe, the retail payments sector on). Some failed and some succeeded, was focusing on making the most but the experimentation began a effective off-line payment system Perspective period of growth that saw the debit possible and using it to displace cash. card rise to become the consumer’s How can we begin to think about the The smart card was put to use in a Disclaimer instrument of choice. In the UK this payments landscape a decade from variety of electronic purse schemes year, cash was finally reduced to less now when we can see that so much is with the intention of displacing cash at VocaLink does not necessarily agree with the views set out than half of retail payments and the going to change on the technological, retail point of sale. By and large these in each of the articles below, nor do any of the contributors debit card is the proximate cause. The social, business and most importantly failed and had no impact on the world necessarily agree with the views that VocaLink sets out in march of electronification means that of all, regulatory fronts? Well, one of of retail, but the technology that was this paper, or in other documents or mediums. the direct debit has become the way the techniques of futurologists trying being used to build them - the smart that most consumers pay most regular to assess the magnitude and direction card - became so widespread it is now By contributing to this paper, each of the external contributors bills (eight out of ten UK adults have at of technology-induced change is to unremarkable. do not necessarily agree or support the views of their fellow least one). contributors or those of VocaLink, and vice versa. find an appropriate point in the past to PAGE 15 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 16

Internet Thingternet What does it mean? Value creation

cheque clearing credit card MOTO ATM debit card CNP PayPal mobile money instant payments ??? Customer needs React to existing needs React to emergent needs Payments become a constant flow between devices and the Offering Stand-alone products Product always-on and data around payments becomes Obsolesence refreshed more valuable than the fees 1965 1975 1985 1995 2005 2015 2015 Role of data Single point data used for future Information convergence earned from the payments. product requirements creates services Value capture mainframe telecommunications magnetic stripe PC smart card internet mobile phone wearable Path to profit Sell the next product Enable recurring revenue Payments are no longer a product managed by banks but part of online authorisation hologram EMV one-time passwords biometrics analytics Control points IP and brand Network effects between products multiple overlapping ecosystems that transfer many kinds of value Capability development Leverage core competencies and Create platforms to help existing resources partners to build their businesses

Figure 1: A Payments Timeline: Products, Technologies, Security Figure 2: The Thingternet Mindset With acknowledgement to Smart Design, Harvard Business Review (hbr.org, July 2015)

If you want to be dramatic, you can installed base of all PCs. By 2020, to continuing increases in card-not- the individual transactions, naturally, and continuous authorities, sort codes through services from VocaLink and bookmark the cusp, the end of the global shipments of PCs will be less present (CNP) fraud. Indeed, in Europe and so I will give my watch permission and account numbers. These are all in Paym and Zapp (amongst others) in off-line era, on 9th August 1995 with than global shipments of tablets. 1 And last year, card fraud as a whole rose to respond positively until I tell you effect, hacks. They are suboptimal ways the UK today. McKinsey estimate that the Netscape IPO. In the US, we then whatever you think of the smart watch by 8%. The cynical observer might say otherwise. Now, the money is being to make the previous generations’ the provision of instant payments on saw myriad efforts to create internet now, smart wearables of all kinds will that we’ve managed to keep a cap pushed from me to the gym. Instantly banking infrastructure do something these kinds of platforms will create $80 alternatives to cash and cheques be growing. The Internet of Things on European card fraud by exporting and securely. useful for modern consumers. billion of additional value, revenues and while most of those also fell by era is upon us and this thingternet (as much of it to the USA (which accounts even in the very short term (by 2018). the wayside, one of them did not: I cannot resist calling it), which the for around a quarter of the world’s And when I don’t want to go to the We are, however, coming to the end 1 By 2025, payments will no longer be PayPal. PayPal rode the existing rails McKinsey Global Institute says will have card volume but half of the world’s gym any more, I will tell my watch not with that architecture. At the last a boring backroom banking function, to deliver a more convenient service an $11 trillion impact in our timescale, card fraud) but that doesn’t alter to pay any more. So there will be no cusp, the world went online just as but a crucial platform for business to consumers, something that the will naturally stimulate entirely different the fact that it’s time to make some need for mandates or instructions, and the payment industry was perfecting invention and sustainable innovation. established players could have done, business models. 2 As Figure 2 shows, radical changes and the industry is no treasure trove of personal details offline. Now, the world is going mobile for hackers to steal from the gym or but didn’t. we can already see these growing responding with the shift to stronger and we mustn’t get caught out! We Author biography around us. authentication, tokenisation and from the watch. must meet the raised expectations of analytics. consumers in an online all-the-time David G.W. Birch is Director of Landscape We must be aware, of course, that The impact of these changes will of environment and in order to do that we Innovation at Consult Hyperion, the shift to instant payments will be It is very tempting, in fact irresistible, course extend to retail. The US Food These come together in the mobile have to make the infrastructure work in the secure electronic transactions accompanied by a significant increase when looking at the current Marketing Institute predicts that phone, shifting to an app-centric a different way. consultancy. He is an internationally- in risk. Criminals will make every effort landscape to see the current flurry by 2025, customers will no longer model, in which mobile devices co- recognised thought leader in digital to exploit any weaknesses in our Regulatory pressure for banks to of experimentation around Bitcoin wait in lines to check out at grocery ordinate fast, safe and transparent identity and digital money; was named defences to steal money more quickly open up and provide access to non- through this lens. It may well be that stores, but will walk out the door solutions. One in five payments in one of the global top 15 favourite and more efficiently just as we work to bank players, the technologies of the new payment mechanism never and a “frictionless checkout” will Starbucks is already mobile, so this is sources of business information move it around more quickly and more transparency such as the blockchain, obtains traction, any more than automatically account for products in not even a radical view. (Wired magazine) and one of the top efficiently. The defences that are now the always-on and permanent Mondex or DigiCash did, and we will their carts. So how will this change the ten most influential voices in banking A simple (and possibly overused) being deployed in the world of mobile connection between financial never use Bitcoins at the corner shop, payments business? Given this kind of (Financial Brand); was listed in the example will serve to illustrate. Right phones, that tokenised infrastructure institutions and their customers, yet the evolution of the underlying environment, what are the pain points top ten Twitter accounts followed by now, my gym has my card on file that sits behind Apple Pay and soon advances in biometrics, “big data” and technology, the shared ledger, turns that the next generation of payment innovators, along with Bill Gates and or bank account details for direct Google Pay and then Samsung Pay the emerging Internet of Things come it into an infrastructure so pervasive it solutions will need to address? Richard Branson (PR Daily); was ranked debiting. Either way they pull money and then every other pay, adumbrates together to prescribe a different kind becomes as unremarkable as the smart in the top three most influential people While we’ve done well in electronifying from my account on a monthly basis. a generalised tokenisation that will of API-centric banking industry, one card did. And someone other than the in London’s FinTech community regular payments and in-store Most of the time this works fine, but deliver similar security benefits which may well see payments begin to established players will find a way of (City A.M.), was voted one of the payments, in some other areas we when it doesn’t (because of errors throughout the whole payments detach from banking as a whole. making it convenient for consumers. European “Top 40” people in digital haven’t done as well. Take a look or fraud or failures) it costs time and ecosystem. Facebook? Apple? Amazon? Google? financial services (Financial News) and at the curves around card fraud, for money to repair. A decade from now, The business pressure to make these Microsoft? was rated Europe’s most influential example. The co-ordinated transition my phone, watch, hat, earrings and key Projection payments work more efficiently and effectively will inevitably drive a commentator on emerging payments We know where not to look. We are to chip and PIN at retail point of sale, fob will all contain cryptographically change from “pull payments” to “push (Total Payments). already past the inflection point. building on the expertise gained in unforgeable tokens generated for Our infrastructure is solid and has payments” and this will be at the heart The installed base of smartphones smart card technology and offline them by my bank and when it is time delivered amazing benefits. Yet we still of the changed payment landscape and tablets is already bigger than processing, successfully stopped card to pay the monthly gym fee I will use live with the consequences of decades- a decade from now. In fact, what we the installed base of desktop and fraud from spiralling out of control. But the token to instruct the bank to send old decisions. Instruments such as might call the Push Payment Platform laptop PCs. The installed base of iOS the poor and uncoordinated response the money from my account to theirs. standing orders and direct debits, mail (PPP) is already being delivered devices alone will soon exceed the to the growth of online business led I will soon get bored with authorising order-telephone order (MOTO) rules

1 Forecast for global shipments of tablets, laptops and desktop PCs from 1 The Future of Global Payments, Philip Bruno, Florent Istace, and Marc 2010 to 2019 (in million units), Statista, 2015 Niederkorn, McKinsey Global Insights, November 2014 2 By 2025, Internet of things applications could have $11 trillion impact, James Manyika and Michael Chui, Mckinsey Global Institute, 22 July 2015 PAGE 17 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 18

Simplifying payments for consumers In the future, you can expect to walk up At present, we have to Nationwide, we recognise that our Author: Nick Middleton, Head of Payments Strategy & Architecture, Nationwide to an ATM, securely sign in to an app members stay with us because they on your phone, wave it at the machine remember countless trust us. As these new technologies and do anything you wanted to! But passwords, and none of take hold, we need to show our will you need to if we don’t use cash or them secure...a frictionless members how they can benefit from cheques? We will eventually get there these technologies that we will ensure but for the next several years, what experience with little are safe, secure, and reliable and make a great way to interact with an ATM! interaction but a high our members’ lives easier. Nationwide is looking to see how we degree of security is the could implement this exact technology Author biography in the near future. desired outcome. with sensors on the back of the Nick Middleton, Head of Payments Wearable devices are now starting Strategy & Architecture, Nationwide to grab the market, with Nationwide watch monitoring blood pressure and flow. Experts tell us this is more Building Society launching the first UK Over the past 10 years Nick has smartwatch banking app in November distinguishable than a fingerprint. Fantastic, but not if you have a worked as a Senior Programme last year and we recently launched Director, Head of Payments Risk the same service on the Apple watch. tattooed wrist as the ink interferes with the process. This tells us that not and Head of Payments Strategy and Whilst not yet mainstream, the financial Architecture for VocaLink, RBS, Lloyds strength and marketing budgets of all technology is right for all people and for a number of different reasons. Banking Group and Nationwide the companies behind these devices Building Society. He was responsible mean that new services for consumers Facial recognition technology already exists. Couple that with beacon for delivery of the Payment Services will become mainstream in a relatively Directive (PSD) in 2009 and 2012 short amount of time. The Apple watch technology in a shop and as you walk in, you are identified, ads throughout for Lloyds Banking Group, as well has only recently launched and already as delivering SEPA Direct Debit we see a number of ways to use that the store are targeted at you, coupons The importance of being able to other mobile wallet providers allow deliver the service our customers compliance and Current Accounts device in your everyday life – check targeted for you are delivered right pay people, bills, buy things, send you to store your card details on your expect at the right time and cost. We Switching compliance for them. Nick balances, purchase goods, get alerts to your phone, items that you pick donations to charity, send money to phone safely and securely and to use have a history of seeking out innovative then moved into an interim Head of when you are nearing credit limits or up as you walk through the shop are your kids and the many other reasons your phone to purchase things both partners that help us to deliver best in Risk for Payments role at Lloyds for ‘proximity pay’ a friend. That list will identified and recorded so by the time we need to pay doesn’t really change online and in-store. The proliferation of class service for our customers. a period of 6 months focusing on grow as time goes on. As Nationwide you get to the “till”, all you have to do that much over time. For thousands of smartphones in many countries across BAU risk management in a changing leads on wearables, we are in a unique is put the stuff in a bag and walk out years stretching back to pre-Roman the globe means that the technology The way we physically exchange value regulatory framework. Nick is currently position to continue to drive innovation because the shop knows what you times, a way to exchange value without that enables these ways to pay will is also likely to change. For thousands the Head of Payments Strategy and for our members in these new and have and has identified you through having to exchange physical things – be in most consumers’ hands in the of years, paper and coin were the Architecture at Nationwide and exciting technologies. facial recognition and taken payment barter – has been a problem that has very near future. And even where medium used to exchange value. It from you – in any number of ways that is responsible for the successful is only in relatively recent history that delivery of new EBA guidelines on the been solved in many different ways. mobile handset technology is not as In the fight against fraud, how we you prefer! How is that for frictionless? we have seen other ways to do this security of Internet Payments, PSD2, advanced as in the UK, they can still protect our digital identity and validate This is certainly an area where There are many different ways to pay electronically. Today, paper notes and Future Cheque Clearing Model and be used to exchange value - a trend it when making a payment will also banks can’t do this on their own and today: physical money in the form of coin are still used but are in decline, other regulatory changes. He is also seen in places like Africa and India change. Nationwide is already working with coins and paper; promises to pay in where innovative solutions are being and cheque usage is declining at 12% cutting edge firms who are looking responsible for setting and driving forward the Payments strategy over the the form of bills of exchange, cheques, developed to address individuals’ a year in the UK. Credit and debit cards It’s all very well and good having the to the future of identification for our short, medium and long term within letters of credit; electronic ways to problems. Nationwide recognises have been around for years, and are technology to make these payments members. Nationwide. pay using internet banking, mobile these ways to pay will be important to so mainstream that anyone under 30 but if it takes several key presses and banking, direct debits, credit and debit our customers and will work with our will struggle to remember a time when more than 10 seconds to do it, the But how will people react to this cards using magstripes on the backs members to ensure we are delivering they weren’t used, and contactless process slows down and becomes technology? Many of the technologies About Nationwide of cards, chip and pins and now even the right solutions for our members at credit card usage is on the rise. cumbersome. we are talking about were showcased contactless. In very recent history there the right time. in 2002’s Minority Report starring Tom Nationwide is the world’s largest has been a significant move to using The proliferation of smartphones is The process also needs to become Cruise. Back then, people thought building society as well as a top three these same types of payments but in Regulatory and governmental widespread and there is a market shift simpler; at present, we have to there would be no way the technology provider of savings and mortgages in different ways. For example, when pressures are opening access to using phones to pay for things. This remember countless passwords, and in the film would exist in their lifetime, the UK. It is also a major provider of paying for your eBay purchase using to customers like never before. is just a way to take your credit and none of them secure. Every time I have and even if it did, people wouldn’t current accounts, credit cards, ISAs PayPal, you aren’t really paying with The Payment Services Directive 2 debit card information and store it to put a new password into a website, want it used on them. I was definitely and personal loans. Nationwide has PayPal, simply using existing credit/ coming from Europe will introduce a on your phone and use your phone my computer suggests something like one of those people. But after 13 around 15 million customers. debit cards or bank details held on standard way for any licensed third instead of a card to make a payment. Kfs98%-JHG:L870gf-LKJHG*&VC$). years, am I more receptive to it now? file with PayPal. However, the result is party to access accounts and initiate And as security improves on these How am I supposed to remember Perhaps. And that brings us to the Customers can manage their finances a simpler, safer shopping experience. payments on behalf of any customer devices, you will be able to replace that?!?!? A frictionless experience with next issue about ways to pay and how in a branch, via the mobile app, on PayPal has succeeded in branching out that authorises them to do so. This card tokens completely. little interaction but a high degree of things will change. Even today, the the telephone, internet and post. The from just payments on eBay, and now will mean a revolution in the way security is the desired outcome. mass market is not ready for major Society has around 17,000 employees. many online suppliers use the service customers interact with their banks. leaps in technology. Everything that Nationwide’s head office is in Swindon to improve the experience for their Small start-ups that don’t have the In the future, you can expect Apple has launched phones with has happened to date has been with administration centres based consumers. As the service proved itself overheads of regulation, political and fingerprint recognition. App stores evolutionary rather than revolutionary. in Northampton, Bournemouth and to be safe, simple and secure, more media pressure and legacy systems will to walk up to an ATM, like Amazon allow you to authenticate When it comes to people’s hard Dunfermline. The Society also has a and more people have started to use it. be able to offer innovative products securely sign in to an app on yourself with your fingerprint rather earned cash (see, we still think of it number of call centres across the UK. that they can bring to market faster than a password. Apps for the Apple as cash even though it is 1s and 0s Over the next several years, the ways than traditional banks. At Nationwide, your phone, wave it at the Watch are already being tested that stored in a computer somewhere), we in which you pay will evolve in a very we look to work with these innovative machine and do anything allow you to identify yourself with aren’t ready for the revolution. But similar way. Apple, Samsung and firms and technologies to ensure we you wanted to! your blood flow through your wrist, we do want our lives to be easier. At PAGE 19 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 20

The future of payments in retail The use of dynamic is a clear case for cross industry of the card payments industry by Author: David Baker, Head of Card Payment Innovations, The UK Cards Association collaboration. Not necessarily in the tackling card fraud; develops industry processes, including the use creation of solutions, nor of new front standards; and co-ordinates other With contributions from: Katy Worobec, Director, Financial Fraud Action UK of biometrics, will most likely end payment mechanics, but in the industry-wide initiatives such as those become part of a multi- agreement of standards and codes of aiming to deliver innovation. conduct that will underpin a perhaps factor process to confirm the less glamorous information technology Katy Worobec customer’s identity. infrastructure. Katy has overall responsibility for the Collaboration will also be essential to improve the security of payments industry fraud reduction strategy, so that all the players in the process, across all channels. Above all, including the Industry Threat whatever their part, take responsibility increasingly they will need to work Management Process, education and for ensuring that they are not the collaboratively with an ever more awareness campaigns for consumers weakest link. It is also vital to ensure diverse set of partners. and businesses, intelligence sharing that law enforcement is suitably through the Financial Fraud Bureau In adapting to the demands of the equipped by industry to understand and the industry’s Fraud Intelligence new age the payments industry will the new technology and what it Sharing System, collation, analysis no doubt look to new technologies to can harness by way of evidence in and publication of industry statistics, see how it can incorporate them into investigating payment fraud. They and the Dedicated Card and Payment the payment process to deliver the in turn will need to work with the Crime Unit (DCPCU), the industry seamless experiences demanded by payment industry to ensure that sponsored police unit. retailers and customers. This means information on criminal intent and that the potential vulnerabilities of capability is fed back to further tackle new technology, and the capability fraud and criminal intent. About Financial Fraud Action UK of the fraudsters to exploit them, need to be considered, tested and Finally, collaboration will be vital to Financial Fraud Action UK (FFA UK) is We must be aware that the ‘Generation In looking at the future payment become the biggest challenge they monitored. At the same time, the ensure that customers understand their the body that leads the collaborative Y’ population is far more technically landscape it pays to take note of the have faced since the introduction increased use of digital channels own risks and vulnerabilities, for they fight against fraud in the UK payments savvy than it was before and will drive habits of our children, the so-called of the supermarket in the 1950s. To provides opportunities to use the too are part of the payment chain and industry. Its Members are UK retail new behaviours by voting with their millennials or Generation Y. The compete for the digital customer rich information about location and they, more than any other part, can be banks, card issuers, card payment feet, adopting the processes that best future primary economic units of retailers must provide solutions that device that can be included in the the weakest link. Generation Y may acquirers. suit the needs of the day. In short, the the mid 2020’s have a very different allow consumers to engage through risk assessments of each transaction be increasingly technically savvy, but payments industry must recognise outlook on the world; they are the whatever channel they choose. They and help defeat the fraudster. We can they can still be victims of professional that it must provide the products true digital natives having embraced must be able to navigate seamlessly learn more about the customer from scams which circumvent security and services to meet the demands of the connected technology that is through the shopping process with their digital footprint than we ever measures. In addition, the parents consumers and retailers and cannot increasingly available to them. Watch the fewest interruptions to fill forms could from the offline processes that and grandparents of Generation Y continue to push services convenient them as they live their lives through or register details. The search for existed in the past. This, coupled with will be using the same technology to the payments industry on unwilling their mobile phones, see how they a platform that does this drives the developing management of risk too. There will be a need for clear and partners. interact with each other through social omni-channel programmes that through behavioural and transaction consistent messages for the end user media and importantly how they blur the distinction between online monitoring, provides the opportunity about the steps they should take to One might consider the rise of the access the services they want and the and traditional retailing. Successful for the payment industry to fulfil its part avoid being a victim of fraud. This will third party payment initiators as a goods they want to buy. It becomes customer engagement platforms are in the processing of payments in the prevent fraudsters taking advantage reaction to a perception that traditional clear that they have very different now being enhanced by connecting all background, rather than as an obvious of the confusion and misinformation players are not responding to the attitudes to commerce, demanding of the back office functions to deliver ‘out of band’ step, and is more in which often surrounds increasingly demands of the digital age. This may instant access to the things they want truly connected services. keeping with market needs. sophisticated products and processes. and getting frustrated with the legacy be a view that is supported by the regulators who now demand open systems that support commerce today. The payment becomes just one The more challenging opportunity will access to account and payment David Baker small part of this retail engagement. be to find ways to provide the stronger initiation services. Opening the doors To aid the development of a vision In recent discussions with the retail authentication processes that will be to the more agile FinTech companies David is a cards and payment expert of commerce in the future we must community it has become increasingly needed to underpin payments in the which are more used to developing having worked in the payments also look at the compelling evidence clear that payment is way down the future. We are sure that processes products and services fit for the industry for more than 30 years. of today’s successful digital service list of their priorities. For retailers, based on the entry of static passwords digital age could spell danger for the He is currently the Head of Card providers. Look to the likes of Shazam payment must be a background will be a thing of the past. The use of incumbent players with their legacy Payment Innovation at The UK Cards and Blipper with their revolutionary function that does not interrupt the dynamic processes, including the use systems and antiquated business Association, the trade body for user interfaces, in the success of the shopping experience: yes, it must offer of biometrics, will most likely become digital content providers like Netflix the same or enhanced security and processes. payment card issuers and acquirers in part of a multi-factor process to the UK. and Spotify, in the popularity of one guarantee as today, but it cannot be as confirm the customer’s identity. These For the incumbents to survive, the click payment solutions from PayPal invasive as it is today. The single click processes may need to be adaptable industry must play to their strengths. and Amazon and in new age payment services that are so popular today must based on the transaction risk, so that About the UK Cards Association There is no doubt that consumers still service providers like Stripe. All of become more prevalent. the challenge response increases in trust and assume that the payments these have grown out of developments line with the risk. The UK Cards Association promotes founded on the needs of the digital So how will the payment industry industry provides the security and co-operation between industry consumer protection that allows natives and none of whom conform adapt to this changing demand? First Rather than layer more plaster over participants in order to progress non- them to shop safely with their cards to the normal ways of doing business it must recognise its role in commerce. central legacy host systems and competitive matters of mutual interest; and other payment instruments. It is today. We cannot continue to assert that processes, a more radical overhaul informs and engages with stakeholders the payments industry that is leading ‘payments drive commerce’ and is required. If we are to deliver the to shape legal and regulatory the fight against the fraudsters and For retailers, responding to the assume that payment brands are at the payment services that meet the developments; develops industry who will continue to look for ways changing face of commerce has top of mind when consumers shop. needs of the ‘digital natives’ there best practice; safeguards the integrity PAGE 21 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 22

Diversifying payments for modern ways of working As the employment market shifts towards a larger

Author: Sian Williams, Head of National Services, Toynbee Hall number of workers reliant on multiple income flows, we will see a corresponding demand for more flexible, transparent and controllable “push” payment options.

As I move through my day, the shorter-term and ever-changing needs arising from coping with income flow, and thus they become • Control over their money. They payments, or by unexpected fees payments system is essential in helping conditions. The employment market unpredictable, irregular or “unusual” exposed to missed payments, payment need to be able to vary the timing or charges associated with me get things done. How do I travel has seen a rapid rise in unpredictable income flows within a payments system penalties and potentially adverse credit and scale of payments in line with payment systems and products. to my office in London? My electronic work patterns; official figures 1 show primarily designed for the mainstream scores. And if the customer decides to their income flow and other payment card, Oyster, allows me to that already around 1 in 40 people customer. take a lower risk option and make one- outgoings, and they need to be • Payment systems to make their tap in and out at stations with minimal in employment have a zero hours off payments, they lose access to the able to see their actual balance complex financial flows effort. I can withdraw cash fairly easily contract as their main job and this Within the payments system context, range of discounts usually only available easily and effortlessly with an manageable. They need their from the ATM network, and I can figure is likely to rise. There are around the key difference between my “single through Direct Debits. So attempting to audited trail of payments. financial tools to reduce the use my contactless payment card to 4.5 million people registered as self- salary” life and that of someone on manage their more complex income- amount of time, effort and risk buy lunch on the run when I’ve got employed, higher than at any point irregular or multiple smaller payments expenditure flow costs them both more • To feel safe from unexpected involved in managing complex no cash. Whilst I’m busy writing this over the past 40 years. And although can be captured by the concept of time and more money than for a more outgoing payments, and from any income and expenditure flows, article at my desk, somewhere far the rise in total employment since “flow”. I have a single injection of funds “mainstream” customer. subsequent penalties or increased and to increase the purchasing away an automated system is paying 2008 has been predominantly among on a known date once a month, and I costs due to missed payments as power of their available income my mortgage, utility bills, Council the self-employed, the average income know that amount will need to cover all We have seen this same scenario a result of inadequate funds. Like rather than reduce it. Tax and phone bill by Direct Debit. I from self-employment has fallen by my outgoings until the next payment. repeatedly amongst low-income all consumers, they also want to have an automated tool on my bank 22% over the same period. The data I can use any combination of payment workers and those dependent on feel safe from the risk of fraud and • Affordability: they don’t want to account which sweeps the pennies also shows that self-employment is methods and tools to regulate the flow welfare benefits. We have routinely making payments to the wrong pay disproportionately more for from each debit card transaction into likely to be both an alternative to of money out of my account. Most of found that the range of payment person. And they want quick and having to cope with more complex a savings account. And I can see all my long-term unemployment amongst all us in this situation choose to use Direct methods available for balancing easy redress when things go financial circumstances through finances at a glance through any one income ranges and a top-up option Debits for regular outgoing payments, their expenditure against their wrong. additional fees and charges or of a range of web- and phone-based for those past the formal retirement and we receive financial benefit as actual income flow often costs them higher prices. They want their tools. Admittedly, I haven’t yet found age. Consequently there will be an utility companies often discount their more money, either through missed • Flexibility within their payment payment options to increase their the easiest way to avoid bank charges ever growing population who do not prices as a reward for paying by Direct payments or higher prices. But it options, allowing them to balance purchasing power so that they can for paying electronically overseas, but have a single job with a monthly salary, Debit in return for a guaranteed, also costs them considerable time their payments against an afford more products and services seen within the context of my typical and who increasingly rely on irregular regular and reliable income stream. and effort, constantly needing to ever-changing income flow. And with their available income. day in a salaried job, the payments and unpredictable work as their main Contrast that to the money “flow” for check their account balance before they need this flexibility to system allows me to get most things source of income. the self-employed, someone receiving they can decide when and how to maximise the benefit from their • Accessibility: Consumers need to done. Our payments system works multiple smaller income payments make a payment, and then needing available funds rather than cost be able to access their payment effectively, on the whole, for the What are the implications for the across the month, or someone with to recheck to ensure that a payment them through being ineligible for options and products through the mainstream amongst our society, for payment system needs of consumers a mixture of work and state benefit, has been made successfully. And the “good customer” discounts. most convenient and comfortable those of us with regular jobs paying within this new environment of including pension, income streams. more complex the work pattern, such method to suit their personal a monthly salary, living in stable unpredictable or irregular income For them, trying to balance this as managing multiple jobs, the less • Transparency, so that they can circumstances. Individuals will accommodation, with predictable streams? We already have substantial irregular and often unpredictable time remains available for checking know their real-time balance at all have different preferences for income and outgoings and little insight from looking at another client “flow” of income against the same balances, particularly for those who are times, thus enabling them to make digital versus human interaction, change in our life. group with whom Toynbee Hall have set of obligations to pay for housing, less comfortable with digital methods. complex decisions about the so providing both options will be worked with for years – those on very utilities, travel and food becomes much Our work – both supporting such timing and value of payments in essential. For those who still find But over the next ten years my low incomes, including from welfare more complicated. Committing to consumers and conducting research 1 line with their irregular income cash useful, they will want “mainstream” life will become benefit payments. Our work with the fixed payments, such as Direct Debits, into their experiences – has highlighted flow. continued access to cash without increasingly unusual. The employment financially excluded, people living start to become high-risk, as the “pull” nine key criteria for meeting their incurring additional time, travel or and housing markets are already below the poverty line and people nature of a Direct Debit means that the payment needs. Consumers • Predictability, so that they are not financial costs. And as people’s shifting away from the kind of experiencing financial difficulties have customer cannot change the amount managing highly complex income and caught out by unexpected life circumstances change due to permanence I know as normal, towards taught us much about the payment or date to accommodate a shift in their expenditure flows need: changes in the timing or value of the short-term nature of the

1 ONS Labour Force Survey, 2014 1 Payments Council, The electronic payment needs of people on low incomes (Toynbee Hall and Policis) PAGE 23 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 24

Consumers want their financial products to meet Towards world class: the consumer view of current accounts their needs in a way that feels intuitive, simple and payments and effective. The following excerpts are taken from a recent paper The full report can be found at: published by Tooley Street Research and commissioned http://www.tooleystreetresearch.co.uk/wp-content/ by Barclays. The paper covers three key areas: innovation uploads/2015/06/Towards-world-class-report-by-Tooley- in payments, peoples’ level of engagement with their Street-Research-for-Barclays-FINAL-web-version.pdf current accounts and awareness of switching options; and finally account number portability. For the purpose of this Towards World Class: The Consumer View of Current collection of articles, the excerpts are taken from Tooley Accounts and Payments Street Research’s focus on payments innovation, as they A Report by Tooley Street Research Ltd, for Barclays plc relate to the future of the payment system; and future June 2015 innovation that those surveyed would most like to see.

employment and housing markets and individuality within people’s lives providers, is a commissioner on the Introduction & methodology authorise current account transactions technologies to help individuals to or other life factors such as illness , moving away from “one size fits all” Financial Inclusion Commission, and by speaking on the phone to your budget more effectively. or disability, they will want solutions towards a greater emphasis is a member of advisory groups for The UK payments system has own provider, now people use smart payment options which on giving the customer visibility, the LINK Scheme, the British Bankers experienced considerable change phones to send payments through new Against this background, Tooley effortlessly adapt to their control and choice, and finding ways to Association, Department for Work in recent years, and will continue front-end systems without appearing Street Research was commissioned by changing needs. help consumers do more, more easily and Pensions, HM Treasury and the to do so. Advances in technology to interact with their bank at all. Barclays to understand more about with their money. Big Lottery. Sian is also a member of have transformed the way in which what consumers wanted to see from • And, finally, simplicity: in an ever the new Payment Systems Regulator consumers undertake everyday Meanwhile, regulators are placing their current accounts and payments complex work and home Author biography Panel, and a trustee for the Money transactions while actions by policy greater emphasis on the need to system in future. Our aim is to help environment, consumers want Advice Trust. Prior to joining Toynbee makers, be it government, regulators promote competition and innovation align the investment decisions of firms their financial products to meet Sian Williams is Head of National Hall, Sian had a 15 year career with or competition authorities - both in by simplifying the switching process; and the priorities of policy-makers their needs in a way which feels Services at Toynbee Hall. Sian has been the Foreign and Commonwealth the UK and at the EU level – are also are considering the rise of paid-for with what is viewed by the public as intuitive, simple and effective. responsible for Toynbee Hall’s financial Office, during which she reported affecting the payments landscape. accounts; and there is a desire to valuable.” inclusion programmes since October from Hong Kong on the 1997-8 Asian maximise financial inclusion which Awareness of this mismatch between 2009, including Transact (the UK’s Financial Crisis and from Beijing on the Whereas twenty years ago it was is exposing the potential of newer payment needs and available national forum for financial inclusion), development of the Chinese economy seen as innovative to be able to systems has so far remained low as financial inclusion training, research, from a state-planned to market-led the percentage of the population evaluation and strategic consultancy. model. coping with such complex financial flows has been relatively small, mostly Taking a whole systems approach About Toynbee Hall limited to those on welfare payments to financial well-being, Sian’s and on very low incomes. But as the programmes support organisations Toynbee Hall is a community employment market shifts towards a to develop policies and practice organisation that pioneers ways to larger number of workers reliant on which make it easier for people to reduce poverty and disadvantage. multiple income flows, we will see make the most of their money. Within Based in the East End of London, a corresponding demand for more Tower Hamlets, she developed and we give some of the country’s most flexible, transparent and controllable co-led the Financially Inclusive Tower deprived communities a voice, “push” payment options which Figure 1: Ranking of potential future innovations from Hamlets programme, which adopts this providing access to free advice and give the customer instant control the quantitative poll environmental approach within one of support services and working with over their payments and serve to the UK’s most deprived communities, them to tackle social injustice. We maximise the purchasing power of and oversees the development of have been a catalyst for social reform Innovation Proportion of people who named it in consumers’ irregular incomes. This programmes such as the Community in the UK for 130 years, and continue top 3 most useful changes will make coping with the financial Money Mentors programme. Sian’s to bring together communities, flow implications of the complex Having all payments clear immediately, and shown in my account straight away 51% team have also created a ground- organisations and policy makers to employment market easier, more breaking needs and impact digital create new ways to help those who Knowing I’ll get the money back if I accidentally send it to the wrong account 38% manageable and significantly more measurement tool for financial health, find themselves in poverty today. secure. So it’s exciting to see Payments Being able to securely shop online without having to enter my credit card 27% the MAP Tool, to fill the gaps around We are a leader in financial inclusion UK prioritising this issue within its details knowing “what works” in financial and literacy policy and practice, and World Class Payments programme. health interventions. provide consultancy, research and Having more control and visibility over when direct debits are taken out of my 23% By 2025, then, the payments system frontline delivery services and products account needs to have become much more Sian provides advice on financial to a wide range of government, responsive to the growing complexity Not having to change account number and sort code when switching banks 22% inclusion to financial services commercial and third sector agencies. PAGE 25 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 26

useful from the longer list. The most next most attractive was “being able to Future innovations Having more control and visibility over • This was a popular idea as it addresses a problem area for some attractive possible future innovation securely shop online without having to when direct debits are taken out of my consumers in managing the timings of incoming and outgoing payments. In a…follow up survey, we asked in the payments system out of those enter my credit card details” followed account Some knew that the payee rather than the bank was responsible for people to choose their top three from tested was “having all payments clear by “having more control and visibility setting the timing of direct debits. a list of possible innovations. We immediately and shown in my account over when direct debits are taken out asked them to prioritise between the straightaway” followed by “knowing of my account” and “not having to Having all payments clear immediately • This was a very popular idea as it addresses a problem area of not always options by selecting a maximum of I’ll get the money back if I accidentally change account number and sort code and shown in my balance straight away being able to keep on top of latest expenditure or to make/receive three that they would find the most send it to the wrong account”. The when switching banks”. payments as quickly as is required.

• Some providers were reported already to be moving close to this by paying out more quickly and by showing pending payments. Receiving offers, deals and money- • There was some in-principle interest particularly in the deals side of this saving tips from my bank based on my idea, as long as what is offered is relevant and attractive to the consumer. spending patterns • However, there was an aversion to intrusive tele-marketing and also to generic junk mail. Figure 2: Summary focus group responses to each potential innovation • The appeal of this proposition would therefore be contingent on how Being able to shop securely online • This was not seen as particularly different to what is possible now with tailored the offers are and what channels are used to reach consumers. without having to enter my credit card Paypal. Being able to talk securely face-to- • There was seen to be no particular advantage to ‘seeing a real person’ details face with your bank using your mobile over speaking to someone by phone or interacting with a virtual customer • There were some concerns about the security of the password if it is phone, computer or tablet – like service agent online. available for all online purchases. Facetime or Skype • As such, this was seen as another gimmick. • Some also report having problems remembering passwords Being able to send payments to a • Respondents were very dubious about the security of paying via email or person securely through online banking social networking site. by clicking on their photo or email Overall, the ideas presented were What consumers valued most about the old days they sent you this cheque address to know it’s them • It was not seen much more innovative than apps that already exist to appealing as they were felt to be an their current account is its smooth book and you’d forget and were late, enable peer-to-peer payment (like Ping It). improvement on what is currently running and absence of problems. and then you had all these letters. But available and to represent a tangible now everything automatically goes via benefit for consumers day-to-day. “As long as your money’s safe you’re direct debit which is a greater help and Knowing I’ll get my money back if • This was a ‘no brainer’ in terms of providing a consumer benefit and not really bothered…A current account saves lots of time. I couldn’t live without I accidentally send it to the wrong reassurance. The clear top two winners were ‘Having sounds like we just perhaps take it a bank account.” (London, C2D, 50+) account all payments clear immediately and for granted and we’re not bothered • However, there were some questions of how likely banks would be to shown in my balance straightaway’ with what they’re doing as long as “It makes life easier for me… I like to provide this and whether it could be open to abuse. and ‘Having more control and visibility everything’s working, everything’s know that my wages have gone in over when direct debts are taken going in and out.” (Sheffield, C2D, and my bills are paid. I set my direct Being able to pay in a shop by just using • This was not perceived to be particularly different to current contactless out of my account’. Given the small 30-49) debits up for everything and it’s my fingerprint or tapping a button on banking. sample size of qualitative research, like something less to worry about.” my mobile phone “You just get paid into it and then the • There were concerns about security related to the mobile button option this is consistent with the results of the (Sheffield, C2D, 30-49) majority of it gets spent unless you’re in particular. omnibus polling. putting it into a separate savings “I went to Scarborough the other • In addition, some people were worried about the reliability of the ‘Being able to take a photo of cheques account… I don’t have a lot to do with weekend and used my card, and within fingerprint option and what they would do if their print wasn’t recognised to pay them in’ was also attractive. my bank, that’s why they’re ok. I do it 20 minutes the bank phoned me to say if they didn’t have any other form of payment with them (this happens In addition, ‘knowing I’ll get the online and I don’t really speak to them ‘your card’s been used in Scarborough, from time-to-time with fingerprint recognition in other areas e.g. on money back if I accidentally send it ever.” (Leicester, C2D, 18-29) is that you?’” (Leicester, C2D, 18-29) mobile phones). to the wrong account’ was of interest, although there was a credibility gap “There’s nothing about it which excites Technologies such as online and • Overall, it was seen as a bit of a gimmick. among some people, particularly you. Money goes in and comes out mobile banking were highly used if they had personal experience of and that’s it. I mean it doesn’t present and valued across all ages and socio- Not having to change account number • The current 7 day time frame was not felt to be a problem, so making it lengthy delays in receiving a fraud negative feelings in the fact that I economic groups as they made it and sort code when switching banks faster was not regarded as being particularly important. refund. haven’t had any issues with my bank quicker and easier for consumers to like for example cash machines haven’t monitor and manage their accounts • Some felt that speeding things up could introduce more risk to the Experiences and perceptions of crashed like in the case of Natwest and (e.g. checking balances, making reliability of the process. it does what it needs to do.” (Leicester, payments, setting up and modifying Being able to compare the costs and • This was not seen as new as there are several existing websites which current accounts ABC1, 30-49) direct debits etc.). Some also used benefits of bank accounts using a enable comparisons to be made. automated facilities where available in comparison website Responses from the groups indicated Two specific features are perceived to branches and ATMs for paying in cash • That said, some felt that current websites are more focused on other that the consumer relationship with contribute to the effective running of and cheques. banking services (credit cards, mortgages, savings and ISAs) than current current accounts is predominantly current accounts: the convenience of accounts. functional. Respondents said that they automated payments and security of “Technology is fantastic, you’re able to did not give their current account antifraud protection. save lots of time. I do everything on the Being able to take a photo of cheques • This was regarded as a very useful innovation that addresses what is a much day-to-day consideration. When internet and only go into a branch if I to pay them in (using my mobile phone), current inconvenience for customers in a clever yet straightforward way. prompted, almost all reported being “All these direct debits you have to pay have to.” (London, C2D, 50+) rather than having to deposit them at an satisfied with the service they received; for your phone, water, this and that. ATM or in branch the account meets their expectations. It’s all paid without hassle. Because in PAGE 27 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 28

The most attractive possible future innovation in the Back to the infrastructure (for the future) payments system out of those tested was ‘having Author: Chris Dunne, Market Development Director, VocaLink all payments clear immediately and shown in my account straightaway’.

“I’ve got this balance app for my phone appreciation for the technology that [In summary] customers would The way we make and receive Robert Zemeckis, the director, nailed telephone or online banking. There which is quite useful so I check it quite is now available to help them manage welcome future innovations in the payments in the UK will change it with wall mounted televisions, video were mobile banking applications but a lot, keep my eye on it.” (London, their accounts. They are attracted by payments service that give them more significantly over the next few years conferencing and handheld tablets. a combination of clunky apps, small ABC1, 18-29) potential future innovations that would control and flexibility on how payments and by 2025, it is likely that some of He also came remarkably close with phones and poor signals meant that continue this trend, for example real- are taken from their accounts, and on the predictions for the payment system his prediction that people would pay it was almost more trouble than it was “The reason I’m happy is they’ve got time clearing of all payments, secure how to correct errors if they are made.” that we are making today will have for a Pepsi, a donation to a clock tower worth. However the proliferation of automatic machines there so you don’t ways of paying online without having become part of our everyday life. restoration fund or a game on an old smart phones and a vast improvement have to go and wait in the queue if to remember their credit card details About Tooley Street Research 80’s arcade machine (Wild Gunman, if in the quality and functionality of you’re going to put some money in and having more control and visibility With the fast pace of technological you were wondering…) with a thumb banking apps has meant that the your account. You just put it in the over when direct debits are taken from Tooley Street Research Ltd is an change, innovations are likely to be print rather than hard currency. This potential for Faster Payments is finally machine and they even give you the their account… independent research company that superseded as quickly as they enter doesn’t seem too far off the trajectory being opened up. receipt there and then.” (London, C2D, specialises in providing content for the marketplace. A nod is due here to we are currently on, although – as with 50+) …In general people have confidence policy-related thought leadership the short-lived existence of MiniDiscs flying cars – we might need a few more A culture of 24/7 communication, that their current accounts work for programmes. They use economic in the early 2000s, superseded by MP3 years to get there. brought about through improved Conclusions them. They don’t spend much time and statistical analysis, qualitative music files, the basis for iTunes and mobile and computing technology, thinking about whether they need to techniques, large scale literature other music downloads that we all now Of course, making concrete has fundamentally changed customers’ [In summary,] a world class payments take action to alter their arrangements reviews and bespoke analysis to scope enjoy. From a payments perspective, predictions about future innovation expectations of service providers and system in the eyes of UK consumers and neither do they worry on a day-to- out independent, rigorous content the Mondex card, conceived in the UK is often a fool’s errand, as viewers of is creating demand for immediacy of is one where (a) they have maximum day basis about whether payments will designed to engage a wide variety of in the mid-1990s and touted as the BBC’s Tomorrow’s World programme service, an immediacy of payment. control and transparency over be lost… high-level stakeholders. ‘cash killer’ was itself killed off after its will testify. If floating bicycles and transactions on their current account ill-fated trial in Swindon in 1996. Its robot snooker players were going to Over the next ten years we will in real time and (b) the whole system … More broadly, consumers feel primary existential challenge was that form a central part of our lives, they likely see an increase in the use of works smoothly without them having to disempowered if they do experience it wasn’t widely accepted; you could probably would have done so by now. Faster Payments and an increase in worry about it. If errors are made they errors on their account, for example use it in one establishment, but not However, if we had access to a Flux innovations which build on this existing can be corrected easily, including by if they themselves mistakenly send the next. The trial fizzled out and the Capacitor, and could jump ten years system. These new services will the customer, without stress or concern. payments to the wrong place or if they challenges of ‘closed loop’ systems into the future, what sort of payments accelerate the move away from cash are a victim of a fraudulent transaction. have persisted ever since. innovation might at least be possible, and cheques and start to challenge the Generally speaking, our research This was expressed by strong support given current trends and change? dominance of debit cards when we pay suggests people are satisfied with for a theoretical future option to To continue the film theme of some of online, on our mobiles and in store. the service they get from their current have the ability to reverse incorrect the articles in this collection, take Back It’s all about real time and accounts. They also have a positive payments. to the Future Part 2, released in 1989 In the longer term it is likely that more but set 26 years in the future in 2015. certainty. And mobile. and more people and organisations The projections made in the film – from will take advantage of the fact that an self-tying laces to the mass use of flying The appeal of Faster Payments today immediate payment system is readily cars and an inexplicable preference for is obvious. I can pay you in a matter of available. Larger businesses will be wearing two ties rather than one – were seconds. It’s as final as me putting cash able to make supplier payments, tongue in cheek and many were never in your pocket and walking away. In particularly as the value limit on intended to be a serious prediction of fact, it might actually be better as there transactions rises past the current level the future. Yet, a number of predictions is no need for a face to face interaction. of £100,000. And for small businesses, have come to fruition and surprisingly paying staff salaries will be increasingly some of them include payments. Until relatively recently, if I wanted to easy, as a payment can be made at the send a faster payment I had to use end of a week to reflect the exact hours PAGE 29 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 30

worked with the employee receiving a number of functions ranging from Digital currencies – thrive or fade technologies underpinning many with the digitisation of the role of the about today; and an enviable platform their salary immediately. reducing the ‘faff’ of making a payment digital currencies could be adapted State. Ten years from now, it is likely upon which future ways of ‘moving either in store or online, to helping away? to better serve the existing payment that the GDS’ work and the pressure money’ can be built. HM Government could also take people manage their expenditure or system and its users, rather than trying of citizens’ expectations, will mean Arguably digital currencies – and greater advantage of an immediate improve their saving habits. to replace it just because it’s new and both the citizen and the State will have bitcoin in particular – as a means to pay Author biography payments infrastructure to deliver a shiny. This technology, and the thinking benefitted from a true digitisation of for goods and services are regarded key facet of their policy to reduce late These third parties could also act as a around it, is in its infancy and it would transactions in both directions. by many as a passing fad and unlikely Chris Dunne is responsible for payments and the impact these have data aggregation service, ‘interpreting’ be a brave commentator, or confident to become a mainstream form of thought leadership and developing on SMEs. the data held about you by your bank, film director, that would hazard any payment because of their volatility, ‘Where we’re going, we don’t new markets for the company. He and automatically recommending the sort of predictions on this one. is also responsible for managing Faster Payments is essentially the their lack of oversight and their best financial services and products need roads…’ the executive relationships with the foundation that much of the future complexity. (such as loans or current accounts) Digitising ‘The State’ payments industry, Bank of England innovation in the payments system based on your own personal spending The UK has one of the very few The Bank of England is examining the and Government. Chris is also a will be built upon, and will help to and saving habits. national real-time 24x7 payments possibility of ‘digitising’ part of Sterling The UK’s payments system plays a member of the Payment Systems shape broader industries as immediate system in the world. It could (of course) in the future, in order to reduce some significant role in keeping the wheels Regulator Panel. He joined the payments are increasingly expected There are obvious implications here be better exploited, but very few of the limitations of a national currency, of civil society turning. A significant company in 2004 and has played a key by all individuals and organisations. for maintaining customer trust, and countries currently have this starting and there may be some merit to this. proportion of the interaction between role in the successful implementation As such one of the priorities of the this is something that the banking point from which they can deliver the For instance, without having to make citizen and state involves a transaction of the Bacs technology renewal recently established Payment Systems and payments industry must get future innovation and benefits for all substantial changes to the existing real- of some sort. Unsurprisingly, HM programme, the delivery of Faster Regulator will be to ensure that this right if they are to be successful, and users. In most cases they are having to time central infrastructures (such as Government is the single largest user Payments and the new Current and other payment systems are beneficial to consumers. invest in establishing this foundation Faster Payments and CHAPS), a digital of the UK’s payments system, including Account Switching Service. He has even more accessible to challenger first, before they can even think about currency could be programmed to fulfil payments to the DVLA, through to held several senior roles as Customer banks, so that they can offer you, the With our research showing that 83% building on top of it. a set of transactions in sequence, such HMRC, with virtually all state benefits Services Director, Strategy Director customer, a greater choice of service. of consumers in the UK checking their balance before making a significant as the purchase of a property involving being paid electronically through This is a critical point. We are more and Payment Services Director before a chain of transactions e.g. payment VocaLink’s infrastructure. likely to achieve the aspirational taking on his current role. Ease of use and greater purchase, and over half interested in an app that would allow them to from the purchaser to a solicitor (where payments innovation set out by Clearly, an efficient and reliable functionality for users quickly check their balance and help it is held in escrow until relevant contributors to this paper, and that payments system is critical to ensuring them budget more easily, there is documentation is signed) and then will in future be set out by bodies that money reaches its destination We will always need to pay for things a market eager for innovation. It is onto the vendor. Additionally a digital such as the Payment Strategy Forum on time. As citizens’ expectations of and it is highly unlikely over the next likely that in ten years’ time, making currency would deliver greater user (PSF), if we do so by building on the immediacy of service are driven by 10 years that making a payment – informed decisions on expenditure control over a payment if, as bitcoin infrastructure that is already in place. their interactions in other areas of life, regardless of how we do so – will will become even easier as portable is, it is based on a ‘push payment’ VocaLink, which provides significant so will their expectations rise in their become anything beyond a means communication devices (from model and as such would not involve elements of this world-leading dealings with government. to an end, rather than a pleasure in smartphones, to watches, glasses, etc.) giving customers’ data to businesses, infrastructure is already working to itself. So where possible, the likelihood reducing the likelihood of fraud. Due fulfil the future requirements of those help us budget more effectively, giving When the Department for Work and is that ‘paying’ will become more to the international nature of most that rely on the UK’s payments system, us more options for ring-fencing funds Pensions moved from paying benefits integrated into our everyday lives. i.e. (but not all) digital currencies, there through innovation such as our Payport within our bank accounts in seconds by cheque to electronic payments when we do not want to have to initiate would be no exchange costs which access solution for challenger banks and even automatically helping us seek straight into recipients’ bank accounts, a payment, we won’t have to, it will may be appealing to individuals and and FinTech innovators; and our Zapp out better ‘deals’. it was essentially a case of taking have already been programmed to businesses that undertake significant technology that will allow all with a advantage of an infrastructure that happen automatically. Early examples Another area that would warrant cross-border activity. smart phone to pay directly from their already existed. The government itself of this are already in existence today, further exploration would be making bank account to merchants, retailers, saw huge savings, with the cost of a such as automatic top-ups of Oyster it easier for those who have made Yet there are risks - quite a few of utility companies and many others. transaction falling from a pound, to cards for travel around London’s a payment to the wrong person or them actually, including potentially just a few pence. Significantly some transport network. Contactless has organisation – currently nearly 1 in 4 contributing to monetary and The 40th President of the United of the most vulnerable in society gathered significant momentum in people in the UK rising to nearly 1 financial instability. However the most States, Ronald Reagan, referred to benefitted and did not have to rely recent times and this will of course in 3 for the under 45 age group – to significant from the perspective of an the original ‘Back to the Future’ film in first upon the UK’s postal service, and facilitate greater take up of wearable recoup their funds as quickly and individual or a business is the sheer his 1986 State of the Union address, then the cheque clearing cycle for payment technology. One might easily. Of those who had sent money to lack of oversight and therefore means capturing the positivity of a new payments that would support them argue, however, that the difference the wrong destination, approximately of redress. The distributed ledger presidency and stating that “where and their dependents. However, a between waving a watch and waving three quarters eventually got their cash technology that underpins most digital we’re going, we don’t need roads”. significant proportion of transactions a card, in terms of ease of use for a back whilst the rest simply did not see currencies means that it is virtually Similarly with the UK’s payments between citizen and state (both ways) consumer, is negligible. their money again. impossible for a regulator to provide system we have much to be positive some sort of protection for those that relies upon cheques and cash. This is The really interesting developments In all likelihood, there will be an ‘app use a digital currency. Transactions are both inefficient from the perspective are likely to stem from forthcoming for that’ for many of these issues essentially unmonitored which is of of a government that is applying We are more likely to regulation, such as the second sooner than 2025, but as has been course good for criminal activity, but further pressures across the public achieve the aspirational sector for efficiency savings, but also Payment Services Directive (PSD2), the case with the explosion of useful not so good if you are the victim of it. payments innovation set out which will improve the customer apps across all areas of our lives on for the citizens and small businesses experience through essentially our smart phones, once you have the It will be interesting to see if and that will be increasingly benefitting by contributors to this paper, opening the door for third parties platform in place as it largely is now, how the Bank of England decides from immediacy in their non-state and that will in the future be to implement a digital currency in transactions. to sit in between the bank and the necessity will then drive invention. set out by bodies such as the customer making a payment. Given the future; and if it will issue it itself, The Government Digital Service the proliferation of smart phones and will leave it to the government or PSF, if we do so by building has recognised the potential for the other portable consumer tech, we are effectively ‘outsource’ it to a third payments system to provide value for on the infrastructure that is likely to see ever-more advanced and party. However, the more interesting the delivery of public services, in line user-friendly apps, that could fulfil question should be how the already in place. PAGE 31 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 32

Part 3 What next then?

It is hoped that this paper will help to catalyse debate, not The FinTech evolution… Regulatory and legislative requirements driving Identifying and mapping end-user needs only on what the future for the UK payments system might mean for consumers ten years from now, but also on what One area that is already generating more consumer choice change… Alongside the PSR, the newly created Payment Strategy is should mean. We have some flexibility now, to shape the in banking and payments is the growth of the financial Forum (PSF) has been established to set a future strategy for The Payment System Regulator (PSR), which launched in way that that we pay and get paid in ten years’ time, if all technology – or FinTech – sector. The concept of technology the payments industry, based on the needs of those using April 2015, intends to open up access to payment systems parties from end users to banks; technology providers to underpinning the financial services industry is not new. the payment system: a difficult task given that both needs, and also drive greater innovation to benefit consumers, business collaborate to build a shared vision that delivers However, the concept of technology firms competing with and the capabilities to deliver against these needs are businesses and other users. Alongside this, the Financial universal benefits. There are, however, a number of factors established banks to provide specific ‘banking’ services constantly evolving. The PSF’s work over the next couple of Conduct Authority (FCA) has established its own Innovation that will shape how the payments system evolves in the directly to consumers, at lower cost and in more innovative years will certainly drive more immediate change, and it will Hub – Project Innovate – to help (mostly) start-up technology shorter term: ways than many banks are able to is a more recent market be important that it takes on board existing work that has companies overcome regulatory hurdles and enter the dynamic. It is a growing ‘movement’ that has the potential to been undertaken to address this difficult issue. Foremost banking, and payments, market. It is expected that both deliver greater value and choice to consumers, increasing amongst this is the World Class Payments project, initiated these initiatives will drive short term change in the delivery the options for individuals and businesses to pick and by PaymentsUK which will set out where future innovation of benefits to users of the payments system. choose the services that they want, which at present they will map against the future needs of individuals, businesses, may receive from a single bank. And the EU’s second Payments Services Directive (PSD2) charities and other organisations. will provide a platform for e-commerce to thrive through This FinTech movement is supported by HM Government, allowing third party providers to initiate payments from which has an ambition to make London the global FinTech consumers’ accounts. In parallel, HM Treasury’s Open Data capital, complementing the City’s current position in the and API initiative will require UK banks to provide account global financial system. It also offers significant future information through an Application Programming Interface potential for the UK economy with FinTech already (API) to account aggregators and similar service providers. contributing £20 billion per year to the UK’s GDP and This offers huge potential for the development of services directly employing 135,000 people.1 A significant that are driven by the data held by banks about their proportion of this innovation will be in payments and as customers, or that can improve the payments experience such, as the infrastructure that this will be built on top of is for end-users. Banks, FinTech providers and established already widely regarded as world class (it’s all about real e-commerce companies are already evaluating the services time..) we are in the better position than most to maximise they can offer on the back of PSD2. the benefit that FinTech can deliver.

1 Innovate Finance Manifesto: UK 2020 PAGE 33 MOVING MONEY 2025 MOVING MONEY 2025 PAGE 34

Conclusions and summary

The payments system forms the beating heart of the UK economy, facilitating funds transfers from one account to another. But the real-time infrastructure that powers the payments system is also a platform for innovation and an engine of economic growth. We must seize the opportunity to build on our unique world-class infrastructure – but this requires discussion and collaboration.

Over the past four decades, the UK The predictions made in these articles To find out more please contact: has developed an advanced payments affect the lives of everyone. No doubt system, one of the very few real- some will materialise while others will Ben Wilson time 24x7 payments systems in the not. The inescapable truth is that ten Head of Policy & Public Affairs, world. As well as facilitating efficient years is a long time in payments history VocaLink transfers, this provides a bedrock and change is inevitable. However, for future innovation. In this respect, what form this evolution will take and [email protected] the UK currently has a significant to what degree it will benefit those competitive advantage over most other that rely on the payments system, Rebecca Garfield economies. The big challenge for the will depend upon two key factors. Policy & Public Affairs Manager, UK is to decide what to do next to Firstly we must acknowledge that the VocaLink remain at the forefront of innovation. infrastructure currently in place is a key Success requires careful planning and platform for future innovation, whatever [email protected] collaboration to ensure that benefits are direction it may take. As other countries maximised and available to all parties. are realising, this infrastructure must be allowed to develop as such and provide VocaLink will play an important role in the foundation for a more digital facilitating change and collaboration. economy and society. As the provider of much of the UK payments infrastructure, we occupy Secondly, and as importantly, we can a unique position at the heart of all play a part in shaping the future the UK economy. We also have of UK payments. We must all ensure relationships with all the key players that change is directed by what the in UK payments, which empowers requirements of different corners of our us to inspire collaboration and drive economy and society, if the full benefit progress. Moving Money 2025 brings of change is to be enjoyed universally. together several articles from a range of important contributors. It offers a As such we hope you find ‘Moving window into the future; a glimpse of Money 2025’ interesting, informative what might happen, when and why. and that it encourages you to join this important discussion. MOVING MONEY 2025 PAGE 35

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