It’s no secret that the impact of the coronavirus pandemic and countrywide lockdown has accelerated the move to digital payments and e-commerce. The use of cash in the UK has been declining for some time now, but with many consumers increasingly looking to reduce their cash usage in favour of contactless solutions, highstreet businesses will need to adapt.
Burgeoning digital technologies and changing consumer behaviour provide a ripe environment for innovation. So how will the payments landscape change, how will businesses adapt to a post-coronavirus world and what new experiences can we expect?
What is the UK payments landscape?
The UK has long been at the forefront of payments innovation. For example, the Bacs system (Bankers automated clearing service) was introduced back in the 1960s, as an electronic system used to make bank to bank transfers. It enabled the UK’s direct debits and credits, and it gave thousands of businesses a way to save valuable time and money, and consumers the ability to better manage their finances.
More recently, the rapid rise of fintech innovation has a lot to do with the Faster Payments scheme, which helped to usher in innovative solutions for point of sale technology, peer-to-peer lending, e-commerce transactions and current accounts. Faster Payments does exactly what it says on the tin, it makes payments incredibly fast, allowing money to move between bank accounts in seconds rather than days. Instant, 24/7 payments was a revolutionary idea in 2008, and it continues to power the revolution today.
Take Starling’s current account as an example. Because Starling is connected to the Faster Payments scheme, its personal and business customers can send and receive money instantly, with the balance on the app immediately updating for every payment made or received. This makes money management so much easier, knowing exactly what you have in your account at any given time. And because of its access to Faster Payments, Starling is also able to offer really innovative B2B (business-to-business) payment services to help others in the wider financial ecosystem deliver these real-time experiences.
Of course, for the everyday consumer or business, these payment schemes are invisible. They work behind the scenes, powering payments. Banks like Starling, but also traditional highstreet banks and clearing banks, card networks (Visa, Mastercard), payment gateways (Paypal, Stripe), as well as acquirers, issuers, processors - all form part of a wider system. So when you do your weekly shop or a business pays for supplies, there is really a huge amount going on behind the scenes that you don’t see. In fact, the amount of information transferred in just a few seconds for card payments to work is pretty incredible.
Why is this important right now?
Innovation will continue to make these behind the scenes processes even faster and more resilient. Initiatives include Faster Payment optimisation, ISO20022 (a new messaging standard for payments in the UK) and Confirmation of Payee. But what is likely to change the most as a response to coronavirus is how we pay for things.
Contactless card payments take on a new meaning in a post-coronavirus world. According to recent research by Mastercard, 82% of those surveyed view contactless as the cleaner way to pay, and 74% said they will continue to use the option once the pandemic is over. At Starling, we raised the contactless spending limit to £45 and you can now spend up to £225 (up from £135) before having to enter your PIN.
The number of people using mobile payments in the UK is predicted to grow from around five million in 2020 to about 6.2 million by 2023. As more focus is placed on the best way to maximise safety for businesses and consumers, we’re set to see a significant reduction in payments requiring person-to-person contact.
It seems probable that there will be a decline in the handling of money or even touching common points of contact such as terminals or screens. We will likely see digital wallet usage accelerate exponentially and the smart device will become a much more common payment vehicle. Businesses will need to innovate to accommodate.
Taking payments to the next level
To power this revolution, we will see the emergence of new innovative payment technology solutions, and exciting new features. These will push the boundaries of contactless technologies like Bluetooth, Wifi, Near Field Communication (NFC) and perhaps even Ultrasound - which most smartphones can process. What these technologies allow is the ability to make, send and receive payments instantly and contactlessly. Starling’s ‘Nearby Payments’ feature, powered by Google Nearby, is an example.
Such technologies offer the possibility of ‘ultra contactless’ experiences. Customers would not even need to approach a payment terminal. Imagine being in a clothes shop, picking the outfit you want and paying for it in the dressing room, then heading out on your way (with a digital receipt of course!).
There is also innovation happening to remove the need for payment devices altogether, at least for the consumer. This may seem far-fetched, but with companies already experimenting with areas such as VeinID, which uses a person’s blood network as a payment fingerprint, and embedded tech - think microchips in your arm, it will probably not be long before the human body becomes a very normal way to pay.
Payments innovation is also coming from Big Tech for example Apple and Google. Google Pay has recently added support for 25 new banks across the world. At Starling you can set up your Google Pay as soon as you’ve downloaded the app, so you can start spending before the card even arrives.
In the States, Facebook have recently implemented a Facebook Pay option at checkout for Instagram Shop. The payments community should only expect more from this tech behemoth.
These new methods of ‘ultra-contactless’ payments offer revolutionary and even futuristic solutions to the in-store or highstreet experience, but the coronavirus situation has also shone a spotlight on traditional brick and mortar businesses going online for the first time to sell their goods and services - whether that’s through e-commerce, digital loyalty cards or buy-now collect later options.
Fintech is critical here to help businesses transform their operations, for example something as simple as taking card payments or online payments with an easy to set up point of sale system. Fintech democratises access to financial services and helps businesses adapt.
Banks also play a key role here, for example Starling’s Banking Services is the banking layer behind many of these fintechs, such as our customer SumUp. With SumUp having access to key UK payments schemes, they can make sure the merchants using their point of sale platform get paid faster.
This is often termed ‘Payments-as-a-service’ - if you remember the Faster Payments scheme mentioned earlier, as a direct member, Starling can pass on the access to other fintech providers. While there is no doubt payment methods will change, businesses across the ecosystem will still need solid and innovative banking solutions - something Starling understands.
Supermarkets and stores
So what could the future look like? Let’s take as our example the supermarket or store. These everyday essential outlets have become a source of salvation for many during the crisis but there are also issues such as bottlenecks and queues. The AmazonGo store concept could well prove one solution.
The revolutionary store concept employs a ‘Just Walk Out’ experience, which works alongside an app - and a host of other clever tech - so that once you enter an AmazonGo store, you can take the products you want and just walk out again, without going to checkout. It works by linking the customer’s Amazon account via an app and the same types of technologies found in self-driving cars, such as computer vision, sensor fusion and deep learning.
This technology can detect when products are taken or returned to the shelves and keeps track of them in your virtual cart on the app. When you leave the store with your goods your account is charged and you are sent a receipt. Say goodbye to checkouts and queues at supermarkets! Only a handful of these stores are operational and in test mode, mostly in the US, with a London store predicted for 2020. We can certainly expect to see more innovation from the world’s biggest retailer in the coming years.
While London is very much on track to provide completely contactless travel, the rest of the UK still relies partly on other means. In the future, we are likely to see more contactless and mobile-led options on buses and trains up and down the country.
On an international level, we are already seeing the potential of digital identity for travel. Using the Known Traveller Digital Identity initiative, or KTDI, consortium partners can access verifiable claims of a traveller’s identity data so they can assess if someone is really who they say they are.
While not yet directly related to payments, this idea is built on use cases like Estonia, whose digital ID system is world-leading. All Estonians can provide digital signatures using their ID-card, Mobile-ID or Smart-ID, so they can safely identify themselves and use services including transport, financial services and much more.
To bring it squarely back to the world of banking, the one thing we can be sure of, is that the future of payments will bring innovation and change. Whatever those changes bring, at Starling we will always be here to help put you in control of your money.