UK PLC is in desperate need of a new money transmission system that does a better job of handling the plethora of digital payment methods that are in use today.
Speaking at a Westminster eForum on the future of digital payments last week, Mark Hale, head of payments at KPMG, said that many of the current money transmission systems were designed in the 19th century, and are simply not suited to the digital payments era.
They revolve around the transmission of cash, which not only creates problems for government – in terms of invisible economic activity, money laundering and constrained velocity – but also for businesses, because cash provides limited transactional value-add and constrains innovation.
Hale said that, in order to encourage people to move away from cash, the payments industry must not only reduce the complexity of existing systems, but also “delight” its customers by delivering new solutions that fit the way they live at home, at work and when they are on the move.
This requires the development of more innovative and relevant payment solutions that will enable new paradigms such as contactless payments, peer-to-peer lending, crowdfunding, micropayments – all of which are important elements of this emerging economy.
“I don't think the solution lies in simply optimising existing instruments involving existing infrastructures and repackaging today's business models,” said Hale.
“It also involves truly innovating the way payments are conducted with new entrants, disruptive ideas facilitated and fostered, and much greater accessibility to the market.”
Hale said that there have been some great examples of innovation, such as the Faster Payments Service (FPS), which has reduced payment times between different banks from three working days to a few hours, but the payments industry needs to go further.
Consumers want to use their mobile phones to make payments and take advantage of digital rewards, coupons and loyalty points, while businesses want to reduce their dependency on the card industry and glean more insight from the data which is available to them.
The value for merchants in the supply chain comes in terms of making the collections process much more efficient, putting greater integration into ERP systems, putting more data and value into the transaction flows themselves, and increasing liquidity cash management and inventory control.
“In a developed economy such as ours where labour is money and output is measured in money, we mustn't forget how vitally important our money transmissions are and that they are safe, efficient and fair. It's also true that they need to be innovative, competitive and agile,” said Hale.
One area in particular need of innovation is security, with the risks to the UK economy much higher than ever before. Fraud, geopolitical and terrorist threats, and an unprecedented level of regulatory change are all contributing to this increased level of risk.
However, Mike Hawkes, chairman of the Mobile Data Association, said that innovation in payments security is being held back, because there is a culture within payment industries of avoiding new technology.
“I have struggled for the best part of three and a half years to get any bank to engage with new innovative security products," he said, “but the way the banks operate, the security people are paid by projects, so unless there is a project that needs your product they'll go with what's already there.
“We've got to start to innovate in this area. I've seen some amazing products that can solve a lot of these problems, but getting them into the mainstream in this country is almost impossible.”
Hawkes said there should be an innovation centre for UK mobile payment industries, where all of the security companies and all of the various industries can get together and actually innovate.
“Use the technologies that are there, put it together, create sandboxes and play with real-world examples. This should be all of the banks working together to solve this problem,” he said.