This is the text of the speech as drafted and may differ from the delivered version. This speech was delivered by Tessa Lyndon-Skeggs, Senior Advisor at the PSR, on 13 September at the Payments Leaders' Forum: Comparing international automated payment approaches.
This summer I travelled for the first time in years – kids, jobs and housing and global pandemics being higher priorities since my 20s.
So I found myself on a long journey in a central American country I’d been to 25 years ago and everyone we met on our travels saying “it’s a different country”.
One day/night with the kids asleep in the back of the car, my husband and I found ourselves discussing what would we do if we were responsible for the future of a country.
… It had been a long car journey.
So what did we say? Education, a legal system, transport and medical were high priorities, of course.–But to grow you’d need commerce to thrive and for this you’d need a trusted mechanism for trade – let’s just call this mechanism ‘Payments’.
So, where would I start?
If I look globally I’d see a clear customer trend and customer preference for automated payments: those that bring this trusted exchange in the simplest way – be it embedded in an app, via my mobile or pre programmed in some way. Digital payments.
But, a need for digital payments is where the global similarities would stop globally
Why do we find that in France customers online are most likely to use a domestic credit card (Cartes Bancaires), while in the Netherlands it’s an account to account based payment (iDEAL). In China there’s an app led approach (Alipay and WeChat), while in India we find that the QR code based PhonePE. The list goes on.
Seemingly they’re all different with no particularly defining feature to connect them; why, then, have these become the preferences for customers in these countries?
Let’s take a closer look at some examples.
We’re in India, it’s 2015 and this is the country with the highest proportion of payments made by cash. There are high levels of corruption and the associated lack of trust is impacting both the level of commerce in the country and the level of taxes. The government steps in and requests that a bank coalition (NCPI) create a payments infrastructure based on open APIs that is highly interoperable - across wallets, payment apps, QR codes, etc… - and can use a single identity (a Virtual Payment Address linked to their national identity).
Furthermore, the government ensures that Fintechs can easily access the technology and are supported with favourable regulations such as the digital-only Know Your Customer checks.
Merchants are offered a zero Merchant Discount Rate (ie zero fees for payments) and tax incentives such as the Goods and Services Tax (GST 2017). And finally, the population is strongly encouraged to use these payments both through significant media profiling and with the physical removal of R500 and R1000 notes from circulation (incidentally followed by prolonged cash shortages in the country). By 2017 – the result is that the Unified Payments Interface is a huge success story of adoption.
Next, we’re in Brazil. The oft quoted Pix, with its 800 participants, the ability to support P2P, QR code or other customer journeys. It’s a country where the phase “pix me” has entered common parlance.
Like in India, technology has played a key role, but there’s some important historical context: Brazil has traditionally had a high level of the population with no bank account - and for those that did the preference was for credit cards stemming from a pay-by-instalment culture.
However, with the onset of Covid there became an urgent need to distribute support payments and Pix, operated by the Central Bank of Brazil provided a real time mechanism and the ability to promote financial inclusion along and in turn a sensible way of distributing Covid payments. The result? Pix transactions increased by 209% between December 2021 and December 2022.
Two examples, two different solutions.
... Yet, the more we look at it, the more we realise there is a connection between these different payment types.
It’s all about the need.
So, what is ‘the need’ for this country I’m now in charge of? I may not know much about transport or medicine, but payments? This is very much my bag; the Republic of Lyndon-Skeggs is in for a treat.
The need I stated was active commerce to drive the country forward. . . . so let’s take the starting point CtoB payments – buying a good or a service from someone else.
Cards would be easy: they are globally provided, I’d need customers with bank accounts, but let’s assume my country is a little like the UK with over 95% of adults holding an account. Great, so I have cards, they are efficient, effective and liked. But presumably I’d want a bit of choice in how people pay, and competition amongst providers to stimulate innovation and drive down prices – what else, then. Making payments direct from one account to another seems very efficient – enabling another party to do this on your behalf, great and having a safe mechanism that enables this other party do this for you even when you are not there – fantastic! And, can I do all this through modern, secure APIs that provides scalable infrastructure and can be accessed by fintechs and this means they have different development options open to them.
A pipedream??!
I find myself looking back at the UK and realising that many global economies are in fact looking at us with envy – we have 4 regulators working together through Joint Regulatory Oversight Committee and this JROC has set out a roadmap of the ongoing development of open banking, unlock the potential for open banking payments and for a model that is scalable.
And we are now working with the banks, working with the fintechs and working with the market to establish just such a payment mechanism and unlock the potential of Open Banking Payments. Variable Recurring Payments – or VRPs - give the ability to set up consent parameters that enable someone on your behalf to make a secure payment. For example I could be at my hotel at that central American country I visited and on checking in I could set up the consent so that when I’m at the pool without my handbag I could order a drink from the bar and the hotel could execute the payment for me simply bringing me my drink.
The roadmap also considers how we level up availability and performance, mitigate the risks of financial crime, ensures effective consumer protection if something goes wrong, and improves the information flows.
I think I’m clear on what is needed for the Republic of Lyndon-Skeggs – do I need to look at PSD3?
So my hypothetical country has a plan, we’re sorted for now, but what about the future?
Given the criticality of my retail payments I’d also want to continue to consider whether we’re going in the right direction, whether there’s more to learn from global examples.
Let’s again consider the UK perspective. The Garner review is an opportunity for us to take stock of which of the retail payment journeys are the most critical, to consider how the consumer experience compares with other leading countries and how our inflight plans are taking us forward. Also, just as importantly it’s bringing the payment community together in considering these three items and listening to their views.
In conclusion: consider what is needed – get really clear on the objectives you are looking to fulfil, do payments meet the needs of the country and perhaps we are not in a bad position to keep doing that in the UK.