by Andrew Hewitt, Director Payment & Data Solutions (FIS), EMEA and PSR Panel member
With a target outcome of ensuring that all service users – be they individuals or businesses – are able to make the payments they want and need to make, a payments landscape where there is choice is highly desirable.
I see this choice dimensioned in two ways:
- Choice based on the features of the payment method
- Choice between payment methods with the requisite features
By choice of features of the payment method I mean things like:
- Does it work in the payment scenario I am in e.g. face to face, online, on the phone? Cash works well face to face, but not for online shopping.
- Does the payment method have an appropriate amount of friction given the particular payment scenario? So when paying for a coffee I don’t expect to have to show two forms of identification, but when paying for a house I don’t want to ‘tap and go’.
- Do I trust this payment method for this scenario? This is very subjective and has many dimensions.
- Do I trust the provider of the payment service? For example the brands that typically score well for trust in payments are the large card schemes and well established retail banks. What about new payment methods from new providers such as challenger banks, fintechs and others? Can I/should I trust them?
- Security of the payment – actually probably better stated as perceived security of the payment.
- What happens when things go wrong? Protections such as section 75 or the direct debit guarantee which come with the payment. Also processes associated with the payment method such as the disputes and chargeback process of card schemes.
- Is the payment type appropriate given the value of the transaction? Although the scheme limit at Faster Payments has been raised to £250k and may ultimately be raised further, that limit is rarely offered to end consumers with typical participant bank set limits ranging from £10,000 to £100,000. For larger payments, CHAPS is often still required and for things like conveyancing also has the benefit of finality which Faster Payments does not currently have. The contactless card limit at £45 defines its choice at the lower value end of things, with higher limits for contactless mobile payment methods like Apple Pay.
So if that describes some of the choices that we make in selecting our payment method based on how appropriate its features are, there is then the choice that we make when there are multiple options available with similar features:
- Am I familiar and confident in using this method of payment? Fundamentally we are creatures of habit. We have been taught by the card schemes how to enter a 4-digit PIN and it is habitual for us. We are learning how to tap our contactless cards and COVID-19 has done more than any marketing campaign could have done to accelerate that education. For a significant proportion of the population cash remains the method of choice and provides an excellent visual reminder of how much you do, or don’t have left without the need for 4G and a smartphone.
- Signposting of acceptance. Is it clear that I can pay in this way here? Can I see the ubiquitous Visa and Mastercard logos. As an AMEX cardholder I sometimes can’t face the hassle of asking if it is accepted if I can’t see the logo, or the social indignity of trying to use the card only for it to be declined. Signposting can also be informal, ‘Cash only’ signs – or more likely at the moment ‘Cards only’ or ‘Cards preferred’.
Looking forwards, could there be a time when there is greater choice between card and interbank payments in retail situations to offer service users greater choice? I think it is desirable to see such choice available for a number of reasons:
- Having an alternative to the card schemes removes or at least mitigates the systemic risk posed when the card schemes have an outage, as the interbank system uses separate underlying ‘rails’.
- Fundamentally interbank payments have fewer moving parts than their card equivalents. This simplicity has the potential to remove cost from the system as a whole.
- Funds move in realtime directly to the recipient from the sender rather than 1-5 days later via an intermediary. This could help cashflows particularly in small businesses who typically have longer settlement times.
That said, the barriers to success for any such initiative to be successful are significant and map directly onto the choices service users make when they select a payment method that I highlighted above namely:
- Does it work in all scenarios I want to use it in – online, in store on the phone?
- Does it have an appropriate and therefore different amount of friction for different payment scenarios?
- Do I trust this new payment method?
- Do I trust the brand / provider?
- Is my payment secure?
- What happens when things go wrong, am I protected?
- Is it an appropriate payment method given the value of the transaction?
- Does the payment method offer finality to the recipient? (Pretty fundamental if the sender is walking away with something of value.)
- Am I familiar and confident in using this payment method? Is its acceptance ubiquitous enough for it to become habitual for me?
- Is its acceptance clearly signposted for me to know where I can use it?
- Does the merchant prefer receiving this payment method to others?
Whilst the above barriers map onto user choice, perhaps the larger missing puzzle piece for a successful interbank payment method for retail is the requirement for a Request to Pay mechanism where the merchant can select whether or not part payment is allowed. Whilst the existing Request to Pay mechanism addresses well the use case it was specifically designed for (service users for whom Direct Debit is difficult where part payment should be allowed), this feature limits its applicability in other use cases.
Finally, it is impossible not to talk about how something like this could get funded, and therefore inevitably discuss interchange and scheme fees. It is easy to boo and hiss when talking about these things seeing the card schemes as the pantomime villains. The middle ground – which I am going to attempt to occupy – is that if you want things like a trusted brand, consumer protections, secure transactions, arbitration in the case of disputes, clear signposting of acceptance and education of users as to how to use a new payment method, then it is going to cost money. The question then is who pays?