In 2020, 52% of all payments in the UK were made by card while the use of cash collapsed, spurred on by the unprecedented impact of the global pandemic. This was an accelerant that had a part to play in the recent evolution of payments, but ‘the landscape is changing faster now than ever before,’ according to Deepti Akkali, Head of Gateway Commercialisation at Elavon Services. At a recent esynergy event, we had the chance to catch up with Deepti, as well as Lily Krawowsky and Michael Bridgman from GoCardless, to find out more about the drivers of payments innovation and the distinct benefits of architectural modernisation.
The importance of payment modernisation
The topic of modernisation is not just highly relevant in terms of updating existing payments infrastructure, but also for the purpose of introducing entirely new forms of it. Deepti explained that many of these upcoming enhancements are going to be launched globally, which will need to be undertaken in a scalable way and driven by architectural modernisation. We are now on the cusp of a landmark moment in payments evolution as we come closer to experiencing truly frictionless transactions, which Deepti described as having ‘always been an endgame for most merchants and service providers.’
Innovation in the payments space has also transformed customer expectations, with many now anticipating always-on service levels as standard. This has placed a particularly strong focus on the need for instant payments, which Deepti highlights as a central driver of payments modernisation in general. Another factor that is amplifying the importance of modernisation is regulation, as more sophisticated capabilities will play a critical role in maintaining compliance.
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Assessing the scale of the challenge
Merchants and payment providers face a two-fold challenge when it comes to modernisation, according to Deepti. One the one hand, they are tasked with integrating new forms of payment that offer benefits for consumers and merchants alike, such as soft point of sale (POS), crypto payments, and NFTs. On the other hand, they need to make use of value-added services that will emerge alongside new capabilities.
Deepti first walked us through the new payments capabilities that need to be integrated, beginning with soft POS as a prime example. This innovation offers the potential to transform any mobile device into a payment terminal, facilitating payments via a software layer as opposed to a hardware layer. This capability would eliminate the need for merchants to maintain dedicated POS hardware and would provide consumers with much greater flexibility. Deepti explained that ‘this is a key benefit that is currently being worked on,’ and is just one of a range of complex processes providers are working to facilitate as part of modernisation.
Elaborating on the second part of the challenge from the provider’s perspective, Deepti explained that advanced forms of payments give rise to value-added services, which providers need to factor in. Request to Pay is an example of this, which enables merchants to provide consumers with more flexible options for paying their bills and significantly enhances payment journeys. Additionally, new uses for customer data are continuing to emerge, and some providers are now considering the potential to tokenise this data to enable one-click payments across a multitude of participating merchants. While solutions like this offer impactful, multifaceted benefits, their implementation also poses a complex challenge.
The Account-to-Account (A2A) payments landscape has been fundamentally shifting, and these modernisation breakthroughs are enabling a new era of innovative solutions. Lily Krakowsky, Senior Product Marketing Manager at GoCardless, explained that this progress ‘has been largely due to Open Banking, better technology, and changing consumer and business expectations.’
While the concept of A2A payments is nothing new, Lily explained that ‘now we are starting to see merchants being able to address an increasingly wide variety of use cases.’ This is due to the ability for payment and customer banking data to be safely accessed more widely, facilitating solutions for payer verification, credit checks, e-commerce, POS, and invoicing. To provide a sense of scale, the GoCardless duo told us that the world of Open Banking presents a $416 billion opportunity, despite different countries around the world taking differing approaches to implement it.
According to Lily, the key to success is in combining and enhancing existing infrastructure with the emerging infrastructure of the future that will be enabled by Open Banking. This, she stated, will facilitate faster, structurally cheaper, more secure solutions. With this path to innovation in mind, the GoCardless representative also highlighted the fact that payment fraud is at an all-time high, and expectations for fraud losses are set to reach $40 billion by 2027. Meanwhile, consumer expectations of seamless payment options continues to rise, presenting a challenge that service providers must be mindful of when engaging in architectural modernisation.
Diving deeper into specific opportunities offered by A2A innovation, Michael Bridgman, Product Director at GoCardless, told us about Variable Recurring Payments (VRP). He explained that the rollout of VRP will begin in 2022 following its announcement by the Open Banking Implementation Entity in 2021, and it will offer a single authentication process for Open Banking-powered payments. This will enable merchants to invite customers to set up mandates and take payments on the customer’s behalf at a variable frequency. Michael stated that ‘we are starting to see an Account-to-Account mechanism that can serve a wider range of use cases than ever before, with the potential to facilitate a compelling alternative to card payments.’
Preparing for a new era of payments
Consumer expectations are continuing to increase when it comes to payments, and emerging technology has put immense opportunity within our reach, but the risks also have to be considered and addressed during implementation and adoption. The foundations of the space are transforming, with experts agreeing on the critical need to modernise existing infrastructure, and to introduce new forms of infrastructure as well. If service providers and merchants can overcome complexity, regulatory and security challenges effectively, solutions like VRP and many other emerging capabilities will combine to provide faster payments with greater levels of control and visibility.