The new frontier in payments

A new world of pay­ments is rapid­ly unfold­ing, one that is instan­ta­neous, dig­i­tal and most impor­tant­ly, dri­ven by data. The con­ver­gence of tech­nolo­gies, increased reg­u­la­to­ry require­ments, and a fast grow­ing dig­i­tal pay­ments ecosys­tem are dri­ving the inno­va­tion behind a rapid rise in new ways to pay, and shift­ing pay­ments to a more strate­gic weapon for cre­at­ing new com­mer­cial oppor­tu­ni­ties and trans­form­ing cus­tomer propo­si­tions.

With one in four of all UK pay­ment trans­ac­tions processed by NatWest, the bank sits at the heart of both busi­ness and per­son­al cus­tomer trans­ac­tions. “For many, pay­ments are viewed as the nat­ur­al end of a process; but the pay­ments rev­o­lu­tion cre­at­ed a seis­mic shift, mov­ing pay­ments to the epi­cen­tre of the dig­i­tal trans­for­ma­tion, impact­ing the econ­o­my, soci­ety and the lives of indi­vid­u­als,” says Simon Eacott, head of pay­ments NatWest.

“Pay­ments is the most excit­ing and rapid­ly evolv­ing part of the finance world; the prime inter­face between us and our cus­tomers enabling us to pro­vide the smart, sim­ple, and secure pay­ments they need, and which is a cru­cial ele­ment of our dif­fer­en­ti­a­tion.”

As cash pay­ments con­tin­ue to decline, alter­na­tive pay­ments meth­ods con­tin­ue their mete­oric rise in pop­u­lar­i­ty, accel­er­at­ed by the pan­dem­ic. Change is also being dri­ven by indus­try reg­u­la­tion. The renew­al of the UK’s cen­tral pay­ments infra­struc­ture as well as the Pay­ment Ser­vices Direc­tive Two (PSD2), and open bank­ing, aim to increase com­pe­ti­tion and inno­va­tion, while also improv­ing safe­ty and resilience. “Iden­ti­fy­ing the oppor­tu­ni­ties and cre­at­ing the ben­e­fits, while imple­ment­ing the reg­u­la­to­ry require­ments is cen­tral to the NatWest strat­e­gy,” says Eacott.

Focus on customer need, not payment need

Since the Faster Pay­ments Ser­vice first emerged in the UK over a decade ago, it has been on an upward tra­jec­to­ry, rev­o­lu­tion­is­ing pay­ments. How­ev­er, it’s what is built on the back of the pay­ment and embed­ded into the cus­tomer jour­ney, the things peo­ple do on a day-to-day basis, such as buy­ing a cof­fee through their app, with a focus on cus­tomer need, rather than pay­ment need, that mat­ters.

Embed­ded finance, the inte­gra­tion of finan­cial ser­vices tra­di­tion­al­ly obtained from a bank with­in the prod­ucts or ser­vices of a non-finan­cial organ­i­sa­tion, has the flex­i­bil­i­ty and uni­ver­sal­i­ty to be applied to any com­pa­ny or indus­try with a trans­ac­tion­al ele­ment. Exam­ples include online stores offer­ing short-term loans in the form of buy now pay lat­er (BNPL), and dig­i­tal wal­lets on smart­phones that enable instant con­tact­less pay­ments.

Dig­i­tal inno­va­tion has cre­at­ed oppor­tu­ni­ties to build more capa­bil­i­ty into the pay­ment stream, cre­at­ing a fric­tion­less jour­ney for the cus­tomer and fresh rev­enue streams for busi­ness­es. Eacott adds: “Our focus is on unlock­ing the pow­er of pay­ments to cre­ate val­ue for every cus­tomer.”

With this lev­el of inte­gra­tion in the world of pay­ments and bank­ing, APIs are dri­ving a dig­i­tal econ­o­my that dri­ves effi­cien­cies and low­ers costs. But this is just the begin­ning, says Dan Glober­son, head of bank of APIs at NatWest: “The use of API tech­nol­o­gy to con­nect sys­tems opens up capa­bil­i­ty for non-finan­cial ser­vices com­pa­nies to offer finan­cial ser­vices; bank­ing as a ser­vice (BaaS) enabling them to lend, for exam­ple, through their chan­nels via our tech­nol­o­gy. Com­pa­nies now can pro­vide a pay­ment ser­vice, a lend­ing ser­vice, or a cred­it ser­vice from a bank, but through their cus­tomer user inter­face.”

He adds: “We embed the whole pay­ment, the whole bank­ing expe­ri­ence, with­in a dif­fer­ent company’s offer­ing. And by embed­ding a con­tract as part of that pay­ment between both par­ties it intro­duces trust. We use pay­ments as an agent of change; a cat­a­lyst to increase val­ue, dri­ve inno­va­tion, fos­ter inclu­sion, and build con­fi­dence in the future of mon­ey.”

For busi­ness­es, embed­ded finance opens up new chan­nels and cre­ates huge oppor­tu­ni­ties for growth, for exam­ple, by help­ing them get more prod­ucts to mar­ket, dri­ve sales, meet grow­ing con­sumer expec­ta­tions, and attract and retain cus­tomers.

Data-driven global payments in real time

Dig­i­tal inno­va­tion is also trans­form­ing cross-bor­der pay­ments, with advances in instant or real-time pay­ments allow­ing peo­ple to receive funds from over­seas much faster, aid­ed by schemes and mech­a­nisms for cross-bor­der con­nec­tiv­i­ty and inter­op­er­abil­i­ty. Advanced pay­ment tech­nol­o­gy pro­vides access to rich­er pay­ments data, the key to iden­ti­fy­ing new growth oppor­tu­ni­ties and becom­ing a real-world vehi­cle to dri­ve pos­i­tive change, not only with­in cross bor­der pay­ments but also cross-bor­der part­ner­ships.

Dig­i­tal cur­ren­cies also have a role in the future of pay­ments. Three notable cat­e­gories include cen­tral bank dig­i­tal cur­ren­cies (CBDC), being explored glob­al­ly as an alter­na­tive way of exchang­ing and set­tling trans­ac­tions in cen­tral bank mon­ey. Sta­ble­coins are not cen­tral bank mon­ey but are linked to or backed by some asset and pay­ment can be made on the back of it, while cryp­tocur­ren­cies, such as bit­coin, are more spec­u­la­tive in nature, with val­ues being sub­ject to volatil­i­ty. Nev­er­the­less, bit­coin is increas­ing­ly being accept­ed as a pay­ment method in its own right, although far from uni­ver­sal­ly.

Frictionless and secure

Cus­tomers want great user expe­ri­ence and fric­tion­less pay­ments but they also seek peace of mind, espe­cial­ly at a time when online pay­ment scams, in par­tic­u­lar autho­rised push pay­ments, where indi­vid­u­als and busi­ness­es are unwit­ting­ly duped into send­ing mon­ey to crim­i­nals, are ris­ing.

“The impor­tance of trust in the pay­ments are­na can­not be under­es­ti­mat­ed,” says Jes­si­ca Richards, head of mar­ket devel­op­ment, pay­ments, NatWest. “Our goal is to imple­ment the right tech­nolo­gies to pro­tect our cus­tomers from fraud, while deliv­er­ing a fast and effi­cient pay­ment jour­ney. It’s vital that we col­lab­o­rate with the indus­try and reg­u­la­tors to main­tain focus on this crit­i­cal issue.”

A good exam­ple is Con­fir­ma­tion of Pay­ee (CoP), a new name-check­ing ser­vice for UK-based pay­ments, which strength­ens pay­ment secu­ri­ty by allow­ing peo­ple to ver­i­fy who they are send­ing pay­ments to in real-time. “Dur­ing the pan­dem­ic, NatWest was able to use this ser­vice to help gov­ern­ment get pay­ments out to peo­ple who need­ed them most,” adds Richards.

Pro­tec­tion from fraud, as well as finan­cial crime, which has been in the glob­al spot­light recent­ly, can only be addressed through col­lec­tive and col­lab­o­ra­tive effort, and at both the indus­try lev­el and indi­vid­ual bank lev­el, a huge amount of invest­ment and inno­va­tion is being chan­nelled into it. The chal­lenge, says Glober­son, is find­ing the bal­ance between fric­tion­less and secure. “While cus­tomer expe­ri­ence needs to be seam­less, cre­at­ing that bal­ance between fric­tion­less cus­tomer expe­ri­ence and appro­pri­ate checks and bal­ances along the way is the key to fight­ing finan­cial crime,” he says.

Looking to the future

What does the pay­ments rev­o­lu­tion mean for tra­di­tion­al ways of mak­ing pay­ments, includ­ing direct deb­its (DD) and cash? With the advent of open bank­ing, alter­na­tives to DD are already mak­ing inroads. Request to Pay is a new ini­tia­tive that gives cus­tomers greater con­trol over when and how they pay, while vari­able recur­ring pay­ments (VRP), allow cus­tomers to safe­ly con­nect autho­rised pay­ment ini­ti­a­tion ser­vice providers (PISPs) to their bank account to make reg­u­lar pay­ments on their behalf.

Eacott says: “We know there are chal­lenges with some of these changes, and as a respon­si­ble finance provider our role is to ensure that all indi­vid­u­als and busi­ness­es have effec­tive access to pay­ments and that we don’t leave any­one behind. The indus­try still needs to pro­vide access to cash for those who want and need it.”

In an increas­ing­ly com­plex net­worked pay­ments ecosys­tem, where cost and infra­struc­ture bar­ri­ers to mar­ket entry are low­er and com­pe­ti­tion is ris­ing, Eacott empha­sis­es the ben­e­fits of col­lab­o­ra­tion with­in the indus­try. He says: “Whilst com­pe­ti­tion is impor­tant to dri­ve inno­va­tion, banks and oth­er finan­cial ser­vices organ­i­sa­tions must work togeth­er to accel­er­ate the evo­lu­tion in pay­ments in a pur­pose­ful way and ensure suc­cess for the long term.”

For more, please vis­it natwest.com/corporates

Pro­mot­ed by NatWest