How Will Technology Shape the Future of Payments?
The way that both businesses and everyday consumers make payments has changed a lot over the past few years, and the way we access our goods and services is likely to continue to evolve. In the past, only cash payments were accepted, now payments on plastic cards account for at least half of the UK’s payments, with speed and ease of use being a top priority amongst both businesses and consumers.
With new technologies for payment emerging all the time, including mobile phone apps, Direct Debits that require a few simple clicks and contactless credit/debit cards where you don’t have to type in your PIN number, we explore how the payment industry has developed, what we are likely to see in the future, and how this will affect businesses and consumers across the country.
What we’ve left behind
The use of cheques in particular has been in decline for several years now, with this antiquated method of payment expected to be phased out completely within the next decade. The amount of cheques being used for business-to-business transactions has fallen dramatically, with just 247 million cheques being issued in 2014. This may seem like a lot, but when compared to 2.2 billion BACS Payments and 3.4 billion Direct Debits, the decline of the cheque as a method of payment is put into perspective. The speed of cheque processing is undoubtedly a factor here, as it takes time to print, sign, send and then extra time to cash and clear it with the receiving bank. In this day and age, speed is key when it comes to transferring money between businesses.
For people paying on the high street, a report by the Centre for Economics and Business Research (Cebr) in 2014 showed that cash was still the most popular payment method for small transactions. According to their report, the average cash payment in 2014 was worth £10.32, which could be due to some establishments requiring a minimum spend in order to use a debit or credit card. Every year, the average card transaction value drops slightly.
However, it is unsurprising that the most popular method of payment overall is the debit card. Cebr stated that the debit card was the most commonly used method of payment in 2014, with 48% of UK adults questioned indicating that they preferred to use plastic, compared to just 23% for cash. It’s clear that people across the UK, no matter whether they are shopping or conducting business, prefer methods that are fast and easy.
What does the future hold?
Our need for speed when it comes to payment transactions has led to the formation of Faster Payments, the only payment system in the UK that can be accessed 24 hours a day, 7 days a week and 365 days a year. This system can be used by both personal and business customers and allows sums of up to £100,000 to be sent quickly and easily at any time of the day. Figures released in 2015 by the UK Payments Council showed that Faster Payments was the fastest growing method of payment last year, accounting for 14% of transactions by the end of the year. Thanks to the ease of communicating with people on the other side of the world, it is likely that we will see more and more companies using Faster Payments as they strive to conduct business quickly and easily across the world.
Meanwhile, many businesses are now migrating towards using a cloud-based system when it comes to handling their accounting needs. Not only do these systems allow businesses to keep track of their accounts online, they can also store their clients’ sensitive financial details, which are required in order to make Direct Debit payments, and make quick and easy payments, as well as accessing invoices, tracking expenditure and income, and managing tax returns.
For the everyday consumer, contactless payments will likely become more and more popular. Contactless cards allow people to make payments under £20 within seconds without having to enter their secure pin number, simply by tapping their card against the contactless reader. Contactless payments have already become extremely common, with the UK Card Association reporting that 46.1 million contactless payments were made in December 2014, with approximately 58 million cards equipped for contactless now in circulation in the UK.
In the future, you may not even have to carry a card to make a payment. The UK bank Barclays is currently trialling the bPay, a wristband that the wearer can top up with credit and then use to pay in a variety of locations, from coffee shops and concerts to the London Underground. The latest phase of bPay has just ended, but Barclays has promised more exciting plans for quick methods of payment. The UK Card Association has stated that this is only the beginning, and that contactless payments could soon extend to smart watches.
What are the issues?
There is no doubt that the emphasis for payments nowadays is on speed. Regardless of whether you are conducting business transactions or shopping in the supermarket, people want to pay quickly. Although the declining use of cash will be helpful when combating fraud, technology such as contactless payment opens up a plethora of other issues, namely security, with Cebr stating in their report that 55% of those surveyed thought payment security was their top priority, while 26% of those surveyed said ease of payment was the most important factor. Security was also a top concern when contactless payment was rolled out, which is why the amount payable was capped at £20. However, this is due to increase to £30 in September 2015.
Due to the sensitive nature of their clients’ financial information, for businesses that pay via the internet or use a cloud-based accounting system, or are considering using one, security should be a top priority, as well as implementing a data recovery system should the worst happen. As we move towards faster payments, the time normally spent handling transactions should be put towards ensuring that no information or money goes missing in the process. Working with an expert banking and technology provider such as First Capital Cashflow will ensure that any Direct Debit or Direct Credit process will be safe, secure and compliant.
These are exciting times and it will be intriguing to see what payment technology providers do next.
About First Capital Cashflow
FirstCapital Cashflow Ltd commenced trading in 2001. The company was initially formed by several banking individuals as an outsourced credit collection service, however a year or so after the company was formed the shareholders saw a gap in the UK market for outsourced direct debit management for businesses. First and they quickly established a niche position as a provider of bespoke and dependable Bacs processing services incorporating Direct Debits and Direct Credits, Sales Invoice Collection Management and Card Processing solutions.