As payments revolutionise the fintech world, businesses will have to adopt new payment methods. How will they do this? What do customers want? And how will the changes affect current operating models? These important questions concerning payments are answered below.
Businesses may rely on national payments systems to improve payment settlement speeds.
Faster payments are being made possible by new payments systems implemented on a national scale. The Faster Payments Service (FPS) in the UK is a banking initiative which reduces payment times between different banks’ customer accounts from the three working days to typically a few hours. Similarly, the Australian New Payments Platform (NPP) is open access infrastructure which enables near instant funds transfers between 60 banks, credit unions and building societies. Similar projects are underway in Canada, the US, Japan, Norway and Nigeria, reports Bankingtech.
In recent news (March 20), Ebury, a corporate global transaction service provider, now offers its customers realtime payments thanks to the UK’s Faster Payments Service. This is significant because Ebury is the first non-bank to join the scheme which gives every customer a domestic account number and an IBAN to allow faster processing.
Customers want speed, options and simplicity, of course.
Tick tock. Tick tock. Customers want faster payments. This also benefits businesses. Mostly, we all want our money instantly. The payments schemes discussed above are one way to establish an instantaneous payment system.
Another way to allow for instant payments is for small businesses to offer multiple online payment methods. To do this, SMEs can use a payment service provider (PSP) or online payment services. These include the famous likes of PayPal, Apple Pay, Google Pay and Amazon Payments. However, they also include Braintree or Klarna. More information about how PSPs fit into the broader payment ecosystem is here.
Simplicity and user experience is where new entrants and innovative fintechs have the upper hand on incumbents. Standards are high for UX in fintech now and millennials can be unforgiving in their beauty standards for mobile apps.
How will current operating models be affected?
Increased openness of payments systems to alternative payments services will encourage a move away from the status quo of big banks to a more diverse oligarchy including big tech, big merchants and big banks. When customers are willing to experiment, innovation finds a new driving force.
In the future, we may see the adoption of the ‘utility model.’ Discussed by Deloitte in the report titled Payments Disrupted, the utility model is one where ‘both banks and non‐banks will offer payments applications that run on banking payment ‘rails’, which are low‐margin, high volume utilities.’ The idea of payment ‘rails’ resembles the ideas behind the national payments schemes in the UK and Australia mentioned above.
Real time accounts will allow more dynamic business decisions.
Businesses, especially SMEs, with a real time understanding of their accounts can use their capital in a more agile way. Instant payments encourage new entrants to design more agile and instant business models.
By Grace Appleford, Research Analyst.