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The new payments landscape

The way we pay is changing every day, with innovative services coming online to meet a growing range of customer needs. Three Royal Bank of Scotland experts talk through the latest developments.

Last updated: 11 Sep 2020 6 min read

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The UK’s payments landscape has been in a period of flux and transition for the better part of a decade. Following the global financial crisis in 2008, a series of regulatory changes in Europe combined with developments in technology to create a perfect storm of change.

While that period set the direction of travel – towards a more digitally enabled and integrated payments infrastructure – the pace of change was sporadic. But the impact of coronavirus has seen it accelerate.

“Covid-19 was a time machine that sped up all the trends we were already seeing: the decline of cash, the rise of contactless and so on,” says Jessica Richards, head of market development, payments, at Royal Bank of Scotland. 

Indeed, the unprecedented impact on the economic and social life of the country has brought into focus just how crucial a role the bank plays in people’s lives.

Richards explains: “We process one in four payments in the UK – that’s 2.5bn electronic payments and 3bn card payments as well as cash, cheques and the normal electronic transactions.

“We work with the most vulnerable customers to the biggest government agencies. We are essentially part of the UK’s infrastructure, and, as such, we’ve had to be part of the national response to Covid-19.”

New horizons

Principally, that response has meant opening up as many alternative services for corporate customers, merchants and individuals, many of whom have seen the use of cash fall off a cliff. “During Covid, we saw online activations go up by around 70% and mobile activations up to nearly 30%, while e-commerce grew by 25%,” says Richards.

James Hodgson, head of commercial payments at Royal Bank of Scotland, says the bank is aiming to help customers through the payments transition primarily through its innovation work, which means looking beyond simply specific payment services and into the customer’s evolving needs. “That’s a big job, especially where certain payment types have become entrenched over the long term, which in turn means a lot of processes that have been built around that also need to change,” he says.

“So, up- and downstream systems need to be understood, particularly if it’s a larger customer. They might even have treasury policies built around a payments policy. At the smaller end it’s typically easier to make the decision to change, but do they have the sophistication and tech capability to operate the new products?”

“Customers can only go digital if the companies they buy from do the same, so with our SME digital payments platform, Tyl, small businesses who may have predominantly been taking cash before can now start the transition to digital payment” Jessica Richards, head of market development, payments, Royal Bank of Scotland

Perhaps the central component of the new digital payments infrastructure is Payit. “That’s our first Open Banking service that allows customers to pay for goods and services online by making a payment direct from their bank account,” explains Conor Maher, Royal Bank of Scotland’s head of transaction banking, who says the service marks a real change for customers and merchants alike. With traditional e-commerce engines, shoppers at the checkout basket typically have to add card details or use the stored details on the merchant’s site.

“With Payit, you can click on the Payit button, which presents you with a list of all the participating UK high-street banks. Then you can select the account you want to pay from. Doing that takes you into your mobile banking app, where the beneficiaries’ details will be pre-loaded, along with the amount, and then you go through your normal authorisation process to make that payment.”

This, Maher believes, is the future. It meets everyone’s needs. “The merchant wants an e-commerce solution with a Payit option at the end because they want immediate payment via banking apps,” he says. It also means they pay a small credit charge compared to a commission charge that is value based. So, it’s quicker, lower cost, and in addition they don’t have to reconcile credit-card payment files. And, of course, the customer wants convenience, security and transparency.

Easing the flow

Other services are also coming online. Send Money is a new cheque-digitising service that removes the need to transport and deal with physical cheques, by using Open Banking to turn a physical object into a digital payment.

“We’ve fast-tracked that because we’d already been talking to customers and had anticipated a huge spike in interest from those who wanted to get away from cheques during Covid. By instantly digitising cheques the hassle and cost are instantly removed as funds move much faster between accounts,” says Hodgson.

But no matter how sophisticated and convenient the alternatives are, cash remains a significant part of the mix, despite the changes wrought by coronavirus. The UK, as with every other country on the planet, remains a long way from the “cashless society” some predicted at the beginning of the digital age. Indeed, as Conor Maher puts it: “We envisage a ‘less-cash society’, not a cashless one.

“So, while the decline in its use has been with us for a while, we do need to continue supporting cash,” he says.

However, the challenge is how to continue to support investment in cash, bring innovation to market where cash is diminishing but not disappearing, and move the “cost to serve” on to more of a variable cost footing.

Maher says: “We’ve been proactive, and last year we brought out a new solution called Intelligent Safe. So, with that, if you’re a retailer handling cash, instead of having to walk to the bank, we can install a safe at your premises. It counts the cash, performs counterfeit checks and tallies up the amount. You can then press the button to agree. The cash then drops into the safe and it then signals to us at the bank that the correct sum has been deposited and your account is immediately credited with the money. The bank retains the title to the cash, which remains in the safe until an agent calls to pick it up.”

These types of solution deliver not only on the promise of technology but they also help customers manage their finances better. “Customers can only go digital if the companies they buy from do the same, so with our SME digital payments platform, Tyl, small businesses who may have predominantly been taking cash before can now start the transition to digital payment,” says Richards.

“The key issue here is data: in the new world, that will be a really important part of how we help customers. By using digital payments and generating data, merchants get a better picture of their business and it helps them manage it better, which is better for them and their customers.”

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