It is easy to forget with all the technical payment advances, that a payment is merely a method of paying for something using money you either already have in an account or a credit line you have against a bank or card issuer.
All the current excitement around Applepay, contactless and other mobile wallets/devices merely points to the fact that individual consumers are happy to experiment with an improvement in convenience.
What we are seeing is the continual application of emerging technology to achieve the same underlying need; how to pay for something quickly and easily. However, there is a limit to the number of different ways this can be achieved and, over the next few years, there is bound to be winners and losers in this closely fought battle with a couple of majority winners emerging. History has sadly shown that, sometimes, the winning entity may not necessarily be the best. Those of us who are sad enough to admit that they can remember the eighties will recall the video recording battle between Sony’s Betamax technology and the more widely available VHS format. Most technical experts at the time would agree that Betamax was the better product. However, VHS won the marketing and manufacturing battle and Betamax slowly slipped into the sunset. May be we’ll see the same this time around.
Having recently run one of the UK’s Payment Systems, I am aware that most consumer-facing developments are very much at the “front end”; a service offering layered on top of existing technology. At the end of the day, most payments, in one form or other, will end up settling across the books of a bank; either internally or at its account held at the Bank of England. They are also likely to utilise one of the existing main payment systems. This is where development and innovation is required and that is what the new Payment Systems Regulator is keen to foster via its Payments Strategy Forum. Evolution is close in some areas; within a year or so, an image of a cheque will be cleared and settled as opposed to the physical instrument itself. Other areas of evolution are further away. Most industry insiders would concede that we need fewer payment systems. However, there has been little progress over the past five years to consider and address this central core question. Whilst the World Class Payments initiative being run by Payments UK is looking at some of the core areas of need and attempting to identify possible solutions it is likely to result in more rather than less infrastructure to provide functionality not currently present elsewhere (eg Richer Data).
A number of countries are biting the larger bullet in terms of analysing their payment needs (the United States being a good example). Here in the UK, as highlighted by both HM Treasury and the Payment Systems Regulator in their various consultation papers, the main banks control the Payment Systems, the budgets at their disposal and, as a result, how much innovation is likely to happen. To either merge existing or to create new Payment Systems is a costly business and, looking to the 10-20 year horizon, is it correct or right that we look to the Banks to fund this? There is a limit that private equity could potentially become involved given Payment Systems are not designed to operate at a profit; they are core systemic parts of Critical National Infrastructure.
Maybe, and I simply put this out as a thought, this should be a task for Government, Policy and central government funding? A national payments infrastructure for the future should surely be looked at no differently than developing the road and railway infrastructure. Public money is allocated to that. Why should the national integrated payment system of the future be any different? Imagine a single integrated retail payment system with immediate payment and settlement of all payment types and values. Imagine the front-end services that could be then developed on top of that.