FUTURE OF PAYMENTS 16 - Galileo Financial
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I N D EPEN D EN T P U B L I C AT I O N BY RACONTEUR.NET #0618 1 9/ 0 9/ 2 0 1 9
FUTURE OF
PAYMENTS
03 HOW SPENDING CAN
BUY YOU HAPPINESS 06 SOCIAL IMPLICATIONS
OF CASHLESS SOCIETIES 16 STANDING OUT IN A
SEAMLESS FUTURE
02 FUTURE OF PAYMENTS RACONTEUR.NET 03
FUTURE OF BEHAVIOUR
PAYMENTS
How spending money
Distributed in
can buy happiness
Published in association with Behavioural economics can reveal useful insights into our
motivations and feelings when parting with hard-earned money
Marina Gerner payments make parting with money
Contributors
Tristan Colangelo/Unsplash
even easier.
Sophie Charara magine you’re on your way The latest example of separating
Paul Amery
Founding editor of New Associate editor at I back from work and you purchasing from paying are check-
Money Review, he is a WIRED UK, she writes pop into a shop. You weren’t out-less Amazon Go shops, where
former asset manager about technology looking for anything in particular, people don’t consciously pay at all.
and trader. and culture.
but an hour later you find yourself Hundreds of cameras around the
Edd Gent walking out with a big smile and mul- store are able to detect what custom-
Jack Apollo George
Writer and media Freelance science and tiple bags in tow. What happened? ers take off the shelves and automat-
specialist whose articles technology writer, his Behavioural economists call it the ically charge their Amazon account
on technology and culture work has been published effect of “shopping momentum”. when they leave.
have been published by in the BBC, New Scientist,
We like to think we’re rational con- The second factor is our disposi-
the New Statesman and Science and MIT
Technology Review.
sumers when it comes to our spend- tion. People who are tightwads and
CLOT Magazine.
ing. After all, our financial decisions who make up about 25 per cent of the
Marina Gerner Amy Hawkins have a huge impact on our wellbe- population, according to one study,
Award-winning arts, China-based journalist, ing. Think of an unforgettable holi- experience more pain when it comes
philosophy and finance she writes about day or a house bought at the wrong to paying than spendthrifts who
feature writer, her work technology and culture,
and has appeared in The
time. But in reality, we’re emotional make up 15 per cent.
has been published in
The Economist's 1843, The Guardian, The Sunday creatures, susceptible to biases and “Tightwads experience a lot of dis-
Times Literary Supplement Times, Foreign Policy external factors. tress when they make purchases,
and Standpoint. and others. Luckily, behavioural economics especially the optional kind, and
makes our irrationality more predict- that prevents them from spending
Emily Hill Duncan Jefferies
able. In the words of Nobel prize-win- the money they think they should
Freelance journalist and Freelance journalist and
author, she is the former copywriter, he covers ning economist Professor Richard spend on certain things, and they
commissioning editor at digital culture, technology Thaler, it’s “economics done with sometimes kick themselves after-
The Spectator and feature and innovation, and strong injections of good psychology”. wards,” says Scott Rick, associ-
writer for The Mail writes for The Guardian When considering paying for ate professor of marketing at the
on Sunday. and Independent Voices.
goods, researchers have found that University of Michigan.
Alexandra Leonards Ouida Taafe buying one thing makes us much On the other side of the spectrum,
Freelance journalist, she Editor of LIBF’s Financial more likely to buy subsequent items, spendthrifts hardly experience any
writes in-depth features World, she has also worked regardless of our previous delibera- our tendency for “duration neglect” But what kind of a pain is it exactly? pain at all. “They just can’t stop them-
on a range of subjects, for the International tions. Browsing things to buy online means we don’t typically think A brain imaging study led by selves,” says Dr Rick. Spendthrifts are
including current affairs, Financing Review and
or in a store, puts us in a mindset of about how long we’re going to use Professor Nina Mazar, a behavioural largely insensitive to payment meth-
culture, to healthcare, tech Telecommunications
and logistics. International. “deliberation”. But as soon as we buy it for. But if people are asked to con- scientist at Boston University, found ods, but for tightwads, contactless
one item, a cognitive shift to “imple- sider how long an item is meant to that the pain of paying is not like a methods and framing techniques,
mentation” occurs. “Our mind- last, they’re likely to pay more. physical pain. It’s more similar to dis- for example if a fee is described as
set changes from whether or not I Such framing techniques influ- tress or anxiety on a neural level; it “small”, make a difference.
should buy something to how do I ence our pain threshold for pay- can help keep our spending in check. The third factor is whether we
buy this?” says Professor Ravi Dhar ing. People are, generally speak- However, not all payments are consider a product virtuous or friv-
of the Yale School of Management, ing, loss averse and the idea of a equally painful. Research tends to olous. Buying fat-free yogurt feels
Lead publisher Head of production New Haven, Connecticut. “pain of paying” was coined some revolve around three key factors. different from buying ice cream
Ellen Shannon Justyna O'Connell
“If you want to resist the impulse,” two decades ago by professors The first is payment method. Paying with sprinkles. Only the latter gives
Associate editor Design says Professor Dhar, “ask yourself Drazen Prelec of the Massachusetts by card is less visceral and therefore us pangs of guilt.
Peter Archer Joanna Bird what else you could do with the Institute of Technology and easier than paying with cash. In one Virtuous items are those we con-
Sara Gelfgren money.” His studies show that peo- George Loewenstein of Carnegie study, people were willing to pay sider necessary and they’re more
Deputy editor Kellie Jerrard ple typically neglect to think of Mellon University, Pittsburgh, twice as much to bid on tickets for likely to induce shopping momen-
Francesca Cassidy Harry Lewis-Irlam
opportunity costs, or alternative Pennsylvania. Think of sitting in a basketball game if they could pay tum than vice items, which make
Celina Lucey
things we could buy with the same a taxi, staring at the meter creep by credit card rather than in cash. us pause because of the momentary
Managing editor Colm McDermott
Benjamin Chiou Samuele Motta amount of money. Those who do are higher and higher. It’s painful. Contactless payments and phone guilt. So buying milk leads to more
Jack Woolrich more likely to choose the cheaper subsequent purchases than buying
Digital content executive option or buy nothing at all. ice cream.
Taryn Brickner Head of design CONSUMERS AND THE PAIN OF PAYING
Conversely, retailers can use But there’s an effective way for
Tim Whitlock
framing techniques to get peo- companies to counter the guilt we
Widely cited survey of 13,000 respondents
25%
Although this publication is funded through advertising and ple to spend more. “Paying a lot feel when buying “vice” products.
sponsorship, all editorial is without bias and sponsored features for cashmere socks seems gross to It’s an age-old method: coupling vice
are clearly labelled. For an upcoming schedule, partnership many people,” says Professor Dhar. products with charitable donations.
inquiries or feedback, please call +44 (0)20 3877 3800 or If cashmere socks are presented In one study, 48 per cent of people
TIGHTWADS
email info@raconteur.net among other types of socks, we’re were likely to opt into a donation
Those who spend less than
Raconteur is a leading publisher of special-interest content and
inclined to see them as socks first they ideally would like when buying theme park tickets, but
research. Its publications and articles cover a wide range of topics,
and consider their material second. only 32 per cent did so when buying a
including business, finance, sustainability, healthcare, lifestyle and
technology. Raconteur special reports are published exclusively in But experiments have shown that if six-month supply of toothpaste.
The Times and The Sunday Times as well as online at raconteur.net the same socks are presented along- So if a vice product is coupled
15% 65%
The information contained in this publication has been obtained side other cashmere goods, we cate- with a charitable donation, peo-
from sources the Proprietors believe to be correct. However, gorise them as “cashmere” first and ple’s guilt is balanced by the warm
no legal liability can be accepted for any errors. No part of this “socks” second, and we’re willing to SPENDTHRIFTS glow we experience when we give to
publication may be reproduced without the prior consent of the
spend more. Those who spend charity and the moral satisfaction
Publisher. © Raconteur Media more than they
There’s another framing tech- we purchase. Our pain of paying is
ideally would like UNCONFLICTED
nique to increase spending. When assuaged, while both the company
@raconteur /raconteur.net @raconteur_london buying a new backpack, for example, Scott Rick et al, Journal of Consumer Research 2008 and charity benefit.
raconteur.net /future-payments-2019
02 FUTURE OF PAYMENTS RACONTEUR.NET 03
FUTURE OF BEHAVIOUR
PAYMENTS
How spending money
Distributed in
can buy happiness
Published in association with Behavioural economics can reveal useful insights into our
motivations and feelings when parting with hard-earned money
Marina Gerner payments make parting with money
Contributors
Tristan Colangelo/Unsplash
even easier.
Sophie Charara magine you’re on your way The latest example of separating
Paul Amery
Founding editor of New Associate editor at I back from work and you purchasing from paying are check-
Money Review, he is a WIRED UK, she writes pop into a shop. You weren’t out-less Amazon Go shops, where
former asset manager about technology looking for anything in particular, people don’t consciously pay at all.
and trader. and culture.
but an hour later you find yourself Hundreds of cameras around the
Edd Gent walking out with a big smile and mul- store are able to detect what custom-
Jack Apollo George
Writer and media Freelance science and tiple bags in tow. What happened? ers take off the shelves and automat-
specialist whose articles technology writer, his Behavioural economists call it the ically charge their Amazon account
on technology and culture work has been published effect of “shopping momentum”. when they leave.
have been published by in the BBC, New Scientist,
We like to think we’re rational con- The second factor is our disposi-
the New Statesman and Science and MIT
Technology Review.
sumers when it comes to our spend- tion. People who are tightwads and
CLOT Magazine.
ing. After all, our financial decisions who make up about 25 per cent of the
Marina Gerner Amy Hawkins have a huge impact on our wellbe- population, according to one study,
Award-winning arts, China-based journalist, ing. Think of an unforgettable holi- experience more pain when it comes
philosophy and finance she writes about day or a house bought at the wrong to paying than spendthrifts who
feature writer, her work technology and culture,
and has appeared in The
time. But in reality, we’re emotional make up 15 per cent.
has been published in
The Economist's 1843, The Guardian, The Sunday creatures, susceptible to biases and “Tightwads experience a lot of dis-
Times Literary Supplement Times, Foreign Policy external factors. tress when they make purchases,
and Standpoint. and others. Luckily, behavioural economics especially the optional kind, and
makes our irrationality more predict- that prevents them from spending
Emily Hill Duncan Jefferies
able. In the words of Nobel prize-win- the money they think they should
Freelance journalist and Freelance journalist and
author, she is the former copywriter, he covers ning economist Professor Richard spend on certain things, and they
commissioning editor at digital culture, technology Thaler, it’s “economics done with sometimes kick themselves after-
The Spectator and feature and innovation, and strong injections of good psychology”. wards,” says Scott Rick, associ-
writer for The Mail writes for The Guardian When considering paying for ate professor of marketing at the
on Sunday. and Independent Voices.
goods, researchers have found that University of Michigan.
Alexandra Leonards Ouida Taafe buying one thing makes us much On the other side of the spectrum,
Freelance journalist, she Editor of LIBF’s Financial more likely to buy subsequent items, spendthrifts hardly experience any
writes in-depth features World, she has also worked regardless of our previous delibera- our tendency for “duration neglect” But what kind of a pain is it exactly? pain at all. “They just can’t stop them-
on a range of subjects, for the International tions. Browsing things to buy online means we don’t typically think A brain imaging study led by selves,” says Dr Rick. Spendthrifts are
including current affairs, Financing Review and
or in a store, puts us in a mindset of about how long we’re going to use Professor Nina Mazar, a behavioural largely insensitive to payment meth-
culture, to healthcare, tech Telecommunications
and logistics. International. “deliberation”. But as soon as we buy it for. But if people are asked to con- scientist at Boston University, found ods, but for tightwads, contactless
one item, a cognitive shift to “imple- sider how long an item is meant to that the pain of paying is not like a methods and framing techniques,
mentation” occurs. “Our mind- last, they’re likely to pay more. physical pain. It’s more similar to dis- for example if a fee is described as
set changes from whether or not I Such framing techniques influ- tress or anxiety on a neural level; it “small”, make a difference.
should buy something to how do I ence our pain threshold for pay- can help keep our spending in check. The third factor is whether we
buy this?” says Professor Ravi Dhar ing. People are, generally speak- However, not all payments are consider a product virtuous or friv-
of the Yale School of Management, ing, loss averse and the idea of a equally painful. Research tends to olous. Buying fat-free yogurt feels
Lead publisher Head of production New Haven, Connecticut. “pain of paying” was coined some revolve around three key factors. different from buying ice cream
Ellen Shannon Justyna O'Connell
“If you want to resist the impulse,” two decades ago by professors The first is payment method. Paying with sprinkles. Only the latter gives
Associate editor Design says Professor Dhar, “ask yourself Drazen Prelec of the Massachusetts by card is less visceral and therefore us pangs of guilt.
Peter Archer Joanna Bird what else you could do with the Institute of Technology and easier than paying with cash. In one Virtuous items are those we con-
Sara Gelfgren money.” His studies show that peo- George Loewenstein of Carnegie study, people were willing to pay sider necessary and they’re more
Deputy editor Kellie Jerrard ple typically neglect to think of Mellon University, Pittsburgh, twice as much to bid on tickets for likely to induce shopping momen-
Francesca Cassidy Harry Lewis-Irlam
opportunity costs, or alternative Pennsylvania. Think of sitting in a basketball game if they could pay tum than vice items, which make
Celina Lucey
things we could buy with the same a taxi, staring at the meter creep by credit card rather than in cash. us pause because of the momentary
Managing editor Colm McDermott
Benjamin Chiou Samuele Motta amount of money. Those who do are higher and higher. It’s painful. Contactless payments and phone guilt. So buying milk leads to more
Jack Woolrich more likely to choose the cheaper subsequent purchases than buying
Digital content executive option or buy nothing at all. ice cream.
Taryn Brickner Head of design CONSUMERS AND THE PAIN OF PAYING
Conversely, retailers can use But there’s an effective way for
Tim Whitlock
framing techniques to get peo- companies to counter the guilt we
Widely cited survey of 13,000 respondents
25%
Although this publication is funded through advertising and ple to spend more. “Paying a lot feel when buying “vice” products.
sponsorship, all editorial is without bias and sponsored features for cashmere socks seems gross to It’s an age-old method: coupling vice
are clearly labelled. For an upcoming schedule, partnership many people,” says Professor Dhar. products with charitable donations.
inquiries or feedback, please call +44 (0)20 3877 3800 or If cashmere socks are presented In one study, 48 per cent of people
TIGHTWADS
email info@raconteur.net among other types of socks, we’re were likely to opt into a donation
Those who spend less than
Raconteur is a leading publisher of special-interest content and
inclined to see them as socks first they ideally would like when buying theme park tickets, but
research. Its publications and articles cover a wide range of topics,
and consider their material second. only 32 per cent did so when buying a
including business, finance, sustainability, healthcare, lifestyle and
technology. Raconteur special reports are published exclusively in But experiments have shown that if six-month supply of toothpaste.
The Times and The Sunday Times as well as online at raconteur.net the same socks are presented along- So if a vice product is coupled
15% 65%
The information contained in this publication has been obtained side other cashmere goods, we cate- with a charitable donation, peo-
from sources the Proprietors believe to be correct. However, gorise them as “cashmere” first and ple’s guilt is balanced by the warm
no legal liability can be accepted for any errors. No part of this “socks” second, and we’re willing to SPENDTHRIFTS glow we experience when we give to
publication may be reproduced without the prior consent of the
spend more. Those who spend charity and the moral satisfaction
Publisher. © Raconteur Media more than they
There’s another framing tech- we purchase. Our pain of paying is
ideally would like UNCONFLICTED
nique to increase spending. When assuaged, while both the company
@raconteur /raconteur.net @raconteur_london buying a new backpack, for example, Scott Rick et al, Journal of Consumer Research 2008 and charity benefit.
raconteur.net /future-payments-2019
04 FUTURE OF PAYMENTS RACONTEUR.NET 05
Commercial feature
B2B PAYMENTS
Streamlining the payments supply chain
Five ways to simplify B2B payments
Q&A
01
How to future-proof
Public risk court judgments against it, as
scores well as anonymised data on its
payment patterns gathered
Late payments can Fintech Swoop is developing from open banking information.
Matt Porteous/Getty Images
your online payments
a risk score for potential
have a disastrous business partners. The score
ripple effect will give SMEs instant insight,
on their mobile, into whether
on the supply a particular firm has a good
track record of fair-dealing.
chains of small The score will reflect publicly As payments innovation continues, regulations are becoming
available data about the client
businesses and company, such as any county more complicated. Bradley Riss, chief commercial officer of
there is big room for Checkout.com, explains how to thrive in this changing world
improvement
02 Account-to-
account payment
network. Users should be able
to present their clients with an
open banking-enabled invoice
How are online
payments changing?
It’s not uncommon to see an
chargeback rates, reducing exposure
to bad actors. Plus, as retailers become
increasingly global and look to grow their
smartphone was available. As payments
increase, so does the strain on these
systems, leading to interruptions. The
Invoices that can be paid from early next year. Alipay or WeChat Pay logo out- customer base through market expan- Financial Conduct Authority has been
electronically get paid faster. side Asia as retailers realise they can sion, they must think about unique, vocal about the negative impact of out-
Currently, this means paying win more customers by supporting their local payments landscapes. Solutions ages, noting that systems failures in the
card fees. Open banking preferred payment method. “Buy now, that allow retailers to accept any type industry are increasing. This instability
will make it possible to offer pay later” payments have also shown of local payment from any country can is unacceptable, but avoidable. We built
account-to-account payments high adoption, helping retailers to max- meaningfully support a company’s long- our platform around a modern archi-
Ouida Taafe
that are either free or undercut imise basket size and allow access to term growth, while streamlining internal tecture, leveraging the latest technolog-
card payments and can be done premium products by spreading out payments operations. ical standards. There are no finite limits
usiness-to-business (B2B) more or less instantaneously or deferring the payment. Meanwhile, on what we could process and stabil-
B payments matter as small over the faster payments Payment Services Directive 2 imposes How can online retailers and ity is an asset when compared to the
companies live or die by a requirement for strong customer services stay up to date? wider industry.
their cash flow. Indeed, the impor- authentication, or SCA. There’s con- It’s critical to find a payments
tance of getting paid on time is one fusion around exactly what that means partner that can seamlessly and Finally, what is your advice for
of the main reasons why small busi-
nesses are willing to shoulder the
cost of card payments.
03 Real-time
cash-flow data
with real-time data on cash
flow, with automated nudging to
chase and make payments, and
with regulators across Europe differing
on the enforcement of the regulations,
and both retailers and issuing banks
successfully support hundreds of cur-
rencies, any payment method and navi-
gate nuanced regulations. Checkout.com
retailers when it comes
to payments?
We’ll see new payment methods,
Before cards came along, onerous Large corporates have financial help with optimising payment showing varying degrees of readiness. offers a unified payment platform, so new card processing features.
amounts of time and money were professionals to manage methods to avoid charges. When coupled with emerging payment no matter what payment method you This could make life harder for compa-
spent on chasing what was owed with However, the problem ripples apart from the owner(s) in 2018. made possible by open banking, payments. SMEs, in contrast, methods, it makes for a complicated want to offer, it is a part of our rep- nies. But if you partner with a provider
written invoices. However, though out much further than additional Such firms find it particularly hard the requirement that, if customers are often too small to have landscape to navigate. ertoire. These include Alipay, Klarna, that can help you offer the payment
card payments have brought ben- cost to one firm, though these to deal with a lot of admin. ask for it, banks must share account dedicated in-house staff and Union Pay, Visa, Mastercard, Apple Pay, choices your customers want, and with
put a lot of reliance on banks, Can brands keep up? Qiwi, iDeal and many others. In theory, the agility to adapt and capitalise as the
efits, the scourge of late payments,
which puts 50,000 small UK firms
can be very high, including bank-
ruptcy. Affected firms can strug-
The FSB lays the blame for B2B
payments woes squarely at the door
At the moment, late payments data with other financial services
firms. Those firms can then use which can levy steep, and not Online brands want to focus on a retailer could offer these by work- sector evolves, you’ll be at the fore-
out of business each year, according gle to pay their own suppliers on of large businesses. It is not alone. are seen as a minor infraction. the data to offer payment services, transparent, charges. Under their core offering and custom- ing directly with each payment service, front of online retail, no matter how the
to HM Treasury, has not gone away. time, which hits the economy as The Forum of Private Business, a including B2B payments. open banking, it will be possible ers, not get distracted by new but it’s an absurd amount of work. You market changes. A payment partner can
“Our members face an absolute a whole. It’s often forgotten that trade body representing around We want them to be seen as a Swoop, one of the fintechs recently to have a mobile dashboard payment methods or how to comply could be looking at 20 payment meth- help your business cope with the torrent
late-payments crisis,” says Craig SMEs employ around 60 per cent 25,000 SMEs, recently put out a public embarrassment awarded a £5-million govern- with new payment regulations. Of ods in a region, each requiring inte- of requirements. Our model is based on
Beaumont, director of external of all those in private-sector jobs in to-do list for the incoming prime ment grant under the Banking course, they know that offering the best grations, unique reporting formats and our clients succeeding and the core
affairs at the Federation of Small the UK, roughly 16 million people, minister. Top of the 18 requests was Competition Remedies Scheme, checkout experience, including the pay- settlement flows. Instead, we provide reason why businesses choose us to help
Businesses (FSB). The figures seem and account for 52 per cent of pri- to make 30 days a legal requirement aims to be a one-stop money shop for ment method customers want to use, everything via one integration, with them enhance and expand their pay-
to bear this out. At the end of 2018,
43 per cent of UK small and medi-
um-sized enterprises (SMEs) had to
vate-sector turnover, according to
the FSB. That is why any problems
in B2B payments are more than
for the payment of invoices once
work is completed and provide the
small business commissioner with
“There are a number of reasons for
late payments,” says Sam O’Connor,
SMEs and sees payments as central
to good cash-flow management, says
the chief executive Andrea Reynolds.
04 Foreign exchange
transparency
both international payments
and foreign currencies, and
give them the opportunity to
provides a competitive advantage, so
they can’t ignore these changes either.
back-office and settlement services
normalised irrespective of the payment
method or market. We service both
ment functions.
deal with late payments and, on aver- just a hiccup. the ability to fine consistently poor chief executive of Coconut, which Ms Reynolds is bullish on the When small firms make shop around with a few clicks What are the benefits of improv- startups and established global giants,
age, they faced a bill of £9,000 for Since the financial crisis, there payers. However, ensuring big firms provides bank account, tax and benefits data capture can bring via B2B payments in foreign on a mobile app. ing the payment process? such as Samsung, Virgin, adidas and To find out more please visit
recovering the money owed, accord- has also been a notable increase in play by the B2B payments rules is accounting software to the self-em- open banking, but warns “tech- currencies, they do not have With the right payments solu- TransferWise. checkout.com
ing to the UK retail payments author- self-employment. According to the not the only problem that needs ployed. “For self-employed people nology can only go so far”. There access to the spot foreign- tion, retailers can improve con-
ity Pay.UK. The cumulative adminis- Office for National Statistics, 75 per solving nor, perhaps, the only way who service small businesses, cli- also has to be political will to make exchange price banks use nor version, reduce costs and curtail risk. What about stability?
tration bill was around £4.4 billion. cent of businesses had no employees to help SMEs. ents may have relatively immature firms pay on time. the near-wholesale terms big For example, on risk reduction, some Most payment systems run on
finance processes and not be great at However, she says the ability open companies command and payment types have lower reversal and technologies built before the first
managing payments well. It can also banking will give SMEs to see what often pay hefty charges on top.
L ATE-PAYMENTS CRISIS
be hard for a sole trader to stay on they are being charged for B2B pay- Open banking can bring SMEs
top of late payments, so some might ments, to shop around and find new transparency on the costs of
of SMEs owed money are being owed money claim that THE OLD WAY
slip through the net. Dealing with solutions to cash-flow problems is
forced to wait one month or large companies are Slow. Inefficient. Complicated by third parties. The result? Hidden costs, failed transactions, frustration and poor service
accounting and tax admin is low already making large banks much
more beyond their agreed the worst late paying
down on the list of priorities when more engaged in offering new financ-
05
terms before they are paid offenders
you're trying to run a business.” ing solutions as part of a wider mar- Scheduling
Mr O’Connor says that one of the ketplace. “Swoop has three live pro- payments beyond traditional products,
major hurdles in improving pay- jects with banks at the moment. such as invoice financing, to
ments processing has already been Banks are now looking at open bank- Small firms facing cash-flow something more customised
Merchant Payment Acquirer Payment Issuers
taken thanks to the arrival of mobile ing as an opportunity, not just a mat- issues will be able to use open and market gateway processor
point-of-sale (PoS) machines. “They ter of compliance,” says Ms Reynolds. banking to help better schedule responsive.
64% 51% 40% 34% have transformed how people get Banks are not the only large firms their own payments and get
paid. Before that, it was either via who see opportunities in B2B pay- improved access to short-term THE CHECKOUT.COM WAY
invoice or cash, which are harder ments. The FSB’s Mr Beaumont financing. Say, for example, they Fast. Direct. Reliable. You benefit from better approval rates, faster payment acceptance, and happier customers
to manage,” he says. However, PoS points out that they took part in have an invoice due in 30 days,
machines still use cards, which a roundtable with the Chancellor they could set up scheduled
come with fees. of the Exchequer in July, along- payments or use their own and
take large company experiencing late payments say The next step forward, Mr side PayPal and other firms. “At the market data to organise short-
payment practices into they have to rely on overdrafts
account before trading to help them meet their O’Connor argues, could be direct moment, late payments are seen as term, bridge funding that goes Payment Risk Acquirer Payment
with them monthly obligations account-to-account payments that a minor infraction. We want them to Merchant gateway processor Issuers
will “either eliminate or drastically be seen as a public embarrassment,”
Pay.UK 2018 reduce payment fees”. This will be Mr Beaumont concludes.
04 FUTURE OF PAYMENTS RACONTEUR.NET 05
Commercial feature
B2B PAYMENTS
Streamlining the payments supply chain
Five ways to simplify B2B payments
Q&A
01
How to future-proof
Public risk court judgments against it, as
scores well as anonymised data on its
payment patterns gathered
Late payments can Fintech Swoop is developing from open banking information.
Matt Porteous/Getty Images
your online payments
a risk score for potential
have a disastrous business partners. The score
ripple effect will give SMEs instant insight,
on their mobile, into whether
on the supply a particular firm has a good
track record of fair-dealing.
chains of small The score will reflect publicly As payments innovation continues, regulations are becoming
available data about the client
businesses and company, such as any county more complicated. Bradley Riss, chief commercial officer of
there is big room for Checkout.com, explains how to thrive in this changing world
improvement
02 Account-to-
account payment
network. Users should be able
to present their clients with an
open banking-enabled invoice
How are online
payments changing?
It’s not uncommon to see an
chargeback rates, reducing exposure
to bad actors. Plus, as retailers become
increasingly global and look to grow their
smartphone was available. As payments
increase, so does the strain on these
systems, leading to interruptions. The
Invoices that can be paid from early next year. Alipay or WeChat Pay logo out- customer base through market expan- Financial Conduct Authority has been
electronically get paid faster. side Asia as retailers realise they can sion, they must think about unique, vocal about the negative impact of out-
Currently, this means paying win more customers by supporting their local payments landscapes. Solutions ages, noting that systems failures in the
card fees. Open banking preferred payment method. “Buy now, that allow retailers to accept any type industry are increasing. This instability
will make it possible to offer pay later” payments have also shown of local payment from any country can is unacceptable, but avoidable. We built
account-to-account payments high adoption, helping retailers to max- meaningfully support a company’s long- our platform around a modern archi-
Ouida Taafe
that are either free or undercut imise basket size and allow access to term growth, while streamlining internal tecture, leveraging the latest technolog-
card payments and can be done premium products by spreading out payments operations. ical standards. There are no finite limits
usiness-to-business (B2B) more or less instantaneously or deferring the payment. Meanwhile, on what we could process and stabil-
B payments matter as small over the faster payments Payment Services Directive 2 imposes How can online retailers and ity is an asset when compared to the
companies live or die by a requirement for strong customer services stay up to date? wider industry.
their cash flow. Indeed, the impor- authentication, or SCA. There’s con- It’s critical to find a payments
tance of getting paid on time is one fusion around exactly what that means partner that can seamlessly and Finally, what is your advice for
of the main reasons why small busi-
nesses are willing to shoulder the
cost of card payments.
03 Real-time
cash-flow data
with real-time data on cash
flow, with automated nudging to
chase and make payments, and
with regulators across Europe differing
on the enforcement of the regulations,
and both retailers and issuing banks
successfully support hundreds of cur-
rencies, any payment method and navi-
gate nuanced regulations. Checkout.com
retailers when it comes
to payments?
We’ll see new payment methods,
Before cards came along, onerous Large corporates have financial help with optimising payment showing varying degrees of readiness. offers a unified payment platform, so new card processing features.
amounts of time and money were professionals to manage methods to avoid charges. When coupled with emerging payment no matter what payment method you This could make life harder for compa-
spent on chasing what was owed with However, the problem ripples apart from the owner(s) in 2018. made possible by open banking, payments. SMEs, in contrast, methods, it makes for a complicated want to offer, it is a part of our rep- nies. But if you partner with a provider
written invoices. However, though out much further than additional Such firms find it particularly hard the requirement that, if customers are often too small to have landscape to navigate. ertoire. These include Alipay, Klarna, that can help you offer the payment
card payments have brought ben- cost to one firm, though these to deal with a lot of admin. ask for it, banks must share account dedicated in-house staff and Union Pay, Visa, Mastercard, Apple Pay, choices your customers want, and with
put a lot of reliance on banks, Can brands keep up? Qiwi, iDeal and many others. In theory, the agility to adapt and capitalise as the
efits, the scourge of late payments,
which puts 50,000 small UK firms
can be very high, including bank-
ruptcy. Affected firms can strug-
The FSB lays the blame for B2B
payments woes squarely at the door
At the moment, late payments data with other financial services
firms. Those firms can then use which can levy steep, and not Online brands want to focus on a retailer could offer these by work- sector evolves, you’ll be at the fore-
out of business each year, according gle to pay their own suppliers on of large businesses. It is not alone. are seen as a minor infraction. the data to offer payment services, transparent, charges. Under their core offering and custom- ing directly with each payment service, front of online retail, no matter how the
to HM Treasury, has not gone away. time, which hits the economy as The Forum of Private Business, a including B2B payments. open banking, it will be possible ers, not get distracted by new but it’s an absurd amount of work. You market changes. A payment partner can
“Our members face an absolute a whole. It’s often forgotten that trade body representing around We want them to be seen as a Swoop, one of the fintechs recently to have a mobile dashboard payment methods or how to comply could be looking at 20 payment meth- help your business cope with the torrent
late-payments crisis,” says Craig SMEs employ around 60 per cent 25,000 SMEs, recently put out a public embarrassment awarded a £5-million govern- with new payment regulations. Of ods in a region, each requiring inte- of requirements. Our model is based on
Beaumont, director of external of all those in private-sector jobs in to-do list for the incoming prime ment grant under the Banking course, they know that offering the best grations, unique reporting formats and our clients succeeding and the core
affairs at the Federation of Small the UK, roughly 16 million people, minister. Top of the 18 requests was Competition Remedies Scheme, checkout experience, including the pay- settlement flows. Instead, we provide reason why businesses choose us to help
Businesses (FSB). The figures seem and account for 52 per cent of pri- to make 30 days a legal requirement aims to be a one-stop money shop for ment method customers want to use, everything via one integration, with them enhance and expand their pay-
to bear this out. At the end of 2018,
43 per cent of UK small and medi-
um-sized enterprises (SMEs) had to
vate-sector turnover, according to
the FSB. That is why any problems
in B2B payments are more than
for the payment of invoices once
work is completed and provide the
small business commissioner with
“There are a number of reasons for
late payments,” says Sam O’Connor,
SMEs and sees payments as central
to good cash-flow management, says
the chief executive Andrea Reynolds.
04 Foreign exchange
transparency
both international payments
and foreign currencies, and
give them the opportunity to
provides a competitive advantage, so
they can’t ignore these changes either.
back-office and settlement services
normalised irrespective of the payment
method or market. We service both
ment functions.
deal with late payments and, on aver- just a hiccup. the ability to fine consistently poor chief executive of Coconut, which Ms Reynolds is bullish on the When small firms make shop around with a few clicks What are the benefits of improv- startups and established global giants,
age, they faced a bill of £9,000 for Since the financial crisis, there payers. However, ensuring big firms provides bank account, tax and benefits data capture can bring via B2B payments in foreign on a mobile app. ing the payment process? such as Samsung, Virgin, adidas and To find out more please visit
recovering the money owed, accord- has also been a notable increase in play by the B2B payments rules is accounting software to the self-em- open banking, but warns “tech- currencies, they do not have With the right payments solu- TransferWise. checkout.com
ing to the UK retail payments author- self-employment. According to the not the only problem that needs ployed. “For self-employed people nology can only go so far”. There access to the spot foreign- tion, retailers can improve con-
ity Pay.UK. The cumulative adminis- Office for National Statistics, 75 per solving nor, perhaps, the only way who service small businesses, cli- also has to be political will to make exchange price banks use nor version, reduce costs and curtail risk. What about stability?
tration bill was around £4.4 billion. cent of businesses had no employees to help SMEs. ents may have relatively immature firms pay on time. the near-wholesale terms big For example, on risk reduction, some Most payment systems run on
finance processes and not be great at However, she says the ability open companies command and payment types have lower reversal and technologies built before the first
managing payments well. It can also banking will give SMEs to see what often pay hefty charges on top.
L ATE-PAYMENTS CRISIS
be hard for a sole trader to stay on they are being charged for B2B pay- Open banking can bring SMEs
top of late payments, so some might ments, to shop around and find new transparency on the costs of
of SMEs owed money are being owed money claim that THE OLD WAY
slip through the net. Dealing with solutions to cash-flow problems is
forced to wait one month or large companies are Slow. Inefficient. Complicated by third parties. The result? Hidden costs, failed transactions, frustration and poor service
accounting and tax admin is low already making large banks much
more beyond their agreed the worst late paying
down on the list of priorities when more engaged in offering new financ-
05
terms before they are paid offenders
you're trying to run a business.” ing solutions as part of a wider mar- Scheduling
Mr O’Connor says that one of the ketplace. “Swoop has three live pro- payments beyond traditional products,
major hurdles in improving pay- jects with banks at the moment. such as invoice financing, to
ments processing has already been Banks are now looking at open bank- Small firms facing cash-flow something more customised
Merchant Payment Acquirer Payment Issuers
taken thanks to the arrival of mobile ing as an opportunity, not just a mat- issues will be able to use open and market gateway processor
point-of-sale (PoS) machines. “They ter of compliance,” says Ms Reynolds. banking to help better schedule responsive.
64% 51% 40% 34% have transformed how people get Banks are not the only large firms their own payments and get
paid. Before that, it was either via who see opportunities in B2B pay- improved access to short-term THE CHECKOUT.COM WAY
invoice or cash, which are harder ments. The FSB’s Mr Beaumont financing. Say, for example, they Fast. Direct. Reliable. You benefit from better approval rates, faster payment acceptance, and happier customers
to manage,” he says. However, PoS points out that they took part in have an invoice due in 30 days,
machines still use cards, which a roundtable with the Chancellor they could set up scheduled
come with fees. of the Exchequer in July, along- payments or use their own and
take large company experiencing late payments say The next step forward, Mr side PayPal and other firms. “At the market data to organise short-
payment practices into they have to rely on overdrafts
account before trading to help them meet their O’Connor argues, could be direct moment, late payments are seen as term, bridge funding that goes Payment Risk Acquirer Payment
with them monthly obligations account-to-account payments that a minor infraction. We want them to Merchant gateway processor Issuers
will “either eliminate or drastically be seen as a public embarrassment,”
Pay.UK 2018 reduce payment fees”. This will be Mr Beaumont concludes.
06 FUTURE OF PAYMENTS RACONTEUR.NET 07
Commercial feature
MmeEmil/Getty Images
CASH
Riding high with unicorns
Are we As fintech consolidates, a new crop of billion-dollar unicorns is on the horizon,
sleepwalking writes Clay Wilkes, chief executive of Galileo
into a cashless F
inancial technology (fintech)
is making a significant impact
on our daily lives, from how
GLOBAL FINTECH FUNDRAISING
Investment volumes and deal activity by fintech category
future?
we pay for public transport to pro-
viding alternatives to big banks and
NUMBER OF DEALS FUNDING ($M)
making international money trans-
fers cost effective. There are 11,500 818 951 1,207 1,838 2,742 3,251 1,561 4,844 13,358 21,214 23,373 26,653 55,347 22,046
companies across the globe whose
1%
primary focus is fintech, with about 3% 3% 3% 2% 3% 2% 1% 1% Back office
6% 5% 4% 3% 3%
3%
Without access to cash or the right support 3,000 focused on payments fintech,
getting money from one person, busi-
5%
5% 8%
8% 8% 7% 6% 4% 5%
3%
6%
3% 22%
4%
3%
3%
operations
6%
in a transition to digital payment, the older ness or government to another. 9%
10% 9%
6% 6% 7% 8% 3% 5% 8%
30% 11% Wealth/asset
management
For a decade, fintech has been the 9%
generation will suffer darling of venture capitalists (VCs). In 9%
9%
10% 11%
9% 9%
22% 5% Markets
the first half of 2019, investors poured 9%
$15.1 billion into fintechs globally, with 10% 7% 31% 3% 25% Current accounts
18% 15%
54 challenger banks alone attract- 12% 16% 17% 5%
15% 27%
7% 45%
Alexandra Leonards ing nearly $1.5 billion. Why so? Firstly, 9% Lending
because investors recognise the
12% 14% 28% 19% Insurance
tremendous opportunity inherent in 15% 14% 13%
14% 9% 14%
he plump purses and coin- 2026, according to a report by the cool, if not a little scary, but they introduce and uphold the concept of ing that for many this change will disrupting traditional banking. And, sec- 7%
T heavy pockets of a once Access to Cash Review. Although contribute to the fact that cash fea- inclusive digital design. be gradual.” ondly, because successful fintechs have
34% 8%
Payments
cash-centric society have it’s unlikely that cash will actual- tures in only 15 per cent of purchas- “You should not expect people If the UK is destined for a future of generated stratospheric valuations. Other
long been replaced by sleek plas- ly disappear entirely, the report es and this carries consequences for to fit around changes, but design bank closures, contactless cards and Every VC wants in on the next Stripe 23% 25% 13% 8%
30% 51%
27% 31%
tic cards and shiny mobile devices. does say that in 15 years’ time cash the elderly in Sweden. technology so the changes work a rejection of cash, then banks, fin- ($22.5 billion) or Adyen ($19.5 billion). 30% 28% 32% 28%
The UK is experiencing what feels could account for as little as one in Access to Cash Review warns that for them, then you will start to techs and government bodies must The trajectory of fintech is about to 23%
like a natural and inevitable move- ten transactions. Sweden demonstrates the “dangers see greater take up of new tech- take responsibility for the impact change, however, and the result will be 19%
ment towards a cashless society. The It’s the rising ATM and bank clo- of sleepwalking into a cashless soci- nology and see more people ben- this will have on the older genera- fewer fintech businesses overall and 20%
20% 21% 20%
changeover has been easy for most, sures, a growing rejection of cash ety”. Namely, millions could be left efit from it,” explains Joel Lewis, tion. Cash must survive for the eight more fintech unicorns, privately held 16% 16%
11% 13% 12% 12%
but digital payment has only been in shops – often a consequence of without financial inclusion, facing policy manager at Age UK. “Older million adults who would struggle in startups with valuations exceeding $1 10% 10% 10%
6% 5%
designed with financial inclusion those branch closures – and a broad heightened risk of isolation, ex- people can become accustomed to a cashless society and digital tech- billion. Within three to five years, the
of the mass market in mind, not for movement towards digital pay- ploitation, debt and rising costs. changes and many embrace it, but nologies should be designed with number of fintech businesses is likely 2013 2014 2015 2016 2017 2018 1 H 2019 2013 2014 2015 2016 2017 2018 1 H 2019
those heavily reliant on cash. ments driving the decline in cash “The problem we have is that as there needs to be an understand- financial inclusion for all in mind. to drop by half, while valuations of the
For the older generation, who of- use across the UK. we use less cash and if we don’t re- remaining companies and the number Accenture analysis of CB Insights data, 2019
ten depend on cash, this new-found In Sweden, the most cashless form the infrastructure, those costs of unicorns among them will soar.
dominance of digital payment is country on Earth, payments can are borne by the retailers,” says
an upward struggle. Regardless, its now be made on messaging apps Natalie Ceeney, chair of Access to Seniors are guided by volunteers Fintech consolidation Fintech consolidation will have the Unicorns rising high-cost international money trans- costs low, they’ll continue to attract
growing dominance shows no sign and thousands of its citizens have Cash Review. “They may decide to to download relevant mobile apps While fintech investment will be robust important corollary effect of consoli- Strong, ongoing investment will boost fers. Its founders, both of whom had investment and, potentially, displace
of slowing. In fact, a straight-line microchips implanted into their go cashless because they feel they and learn how to log into their for the next decade, VCs will become dating financial data into fewer hands, the number of fintech unicorns. Three been paid in foreign currencies, were traditional banks for everyday con-
trajectory of existing trends would hands for speedy purchases. These have no choice; what happens if lo- epayment accounts. Alongside more discriminating about the compa- which is a positive outcome if the data years ago, there were 27 worldwide, tired of giving up 5 per cent of their sumer financial needs.
see a complete end to cash use by purchasing methods might sound cal authorities or utility providers this, they learn about different nies they invest in. The “two developers is handled securely and consumers with a combined $16.9 billion valuation. income to currency conversion, so they
do the same?” epayment modes, such as in a garage” model of fintech innova- control their information. Companies Today, there are 48, valued at $187.0 created a low-cost, fully mobile alter- Follow the money
Cash is a key part of national in- transferring money through mobile tion may not be dead, but those garage with access to the data will have an billion, with seven added during the native. Today, TransferWise has five The key to the future of fintech is
MOBILE PAYMENTS WEIGHTED TOWARDS YOUNGER PEOPLE frastructure, not just a commercial apps, paying for food and beverage startups will face increasing difficulty advantage over those that don’t, first half of 2019. And there’s a strong million customers and processes $4 following the money. And the smart
issue. This means it’s the duty of a items by scanning QR codes, obtaining funding. Consequently, strengthening the market positions of pipeline of fintechs; in the United billion a month in currency transfers. money is backing fintechs, particu-
Distribution of mobile payment users and the total population in the UK by age
number of bodies to ensure there is and topping up travel cards with the fintechs that disappear because the “haves”. States alone, 40-plus are on the cusp Not surprisingly, two of these larly companies with a proven track
NemanjaMiscevic/Shutterstock
financial inclusion for older people. debit cards. They also learn about they’ve exhausted their funding Galileo, for example, will grow this of unicorn status. unicorns are challenger banks and all record of creating value by unshackling
“Ensuring that older people aren’t staying safe online and are given without gaining market traction, and year to process roughly ten million So, what does a payment fintech three are Galileo clients. banking and payments, and offering
30% Percentage of total population
left behind should be a joint respon- useful cybersecurity tips. there have been many, aren’t as likely financial transactions daily. Using unicorn look like? Here are three UK- convenient, cost-effective services.
Percentage who use mobile payments sibility,” says Gill Moffett, policy "IMDA is continually refining to be replaced by newly minted ones. advanced technologies, combined based examples. Challenger banks Later this year, for example, expect
manager at Independent Age. “Al- our Silver Infocomm Initiative Other fintechs will be acquired, some with artificial intelligence, we’ll use Monzo ($2.5 billion), a challenger bank During the first half of 2019, chal- financial products that address banks’
25% though many older people are hap- to better equip seniors for the scooped up by traditional banks to the immense amount of anonymous launched in 2015, offers an alternative lenger banks attracted $2.5 billion, low, zero or negative interest rates.
py to use cards and mobile banking, digital economy and society, strengthen their payments operations. data generated by these transac- to traditional banks with a completely an average of $45.45 million across Look for all types of companies,
it is vital that those who do need or and this epayment learning Still others will merge to create larger, tions to reduce card-based fraud mobile banking service that attracts 55 deals, from VC firms. To put this beyond traditional banks and even
20% want to use cash aren’t disadvan- Singapore’s journey for seniors is our latest stronger businesses. And the strongest losses to less than half the industry 55,000 new customers a week. The staggering number into perspective, fintechs, to offer new, incredibly con-
taged or forgotten about.” epayment lessons addition,” says Koh Li-Na, senior will continue to receive support from average. Similarly, other large fin- company recently announced it’s it surpasses 2018’s record investment venient payment options. APIs (appli-
Earlier this year the government director, digital readiness investors, who will focus increasingly techs will use their own big data to expanding to America, where it will of $2.3 billion for the entire year. cation programming interfaces) are
for seniors
15% launched its Joint Authorities Cash cluster, IMDA. “Using technology on proven companies in their later fuel positive innovation. take on not only traditional banks, Investors recognise that challenger enabling this next wave of payments
Strategy Group, aimed at safeguard- Singapore’s government body, appropriately allows seniors funding rounds. but native challenger banks, including banks are deconstructing banking, innovation, which will lead to massive
ing consumers’ access to cash. It’s a Infocomm Media Development to connect with their family This transition is already under- Chime and Varo. unpacking the services consumers adoption, like the explosion of mobile
10% start, but there’s still much more to Authority (IMDA), is helping members, access eservices way because a maturing fintech Revolut ($1.7 billion), another chal- want and delivering those services apps a decade ago.
be done. its senior population learn and enjoy the convenience of environment doesn’t need 11,500 par- lenger bank launched in 2015, ena- in a digital, easy-to-consume format We’re only beginning this fintech
The Emerging Payments Associ- how to use epayments etransactions and epayments." ticipants. Although we never want to bles customers to hold cash in mul- at attractive price points. Challenger journey; there’s much more to come.
5% ation says that cash is not a long-
term fix for financial exclusion, nor
and empower them to use
technology securely and
IMDA organised 50 sessions
throughout 2018 at different
lose the entrepreneurial spirit of two
developers in a garage, consolidation
Challenger banks are helping tiple currencies. As of late-2018, it
holds a European banking licence and
banks are helping consumers
understand that although they need Galileo is fintech’s tech. We power
a sound foundation for 21st-centu- confidently. This is part of locations, in collaboration with will increase the efficiency of fintech consumers understand that offers banking services, currency and banking services, they don’t need the world’s leading fintechs,
Singapore’s wider initiative to various community groups, investments, creating businesses that cryptocurrency exchange, and peer-to traditional banks. including many current and soon-
0% ry economies. If this is true, there
needs to be the right support in help its citizens take part in and reached out to 2,000 can scale, achieve profitability and
although they need banking peer payments. Like Monzo, it has US Challenger banks have some of the to-be unicorns. Contact us for more
16-24 25-34 35-44 45-54 55-64 65+
place for elderly people to make the the digital economy. older people. fulfil their mission to improve how services, they don’t need expansion plans. largest audiences among fintechs. If information at galileo-ft.com/contact
transition to digital payment. Regu- consumers, businesses and govern- TransferWise ($3.5 billion) launched they continue to expand their bases
UK Finance 2018 lators must work with businesses to ments handle their money. traditional banks in 2010 to solve the problem of while keeping customer acquisition
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