The future of payments in Europe - Real-time payments, open banking and APIs

As 2020 comes to a close, we asked our payments professionals worldwide about the changes they have seen this year to the payments industry, and how they envision these changes might shape the future. In this podbyte, we asked Paul Chandler, Sales Director Europe, to give us the lowdown on the year that nobody expected and how we might see the effects in 2021.

 

Q: How do you see the state of the payments industry changing in your region, and globally, in 2021?

A: Well for me it’s a simple answer - significantly. Firstly, from a UK domestic perspective we are on the verge of a hard Brexit from Europe which can bring untold consequences and a knock-on effect, which at the moment we have no visibility of. Secondly, the wider adoption by the consumer across the UK and Europe to go to contactless payments, in part mandated due to non-acceptance of cash by retailers due to COVID fears, means that globally, payment volumes for contactless have been unprecedented and this will grow even more in 2021. Not just in regional Europe, but globally, along with the adoption of digital, real-time settlement systems for central banks and blockchain, I suspect.

A positive consequence for a demise by consumers for cash is that the ATM sector will be encouraged to reinvent itself, to provide additional services at the ATM which consumers also need, and frankly, this is something that the ATMI has been talking about for some time. So you see every cloud does seem to have a silver lining.

 

Q: What changes occurred in 2020 that you foresee sticking for the future?

A: Real-time payments, open banking, and APIs. Corporates, SMEs, processors, etc., appear to be very accepting to the notion of real-time payments, faster payments, immediate payments. And similarly, with payments incoming at such a pace, i.e. in real time, infrastructures and payment processes will need to adapt also. Similarly, open banking, the king of consumer choice, and the wider adoption of APIs, in particular for settlement systems or embracing third-party reference data on the fly to embellish the payment processes or address payment fraud in real-time, they all underpin the concept of straight-through processing, which albeit has been spoken about for a number of years, but I think moving forward, we will see and hear a lot more of this. The rise of mobile super apps, are undoubtedly here to stay and frankly, consumers can’t get enough of it.

 

Q: What is the state of cash and the ATM in your region, and do you see cash being used less frequently in the future?

A: I mentioned earlier that due to COVID-19, many retailers decided not to accept cash - rightly or wrongly. But nevertheless, as a consumer and payments professional myself, I must admit to myself that I rarely draw cash from an ATM. In some ways it reminds me of when we tried to find a reason to abolish the cheque in the UK. A costly consultation reported that most cheques were used by the consumer to pay childminders, window cleaners, school dinners, and that the elderly living in remote locations needed the cheque. Well frankly, had the decision to abolish the cheque been taken back then, I think all of them would have found an alternative payment method. As it was, by the way, the cheque couldn’t be abolished because the biggest user of the cheque itself, was indeed Her Majesty’s Government, HMRC, Department of Work & Pensions, and DVLA, not to mention small businesses to some extent. But I see the same happening for the ATM. I recall that the cost of currency is equivalent to 3% of the national GDP, and that’s a lot of money. So cash is expensive and frankly, COVID kind of mandated that the consumer accepts change to find an alternative payment method because no one wanted to touch cash. And look what happened, we did it. And the UK saw a rise in contactless and digital payments by at least 30%. I suspect that many consumers having made that first contactless payment will not look back, and like me, and many others, no longer feel the need to carry so much cash with them. Besides, I look forward to the ATM industry embracing change, just like the payments industry has done over the last decade. It’s good for consumers, and it’s good for business.

 

Q: Anything else that you’d like to include regarding your region/area of expertise for the future of the payments industry?

A: By way of summary, across my region of responsibility, which is Europe, the UK’s exit from Europe is unprecedented, and goodness knows what is around the corner for many industry sectors, let alone the payments industry. Having said this, it was agreed that only small changes to the PSD2 were required to meet Europe’s requirements, and I recall this was indeed achieved. On the whole, the adoption of open banking, real-time payments and APIs is applicable, and initiatives such as the P27, supporting Nordic domestic payments and cross-border payments in real time, underpinned by APIs and the adoption of ISO20022 as a defacto standard. All of this echoes that we are all on the same page and heading in the right direction. However, we can only move forward at the pace of consumer adoption, and, for the first time in my payments career, I actually think the consumer is with us, on all of the above, and we need to keep our fingers on the innovation button.