2020, Bloody Hell!
By Matt Harrod – Director at Payments Company
At the end of 2019, I was asked about how I saw the UK fairing in 2020 post-Brexit and the challenges UK and EU financial services would have in dealing cross border. The whole industry was trying to prepare itself for the outcome of negotiations and planning as best as possible for business continuity with little guidance from the government on the best course of action due to the unknown outcome of these negotiations. The biggest blocker for the financial services industry in the future relationship with the EU seemed to be based around British fisherman’s ability to fish without competition in UK waters (this still seems to be the case).
The industry was primarily in protection mode as opposed to looking to innovation at a time when Europe was excelling in the Fintech space, a whole sector born out of the last financial crisis in 2008.
Fast forward 12 months and the world has become a very different place due to the unforeseen challenges caused by the coronavirus pandemic. The crisis shifted the protection focus back to an “innovate to survive’ mode, not just for financial services companies but also the companies the industry supported. There seems to have been a much more collaborative approach and speed of product development over the last 12 months, borne out of necessity that I haven’t seen in my time working in the industry.
I think the industry has been well placed to do just this due to the nature of the fintech industry being one that has dealt with rough waters over the last 12 years during an economic recovery and most importantly being much more tech focused than the industry was after 2008 and able to innovate at a pace not possible prior to that.
What innovation have we seen?
I see the financial services industry in Europe now sitting on a scale as a mix between financial services and technology. To show how far we have shifted across that scale you need to look at how you managed your personal money in 2008 and how you manage it now. Prior to 2008 if you wanted to just check your balance you had three options: Wait for your paper statement, check at an ATM or speak to someone either in the branch or over the phone. Now it will take a few seconds to check on your phone. The availability of service is something that is expected now; it’s no coincidence that the companies best placed through the crisis are ones that sit more on the tech side of the scale, providing customers with easy to use, necessary services.
The UK hospitality sector has been a sector that has been very hard hit, not just because of the lack of customers but also because of the changing rules and the need to adapt, sometimes with just a few days’ notice. Restaurants have been open, shut, open with restrictions, managed a track and trace notification system, shut again, have VAT decreased, open again, been only able to provide takeaways, had to manage an “eat out to help out scheme” and in doing so have needed the processes in place to manage all of these changes before they have even prepared a starter.
The innovation around this space has seen the much-heralded “omnichannel” actually become more mainstream as tech companies have seen the need for the sector to require diversification of sales channels. When once a terminal would suffice, a restaurant may now need a terminal, an e-commerce solution for takeaways and deliveries, and even an app-based ordering and payments for table service ensuring social distancing. This innovation in such a short timeframe born out of necessity may well change the way we interact in the hospitality sector moving forward.
Restaurants are also quite rightly reviewing some of their relationships with the big food delivery companies and the costs associated which will open up conversations with smaller start-up tech companies in this space in a way that was not possible prior to the pandemic.
How will this driving behavior?
Two of the main changes I have seen are the use of remote ordering and QR codes. While the younger generations have been using both extensively over the last few years, the older generation is now being forced away from the legacy card and terminal solution to an e-commerce centric payment process even in the physical world. This has now gone mass market as opposed to a niche product in some restaurants like Wahacca who can afford to invest in a bespoke service. It works for every stakeholder. A restaurant can turnover tables faster, getting more covers, and can also get an email address during checkout enabling direct marketing options and the customer isn’t waiting around for a waiter, then a bill to be presented, and then the terminal prior to being able to leave.
So where does this innovation lead behavior?
Innovation in most cases has been led by customer behavior (I know Henry Ford and Steve Jobs will disagree, that why I said most). The easiest way to pay over the last 20 years has been on a card and the introduction of contactless card payments has made this even easier, but in 2020 there surely has to be a better, more secure way to pay and the pandemic could actually have made the migration a little easier.
The Netherlands has been using a system called iDEAL for years which enables customers to pay directly from their bank account by linking at checkout to their bank, logging in, and pushing the payment as opposed to providing your details to the merchant who then pulls the payment from your account by authorization. This is a system that has a dominant market position, is cost-effective, and has minimal levels of fraud combined with the more traditional card payment methods.
There similar products in many other countries including Brazil and India while Africa has to lead the way in mobile payments with products like MPESA being the obvious example.
If the UK and EEA were to take this infrastructure and layer open banking, and mobile payments with the new faster payments and SEPA payment rails there are effective ways to redefine the payment space removing the card payment challenges merchants have with accepting cards (PCI compliance, fraud management, chargebacks, reserves, etc..).
There are new companies like Nuapay offering bank transfer products that are looking to do just that and are being well received in the market especially with higher value payments, but with the Fintech industry being able to utilize technology in the space to the fullest, 2020 could well be the catalyst to a whole new payment landscape in the way 2008 was with lead the charge into tech within the financial services space.