Bank to the Future: A Vision of Payments to Come

With cybercriminals, digitisation and the revised Payment Services Directive (PSD2), there’s no doubt our payment industry is facing both challenge and change. So how do new initiatives dedicated to bringing us up to speed plan to pay off?

Anybody who’s wracked their brain for a forgotten password at an online “checkout”, had their computer throw them “the spinning wheel of death” mid-payment or been the victim of cybercrime will know that electronic payments, for all their advantages, still present consumers with obstacles to the simplicity we’re used to with cash transactions.

Businesses, banks and payment service providers (PSPs) recognise this too. That’s why they’re keen to engage with the EU’s new PSD2 regulations, which basically force banks to open up, making account information available to third parties and ultimately meaning we could have a single app for accounts across different banks. They’ve also formed the Payments Strategy Forum (PSF), a body dedicated to making e-payments safer, simpler and smoother for everybody.

The PSF has just finished consulting on a new proposed strategy designed to achieve those aims. If approved by the Treasury, its suggestions will become formal regulation, meaning it has the potential to change the way payments works for everybody.

The UK payments industry recognises that whilst its products are relatively reliable, they are still failing to address the basic needs of consumers and businesses. Regulators and government get this too, and PSD2 provides promising technical guidance at a European level. But what does the forum’s strategy mean for those who rely on them? And how will it work in practice? A careful analysis of the proposals reveals two key themes: competition and security.

The PSF’s strategy is clear that the haphazard development of the platforms that form the backbone of our e-payments system has left us with a complex and unwieldy system in serious need of rationalisation. Its proposals to unify each existing platform under the globally recognised ISO20022 messaging standards will open the door to international market entrants and new developers. This means a more responsive market, able to deliver the sophistication and safety that consumers crave – which brings us to the strategy’s second key theme.

E-payments as a proportion of all payments have grown rapidly in the past couple of years. CapGemini estimate that by 2024 cash will account for just a third [1] of all of our payments. But the strategy is clear that lack of trust in new payment methods is a severe obstacle to their development. Last week it was revealed that a financial crime was committed every 15 seconds [2] in the first half of this year. E-payment fraud accounted for only some of this, but there’s no doubt that hackers and cybercriminals are developing increasingly sophisticated methods to crack the security provisions PSPs put in place.

The strategy contains sensible proposals for data-sharing on financial crime between providers and education for consumers on the dangers of online fraud. But one of its most eye-catching proposals would involve opening up access to the APIs which underpin our existing architecture – essentially the digital building blocks for payments system developers – to any interested party. This would allow the transfer of greater amounts of data between customer and user – a vitally important means of flushing out impostors and cybercriminals.

The forum hopes that these proposals will come together to form a new Simplified Payments Platform (SPP), which should make life easier for everybody who uses e-payments systems – though we won’t have the specifics on design, costs, benefits and execution until at least 2018. At present the proposals lack detail, but don’t be fooled: the industry is determined to up its game. The message for all of us in financial services is clear: it’s time to pay attention to payments.