All change: the trends reshaping the global payments landscape

Video | November 2019 | 05:32

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All change: the trends reshaping the global payments landscape

Alan Bainbridge

The payments landscape is dynamic, remains buoyant, and regulatory change and technological advancement I think, is changing customer behaviour almost on a weekly basis. Today I am joined by Albert Weatherill, who heads up our global payments practice group, to talk about some of the trends he is seeing. Albert, if you think about current trends before we look to the future, what are you seeing?

Albert Weatherill

So, you know what has been particularly impactful in the payments space in recent times has been regulatory change, so here in the EU and the UK we have seen a raft of legislation, particularly the second payment services directive provisions on the cross-border payments, strong customer authentication and various other regulatory change brought about by Brexit that has meant that payment service providers have been occupied with trying to adapt to and adjust to this latest raft of regulatory change. Looking further afield, we have also seen comparable change in Singapore where we have got a payment services bill working its way through the legislative process. We have also had various arrangements in Australia through the Banking Commission and they are also looking at their own open banking regimes. So I think what we have seen is that, whilst those in the industry have been particularly impacted, the nature of that change has also had a broader effect impacting merchants and consumers and requiring them to change their behaviour and the way in which they interact with and make payments. Another area we have seen of particular focus has been consolidation in the industry so payments as a business model is largely dependent on volume, it’s pretty cost-heavy in terms of technology and operational cost, and as we said the regulatory burden has been increasing. So that has led to a range of different M&A and strategic investments in the space, so we have got on one side market players seeking to consolidate market positions and acquire technology and benefit from economies of scale, and we have seen that with for example the Fiserv and First Data merger, PayPal, iZettle, Worldpay, some really large transactions. On the other side what we are seeing is reflective of the nature, the volume of dry powder currently sitting with financial sponsors and institutional investors and the potential upside growth potential of the payment space, we are seeing lots of external investment into the industry. So that has been something that you know the landscape has been shifting as the players have consolidated and adapted. Then finally where we have got to in particular is with changing payment solutions so people are looking to adapting to customer behaviours we are seeing increasing focus on bringing point of sale payment technologies to market, so wearables, tokenisation, deploying cryptocurrencies in ways that allows people to pay for things in entirely different ways and I think that is something that banks have been adapting to looking ahead 20-25 years as to what their demographic customer graphic is going to be in that time and adapting their technology to make that work.

Alan Bainbridge

Understood. So what do you see the next year bringing for payment services firms?;

Albert Weatherill

An area where I would expect to see increasing focus has been the rise of the alternative providers. So we are seeing non-FIs get into the space, people - you know - large tech companies who have got strong customer brands, they have got strong customer acquisition potential, and they are looking to find ways to bring together.. payments ultimately is quite an inherently social and interconnected element of our ecosystem and our society and you can see how that is attractive for tech companies who have been relatively involved in building that up, plus the technological synergies are lying quite well with their existing business models. We are also seeing, again, further regulatory change in the space, a particular element of that is how we adapt to the strong customer authentication provisions, which have now been delayed in certain areas for 18 months. So the industry felt that we couldn’t quite make that work for card based payment transactions from the get-go as of 14 September so we have got a bit of leeway now and it’s going to be interesting to see how the industry formulates a plan to make that workable and to drive that forward to ensure we have got compliance by the end of the delay period, particularly whether that is going to be on a jurisdiction-by-jurisdiction basis or whether we are going to have a pan-European solution, which is clearly the merchants’ preference in that regard and the payment service providers. What we are also expecting to see is an increase in focus on innovation, so we have talked a bit about customer-facing innovation but I think also where we get to now is that the underlying institutional framework, the underlying technological plumbing so to speak, of the payments system is often legacy and I think as with all legacy systems it has been patched up, it has been augmented, it has been pushed further out, but is it resilient enough to cope with the sheer volume and increasing volume we are expecting to see of digital payment transactions in the coming years? I think we would expect to see some further work coming in that space, as well as people considering whether more innovative technology such as blockchain and distributed ledger technology could be utilised as a kind of framework for our future payments landscape going forward.

Welcome to Banking horizons. With insights and commentary from across our global banks group, the series will explore some of the hot topics that we see as being front of mind for our bank clients.

This episode sees Alan Bainbridge, partner and global head of banks, and Albert Weatherill, senior associate, discuss the current issues impacting the payments space, and what they see as lying ahead.

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