Podcast Transcript
Voiceover: The Payments Podcast, from Bottomline Technologies.
Gareth Priest: Welcome to everyone, and thank you for joining Bottomline’s second virtual media roundtable, to discuss our sixth annual Business Payments Barometer. My name is Gareth Priest, Chief Platform Officer at Bottomline, and I'll be moderating today's discussion.
Joining me is an [extremely 0:00:40] distinguished panel of impressive speakers from across the industry. We have Gavin McLean, Managing Director of Payments Products at Lloyds Bank; Naresh Aggarwal, Associate Director of Policy and Technical at the Association of Corporate Treasurers; Dan Bellis, Senior Policy Manager at Federation of Small Businesses.
Our speakers will share their views around the key themes and findings from this year's Payments Barometer, and their thoughts on what the future holds for UK payments. [Kicking us off 0:01:09] ___ a brief overview of Bottomline Business Payments Barometer, in partnership [with Ipsos Mori].
Having conducted an online survey among 800 financial decision-makers from small, medium, large, and enterprise businesses across England, Scotland and Wales, the barometer focuses on the major payment and, frankly, business challenges that businesses faced last year, in particular surrounding international commerce, fraud, the adoption of new payment types and technology, and regulatory awareness.
This year's barometer plays out against the backdrop of the confluence of two major economic disruptions. [I’m referring, of course, to 0:01:47] COVID-19 and Brexit. With every business initially moving into survival mode, we do see a picture forming of the very differing impacts and priorities between smaller businesses and larger organisations.
Small companies are almost completely focused on keeping cash in, and less aware of upcoming regulations. Larger organisations are more impacted with fraud and experienced greater losses than their smaller counterparts over the last year.
Whilst the pandemic has affected businesses across the board, this year's report does shed light on several emerging themes. We’ll explore with our panel why adaptation to those changes is the only way for businesses of all sizes to move forward successfully.
As a reminder, this information is under embargo until Wednesday, 9th June, at 9:00am, British Summer Time. We will be sharing a copy of the full report and an infographic after the webinar.
Your lines will be muted throughout the presentation, but we encourage you to submit any questions you have via the Q&A function. We’ll aim to address those at the end of the presentation. Should we not get to your question, then, please, feel free to follow up with [ ___ 0:02:56] directly.
Any questions that are specific to how the survey was conducted, or details around the numbers, we’ll follow up with you after the presentation, with input from Ipsos Mori. With that, I say, “Good morning” to the panel. Good morning, gentlemen.
Male: Morning.
Gareth Priest: I'd like to kick off, perhaps, by asking you each to give a brief introduction and, perhaps, a highlight, a single finding or a stat that you found to be most insightful from within this year's report. Perhaps, Dan, if I can start with yourself on that.
Dan Bellis: Certainly. I'm Dan Bellis, the Senior Policy Manager for the Federation of Small Businesses. We are one of the largest business membership bodies in the UK, representing the small business owners and the self-employed. That’s everything, from the butcher, the baker, the candlestick maker, the plumber, right the way through to your SME with up to around 250 employees. There's a wide range of businesses within that sort of cohort.
One of the biggest stats from the report that stood out for me was that 83% of businesses are still paying their suppliers late. It has been a core piece of FSB’s work for the last couple of years. We've been working with the Small Business Commissioner and the government to try and really crack down on late payments. It just highlights the fact that we still have quite a way to go in terms of resolving this. 80%, quite frankly, isn't good enough, so we'll keep going, keep [hounding 0:04:19] ___ and keep working on it
Gareth Priest: Thank you, and welcome, Dan. Naresh, perhaps I can come to you next.
Naresh Aggarwal: Thank you. It's a pleasure to be here today. I represent the Association of Corporate Treasurers, and I spend a lot of my time talking to treasurers about the problems, the challenges, and the future hopes around the payment ecosystem. I also spend time with the Bank of England, talking about their replacement programmes and Pay.UK, so we try and engage both the users and the policymakers around changes in their payment landscape.
For me, one of the things that I've been following is around real-time payments. I was interested to see that 61% of enterprise businesses are adopting real-time payments, and only about a third of smaller businesses are actually doing that. I think there's so much benefit and opportunity around these faster payments and real-time payments that, if we can unlock that, that’s a huge amount of opportunity for businesses.
Gareth Priest: Okay, thank you, Naresh, and welcome to you. Finally, to you, Gavin.
Gavin Maclean: Hi, Gareth. Morning, everyone, pleasure to be here. Gavin Maclean. I run the Payments Product team in Commercial Banking at Lloyds, so that involves creating and operating payment products that allow our business customers to make and receive payments. That's businesses of all sizes.
In my role, the thing that really stuck out to me from this year's Barometer Survey is that one in two businesses has accepted a new payment type in 2020. It has often been said that the lockdown has accelerated some existing trends and triggered some new ones, like remote working or shopping online. With half of businesses having adopted a new payment type in the last year, it seems to me that payments haven’t escaped this particular revolution, either.
Gareth Priest: Thanks for that insight, Gavin. It actually, probably, leads us neatly on to our first topic to discuss, which, as I said at the outset, this barometer has played out against this backdrop of COVID and of Brexit.
As you mentioned, there has been, perhaps, an acceleration of some secular trends, and some new trends that have been forced upon us, so, as experts in the industry, what are those trends? What have you seen? What has accelerated? What impact has it had on businesses, and, perhaps, how many of those trends are here to stay? Perhaps, Gavin, as you bought us into this, you might want to take that first.
Gavin Maclean: Yes, sure. Thanks, Gareth. Trends that we've seen accelerate are declines in the use of cash and cheques, perhaps understandably, with lockdowns and social distancing. Those have definitely declined. We've seen faster increases in the use of debit cards, particularly contactless transactions – helped, of course, by the increase last year to the contactless limit.
We've seen more adoption of digital payments and ecommerce transactions, and we've also seen some unexpected impacts to the costs of making payments to and from Europe. Now that the UK is outside the EU, our clients making payments may be treated like a citizen or a business in any other country outside the EU, potentially leading to higher charges on those cross-border card payment wires and so on.
The impact has been that, of course, businesses, as they often have to do, have had to adapt, so adjusting physical shops, stores, restaurants and offices, adjusting in many cases to colleagues working from home or not being able to work at all. Also having to adapt our payment practices, whether that be accepting card payments for the first time, or selling online for the first time, or even hybrid models to support things like ‘Click and Collect’ or ‘Pay at Table’, using a QR code in the hospitality industry.
Some of these effects are likely to be longer-lasting in some areas than others. For example, we've seen at Lloyds cash and card transactions return to and exceed their pre-pandemic levels, whereas cheques declined steeply in the early stages of lockdown. Their recovery, it seems, is either delayed or we've seen a very steep change, a very steep reduction in the use of cheques overall. So, it really is a mixed story across different payment types and different impacts for businesses.
Gareth Priest: Okay. We’ll hold the thought on changing fees into Europe, because I want to come back to that with you in a minute, Gavin, if that's okay, but, Naresh, perhaps same question to you. What have you seen, and what has ACT seen in terms of changes this year, in terms of secular trends?
Naresh Aggarwal: Yes, so I think, clearly, a lot of what Gavin has shared already, I think we're seeing, we're hearing from our treasury community as well. I think part of what I'm mindful of is last year a lot of it was around just getting things done. For organisations that were seeing card activity and card-not-present activity being a small part of their business, it was clearly, for many of them, suddenly changing quite dramatically. But for a lot them, they were either putting in a very simple solution or just trying to scale what they had already, and make it try and fit for purpose.
Certainly, talking to a lot of people at the beginning of this year, partly due to Brexit and some of these unexpected challenges that Gavin has alluded to, but I also think there's a recognition that what they built last year wasn't actually better. It was just getting it done.
I think what I'm hearing from a number of folks is a need to go back, and look at how they are looking at future payment trends, and actually trying to make sure their business is properly scaled, rather than just, “Can we accept payment?”
Part of what I'm hearing from that is that people are looking at exploring multiple merchant IDs. When we look at Brexit, people are recognising that, now we're outside of the European Union, the charging structure is currently different and will probably stay different. I know a couple of them are looking already at creating new merchant IDs and adding, sadly, more complexity to their business now that we've left the European Union.
I think that the other thing we're seeing is that when we talk about charges – and Gavin has made a point about charges – for larger organisations, I think they see some of this new charging slipping in as being just a cost of doing business with the European Union, along with more documentation, etc.
I'm sure Daniel will pick up on this, but my heart really goes out to the smaller businesses, because they're the ones for whom an extra £50 or £100 on a particular shipment of goods is actually quite a lot more of a margin than it is for the likes of some of our members, like Marks and Spencer’s and Diageo. I can talk a lot more long, talk longer on this, but I think those are my observations around the changes.
Gareth Priest: Dan, perhaps over to you. (Laughter) These trends that happened through this last year, how did small businesses feel about them, and what does it look like, moving forward?
Dan Bellis: It has definitely been a difficult year for small businesses, on a number of levels. If we just take Brexit to begin with, there have obviously been massively increased costs, and just the costs of doing business. Both Naresh and Gavin mentioned that businesses are looking at more complex ways of setting up to try and avoid some costs, but complexity isn't a luxury that SMEs really have. They don't have the time or the funds to look at, perhaps, setting up different merchant IDs in other countries to enable them to trade better. It's simply just a cost that they have to suck up and take. They don't have a choice.
When you look at where some of these costs are coming from, you do have to ask the question how justified some of these increases are. It's almost as if some of these providers know that the SMEs are a bit of a captive market in a largely unregulated field. Perhaps some of them are making the best of a bad situation, but, hopefully, we see SMEs still willing to go ahead, and trade with Europe, and try and overcome these costs, but there will be many SMEs that are looking at, “Okay, how do we do this differently now?”
It won't be merchant IDs, but it might be a slightly different way of doing business. Or it might not necessarily be Europe that they're trading with, but, depending on what free-trade agreements or future agreements come down the track, maybe they'll look to other parts of the world, going forward.
Gareth Priest: I was just looking at that, Dan, actually. I was looking at one of the stats, and it was something like the… It was the hesitancy of small businesses versus their enterprise counterparts to make international payments: 38% of larger organisations versus 10% of small businesses. Is this what we're just seeing as an effect of Brexit, and it's short term and it will bounce back? Or is it more of a secular trend to small businesses not wanting to trade internationally?
Dan Bellis: It’s a difficult one. We definitely saw the same trend, so this exists. It's definitely out there, but you've got a double combination of both Brexit and COVID at the same time. If you cast your minds back to December, we were in the midst of a second wave, but we were also about to formally leave the EU and going for this new trading… Actually, no, we'd left the EU a few years back, but we were about to enter this new trading agreement with the European Union as of January 1st.
With the lockdown itself, many businesses weren't trading, or certainly not trading at full capacity, so the decision was made by many SMEs, especially those exporters, to effectively take a long Christmas break. So, instead of coming back at full capacity on January 1st to 5th, depending on how the days fall, it was the decision: “Actually, if we stall that back, if we push back our plans for the year by a month or so, it gives us time to a) hopefully get out of this second wave, and things begin to pick up again and we’re in a slightly better place with the pandemic. But also any issues that do occur, day one, new trading agreement, hopefully that they've been somewhat ironed out. Whether or not that’s in the ports or the authorities checking the paperwork, hopefully those initial teething-in issues are somewhat resolved.
Regardless of your opinion on whether or not they eventually got resolved, I think we're seeing SMEs beginning to pick up that trading agreement, that trading arrangement with the EU now. Work is now not quite at the capacity that it was pre-Brexit, but it's certainly definitely an improvement on where we were in January.
Gareth Priest: Okay, thanks. I want to come back to you, Gavin, on the international payments. I'd love to get your perspective following on from Dan, but I also would like to tease upon a point that you mentioned about the changing fees that are happening behind the scenes.
My understanding was that some of those fees weren’t supposed to change and that we weren't going to charge more from a UK perspective. We were supposed to have that reciprocity. Perhaps you could talk a little bit about your view and the bank's view of international payments and what has happened there.
Gavin Maclean: Yes. Upon the charges, Gareth, when we were part of the EU, we benefited, like any other member state, from payments moving around that European Economic Area. Now, as a country outside of that area, our payments can be treated like payments coming from any other country outside of the EU.
There is an argument for why would repayments coming from a UK citizen, for example, to a Spanish bank, be treated any different payment from a US citizen going to a Spanish bank? Certainly the approach we've taken in the UK is to keep the arrangements that were in place pre-Brexit. We thought that was the right thing to do for our consumer and business customers. It offered continuity and it meant that the arrangements for reaching those European markets wouldn't be disrupted.
What we have seen – and I emphasise it is only our experience – we have seen a small number of banks in Europe introduce additional charges, or charges that weren't there before, for payments that are going into Europe from UK account holders, whether that be personal customers or businesses. We are seeing that at a relatively small scale at the moment, but the watching brief is to make sure that that doesn't become more extensive, because then, as Naresh and Dan have said, businesses of different sizes will need to deal with that in their own way.
On payment volumes more broadly, I won't draw any conclusions over whether it's Brexit, or it’s COVID, or it’s anything else. What I can say is that our total international cross-border payments in the last six months have been consistently above pre-crisis levels. At a net level, we are doing more cross-border payments now than we were before the pandemic hit, but, within that mix, actually what we're seeing is fewer payments to Europe and more payments to other parts of the world.
That's just some facts from our own payment experience. Having said that, to lighten the mood somewhat, we've got some reasons for optimism. In some of our surveying that we do regularly, 59% of our customers are expecting to recover in less than a year, and 28% expecting to take longer. So, what we've seen and what we see in terms of recovery at the moment is, hopefully, indicative of a medium-term recovery.
Gareth Priest: It sounds like, really, from both of you, or for all of you, that the business volume is picking back up. Confidence is picking back up on that, but there is still some potential friction. Just before we move off this topic, and I will need to move us on in a second, but I did want to just finish up with some of this sounds like it's almost despite what government is doing, as opposed to because of it.
I'd love to get a very quick point of view, if you're prepared to share it, on what should we be doing, whether it's with trade agreements or reciprocity agreements, to try and help reduce some of this friction, prevent it, moving forward, and to ensure that this recovery continues? Anybody brave enough to take that one?
Dan Bellis: I’d be quite happy to come in on that one, if it helps. [First for me is 0:20:12] it's all about opportunity. If you can knock down the barriers and if you can open the doors, it doesn't matter where in the world they're trading, they will find a way to trade. You just have to open up that opportunity for them to be able to access it.
Obviously, when we were in the EU, it was quite an obvious and clear opportunity to go trade there, but we need to make sure that we bring down those barriers and enable SMEs to – I hate to use his phrase, but explore global Britain and start exporting right the way around the world, because that's the only option that they really have, going forward.
Naresh Aggarwal: I think the only thing I'd add would be sometimes it's not until we lose something do we actually start to value it. I think that, as we see now with some of these, for example, payment charges, I think, a bit like Daniel and Gavin, the market will innovate and will find ways around it.
If you think about how many FinTechs there are all looking for little niches, we look at some of the new open-banking solutions. I'm pretty confident it won't require government, but actually the market will provide some pretty good solutions.
Gareth Priest: Interesting. Gavin, any thoughts on that from your perspective? Can we move on?
Gavin Maclean: I think, for all of our respective organisations, staying close to our clients, or our members in the case of the other guys, consulting with them, sharing best practice, sharing the benefit of our broad experience, that’s what needs to happen in the short term. I agree with [Naresh. It will 0:21:56] find ways to innovate through some of these challenges.
Gareth Priest: Gavin, we lost you a little bit there on Zoom. I think there's a little bit of buffering, but I think we got the general gist, so thank you for that. I'm going to move us on to another topic that came up across the whole of the barometer, and that's the topic of fraud, which I guess is always ever-present if you're in the payments world but seemed to be particularly prevalent this year.
One of the things that jumped out, I think, to all of us who looked at the barometer and the data from it, was the difference in impact. I'm just looking at the numbers here, so 48% of larger businesses saw an increase in insider fraud and collusion, versus only 34% have seen that increase.
As we move towards these hybrid models of home working, office working, distributed colleagues, how can businesses protect themselves from cyber-attacks, and insider fraud and collusion? Is that purely just the larger organisation, or is it something that small businesses need to be on the watch for, as well? Perhaps [I’ll come to 0:23:05] you first, Naresh, on that.
Naresh Aggarwal: So, certainly casting my mind back to this time last year – probably back in terms of April and May, in fact – it was definitely a real concern. We spoke to our members around the fact that they had large teams distributed, now working at home. Payment fraud was a key risk for them. Especially, we’re always warned about sudden payment requirements needing to be made.
I think what we definitely saw last year was a lot of folks focusing on a) knowing that their entire model was everyone working from home, by and large, and b) what sort of controls they needed to put in place. A number of them were putting manual controls in place. I know one company where the CFO signed anything over £1,000 because of their concern around fraud.
As we move into, as you talk about, this hybrid working model where, certainly from the ACT perspective, we'll have some people in today, some people in tomorrow, it's not always going to be so easy to understand where people physically are. Part of what I worry is that it's much easier to define a payment control environment if everyone's in the office.
It’s, with some thought, relatively easy to create one when people are working from home, but when you've got people working in a whole range of different places and no real clarity of where people are, that, I think, is where we’re going to see a lot more risk around fraud.
One of the things that, again, I heard a couple of people doing last year is increasing the number of times they get internal fake, spoof phishing emails, just to try and keep their staff alert to the risks involved. I think it's those sorts of tools which people need to think about, not very expensive. They’re annoying. I'd hate to get payment requests all the time and have to keep thinking, “Is this a spoof or not?” but I do think it's something we all have to learn to live with. We all need to find tools that are proportionate to the risks and the size of our organisations.
Gareth Priest: So, companies were doing this themselves, their own version of vaccination, perhaps, that?
Naresh Aggarwal: Yes, I think that's a good way of looking at it. You’ve got to, yes, self-heal.
Gareth Priest: Okay. Dan, is it similar sorts of fears in smaller businesses, or a different take on fraud, and different vectors of risk?
Dan Bellis: I think it’s slightly different for small businesses, especially in the wake of the year that we've just had. A lot of them have changed the way that they accept payment. They've changed whether they do business, completely. There's a surprising amount of small businesses that weren't online in any capacity whatsoever. The last year has changed a lot of that.
To go with the vaccination analogy, the bigger boys might be doing the whole IT security and setting up the fake emails. SMEs are very much still walking round without a mask on. We need to make sure that they're ready and that they're up to speed when the time comes, because the last year, yes, they've moved online. They've started taking payments in new, digital ways, whether that's mobile phone payments, ‘Push to Pay’, all sorts of different initiatives.
The problem is that they’ve spent last year getting used to these and implementing them, and it’s almost a matter of time before they start to be stung by various frauds and scamsters coming down the line. So, the question for us is how many of these new ways of taking payment will stick with SMEs when we eventually get through to opening up completely and getting back to whatever the new normal is?
Will they be taking on any training to try and mitigate any risk of fraud or loss through these new payment systems, because it's almost a numbers game in the sense that, if you have thousands and thousands of SMEs for the first time exploring digital payments, you can guarantee that some of those are going to be hit by scams, by fraudsters coming down the track? So, it's almost a waiting game on that one.
Gareth Priest: Gavin, what's the bank's perspective on this? Obviously, you're servicing all sizes of organisations and have a very broad view of what's happening, so what have you seen over the last year or that has caught your eye in the barometer?
Gavin Maclean: Yes. I think, similar to the other guys, sadly, with all the upheaval and all the changes, whilst we often focus on the positives of that and the opportunities to innovate, unfortunately so do the bad guys, too. They see it as an opportunity. They see the uncertainty and the disruption as a way to penetrate processes and controls that they might not have got through in normal times.
I think businesses of all sizes can do a few simple things to protect themselves. Naresh and Dan have touched on some of them, but I really think testing key controls and testing the control environment is essential, revisiting the configuration and purpose of payment authorisation processes, independently verifying new payment instructions.
Make sure the antivirus software is in place and up to date. Use encryption wherever possible, and, for goodness’ sake, when somebody tells you just to ignore what the Confirmation of Payee check says when your banking app does it, mistrust that individual deeply. Those kinds of things will help protect against whether it's insider or third-party scams and hacks that are going on outside.
Gareth Priest: If I can just pick up on the last points there about [Confirmation of Payee 0:29:23]. I think that leads us to an interesting, fairly new vector that has appeared over the last year or so. That’s the APP, the Authorised Push Payment and the fraud that comes with that.
Confirmation of Payee is obviously one effort to try and combat that. Is there more that governments, or industry, or perhaps even some of the social media and technology giants, should be doing to help protect against some of that, some of those, the new fraud that comes with APP?
Naresh Aggarwal: I would say, Gareth, that I think government has probably done enough. I think that it's really down to businesses to actually work out how to deal with this. I think there is a danger with over-legislating. I think I'm not a big fan of checklists that say, ‘If you do these 10 things, you are guaranteed not to have a bad thing go wrong, happen.’
I think we all need to learn, as Gavin has said and as we all know, as quickly as folks like you innovate and provide clever security and protection, the bad actors are doing the same thing. So, it's this constant battle going on. The only thing that we know we need to do is to make sure our people truly understand, for all the technology, my understanding is most fraud occurs down to human intervention, and that the more organisations move to straight-through processing, the better.
One of the things that we've seen over the last few years – it will be interesting to see if it continues – are organisations moving towards central payment hubs, so rather than payment money in and money out being scattered across organisations, concentrating in fewer places. Admittedly, this is only for larger organisations, but it is a way in which you concentrate the risk but also, hopefully, concentrate the understanding, the education, and the protection as well.
I don't think it's a role for the government. I do think it's down to businesses. I think it's down to organisations, folks like yourself, events like today, to really push, and encourage, and remind people of the dangers of fraud and how, even if you survived yesterday, that's no guarantee you're going to survive tomorrow. (Laughter)
Gareth Priest: So, the summary, then, is that this is a people thing. I think you said it, Gavin: we can have Confirmation of Payee, but, if you elect to ignore the warning, then people are the weakest link in the chain, so to speak. So, education and controls seem to be the way to, perhaps, combat this, and vigilance all the time, perhaps.
Perhaps I can move us on. We've mentioned a few terms there, such as APP and CoP. We do love these terms in our industry, and some acronyms and so on, but let's talk a little bit about regulations and initiatives.
Perhaps somewhat worryingly, but perhaps not surprisingly, given the backdrop, there has been a consistent decline, the barometer has shown, year on year, a decline in preparedness for some of the new payment regulations that are coming down the pike.
38% of small businesses are prepared to embrace open banking, compared to 66% of enterprise, but that's still going down, so actually all the numbers are dropping in terms of level of preparedness. Why is this? Gavin, as a senior person at a bank, you're right in the middle of this. Why do you think? Why is this preparedness dropping, or lack of interest?
Gavin Maclean: I think it's a question of priorities for businesses. As the barometer has really eloquently pulled out, the drivers [for 0:33:18] change at the moment for most businesses are things in the short term: preserving cash, keeping staff and customers safe, introducing different ways of working.
As the barometer said, as I mentioned right at the top, Gareth, one in two businesses have adopted a new payment type in 2020, but, understandably, they've tended to go for tried-and-tested, proven technologies, like debit and credit card payments, and mobile payments, and maybe PayPal and direct debits.
Some of the more emerging regulations and new payment types that are coming on, I think, are just on the next horizon of focus for businesses. I think that's perfectly understandable, given the year that we've just gone through.
Gareth Priest: What's the small business perspective on that, then? If there's this, I think the term we've used before, this sort ‘brutal Darwinism’ of where they're going to spend their time, (Laughter) how does a small business think about that?
Dan Bellis: I think, over the last year, SMEs have had to make some very difficult decisions. This hasn't been a year which has allowed SMEs to experiment, or future gaze, or look at what would be nice to do for the business, “Can we look at this technology that might give us a 0.2% increase here or there?” This has been about survival. This has been about ensuring that there's a business to come back to next week, not in three years’ time.
Many SMEs have spent, especially the first stage of the lockdown struggling to keep their heads above the water, with the costs, the debt building, and a lack of business coming through the door. So, it's not surprising that we hear that they haven't spent the last year looking forward to the open banking and changing regulations which are coming down the track in a few years’ time. They've been more concerned about what's coming down the track in a few days’ time.
Interventions from the government have been incredibly helpful. Things like the furlough scheme and the grant system has helped businesses keep their heads above the water. Hopefully, now, as we're coming out into an easing of the restrictions and the lockdowns, hopefully businesses can begin to resolve that outstanding debt problem that they've got, but it's still unlikely that they're going to be looking at things like open banking and the future regulations coming down the track.
It's too easy to get caught up in the stats of how many businesses have looked into open banking or accepting new payment methods. This year, I think, has been a human element story. Whether or not that’s fraud or whether or not it's survival, it has been the individual decisions that people have made to keep their businesses afloat.
Each and every one of those has been critical over the last year. There are very few businesses who have had the time, energy, and the resources to be able to pontificate on future regulations and what the payment systems might look like in a couple of years’ time, and start preparing themselves for that. They’ve very much been preparing for the next announcement, the next set of statistics that are coming down the road, and the next set of restrictions.
Gareth Priest: Naresh, I want to come to you, but I also want to pick up… I want to ask you, Naresh, if you could also give us some insight on something you picked out from the barometer. It's not really a new payment initiative, but it's relatively new, which is real-time payments or instant payments.
You mentioned that the percentage of adoption, and actually I think – and Gavin, I think, can confirm this – certainly we've seen in Bottomline the volumes of real-time payments are increasing, but the speed of adoption has dropped off. So, is there something that's happening there that we should be thinking about?
Naresh Aggarwal: Yes, so I'm going to nick, first of all, one of Daniel’s words: ‘pontification’. I would definitely echo a lot of what Daniel said about last year. I was just recalling that, going into 2020, a lot of our members were forecasting a recession, so they weren't looking at new things. They were really looking at how they could survive. Then, obviously, we had the pandemic. As we're all aware, it was a year of survival.
Again, picking up Daniel’s point about people, a lot of people this year are focusing on the human element. As we now go back to the offices, what does that mean to our operating models, to our teams, our mental health as we go back into using public transport, for instance? I think, certainly for the treasury community and a lot of people I speak to in the payments arena, a lot of last year has been just getting things done. It's the practical element rather than – I'll use it again – the pontification.
I think that's part of why a lot of folks aren't really focused on open banking. I think part of it is around the label of ‘open banking’. I think there are changes going on in this space around it, but people aren't necessarily attributing the word ‘open banking’ to it.
I think there is definitely, as you've said, Gareth, we've seen an increase in overall activity, but actually that's just because volume activity has gone up. I think part of it is that there's a lack of, you know. For real-time payments, we still have this limit, which restricts a lot of organisations using higher-value payment channels, like faster payment rails.
I think that, when we look at the speed of adoption, part of it is the, sort of, “So what?” At the moment, we know that payments work, whether you're using cheques, or BACS, or in some cases Faster Payments. It, sort of, gets done what needs to get done. It’s not broken.
I think part of what I… [I also have this view around it’s 0:39:25] a bit like non-NFC technology. We had the technology around for quite a while. I never used it until I started seeing being used on Transport for London's Underground network. When I saw people older than me using it confidently, it gave me some confidence that actually, maybe, this is something I should be trying out, putting my foot in the pond and seeing whether it would work, what the risks were.
I, sort of, think we’re in the same place with open banking. There's still a lot of nervousness around the use of it, and what is it? But I do think that we are building up to a crescendo. We will start to see a greater range of products, a greater ease of adoptability, more compelling stories.
One of the things that I've seen, I've seen a few organisations, and not all London based, so FinTechs up in Liverpool area, I know one that's doing Faster Payments for salaries, so in order to help the gig economy to support people on the ‘just about managing’ economy being able to be paid more quickly.
I’m looking at these innovations and I think they're quite small. In the overall scheme of things, not big, but, for individuals and individual businesses, they are making a difference. I think we'll just see more and more of that happen as time goes by.
Gareth Priest: So, effectively, the infrastructure, the legislation, the regulations are there. It's over to industry and technology providers like us to get on with it now, find the use cases, innovate around it, and bring it to life.
Naresh Aggarwal: Exactly.
Gareth Priest: [It also 0:41:07] sounds like, as we recover from this last year, that businesses are starting to feel more confident and look forward, so perhaps the time is right to start to think about that. [We’re going to] move on to our final question for you guys. I'm going to ask you to dig out your crystal balls and actually to think about what are the big predictions and opportunities? Where are we headed?
Last year was just an awful year in a lot of ways, but also somewhat of a seminal year in terms of a break, lots of changes, lots of trend acceleration. What do you see for the next two to three years for the payments industry? Gavin, I'll come to you first on that.
Gavin Maclean: I'm not sure how bold they are, but my predictions, nonetheless, I think, pretty quickly, payments will return to their long-term trend lines. When we look back, we'll see a step change in 2020 and 2021, but the long-term shape of those trends, I think, will revert to their pre-crisis shape.
I believe that because the main drivers behind those trends haven't changed. We've got regulation, enabling more competition and innovation. We've got better technology, enabling new payment experiences. We’ve got people in a society demanding more self-service, more convenience, more digital, and more seamless payment journeys.
These are all good things that actually make the UK a global leader in payments, so I think, as long as those fundamentals are in place, that the trends that we've seen over the last 10, 15 years, I think, will return.
In the medium term, as I say, I predict a return to normality, albeit the way that we make payments will benefit from investment and innovation in things like wearables, and open banking, and some of the other things that we've talked about. I agree with Naresh that actually I think the potential is there, bubbling under the surface. It's just waiting to be unlocked.
Then in the long term, I think, as the UK recovers from the pandemic and begins to prosper in the post-pandemic, post-Brexit era, as a payments industry, we're going to need to help businesses to reach the markets that they want to trade in.
As Dan said earlier, businesses will find a way, so I think we’ll have significant focus in making cross-border payments as fast, easy, and transparent as domestic payments are today. Government and industry bodies will have a key role to play in enabling and facilitating that change, but actually the main driver, as we've said throughout this conversation, the main driver is going to be the market and our ability to deliver for our clients, customers, or members.
Gareth Priest: Thanks, Gavin. Dan, what do you see from small business over the next couple of years
Dan Bellis: From our own small business index, we've seen that small business confidence is returning. It’s coming up from a very, very low baseline. That has to be added, but it's fragile, nonetheless. There’s a lot of optimism there, but it's going to be easily shattered.
Depending on what happens with new variants, I don't think small businesses can afford to go into another lockdown. I don't think there can be a rolling back of the easing that we've seen, because I think it would absolutely destroy business confidence, going forward, and probably scupper plans for the entire 2022, possibly into 2023 financial years, going forward.
I think, in terms of small businesses at the moment, a lot of them will be fixated on the announcement in a week or two’s time. I think, for a lot of small businesses, confidence is key, and so is clarity. If there are to be delays to restrictions coming forward, I think we're better off getting that message out sooner rather than later. We don't want people putting orders in. We don't want people making plans for the 21st, only to find out that it's not going to happen.
Outside of that, in a world where restrictions don't exist, or at least they’re minimal, I think a lot of small businesses will be looking to pay back some of the debt that they've probably built up over the last year. Those that have been fortunate enough to survive the last year without taking on huge amounts of debt will probably be looking at how they can kick their business on.
This year has been a fight for survival, but those that have survived have probably got a bit more of an optimistic outlook for the future, and probably have that extra drive and that little bit more impetus to go forward and really kick on in the next couple of years, but the overarching message there is that this is fragile. This could shatter very, very easily. The worst thing we can do is give business confusing messages and we don't give them enough clarity on timescales.
Gareth Priest: Just a follow-up on that, Dan, if I can, some of the small businesses who’ve survived, and maybe in some instances thrived, are the ones that adapted very quickly, moved to digital, moved to new payment types, got away from taking cash, put on direct-debit subscriptions, all various different innovations. How much of that do you think will persist as we return to, hopefully, normality?
Dan Bellis: Hopefully, quite a lot. If you look at the high street, for example, it has always been characterised as one of these areas of the UK economy that's constantly in decline because people prefer to shop online and get their goods ordered next day by a particular type of forest near Brazil, rather than actually go out to their local high street and spend in-store.
Now, a lot of these shops, a lot of these types of businesses, have innovated [a lot 0:47:10] over the last years. They've gone online, they've done digital payments; they've done a whole delivery system surrounding that.
There is a big question over whether or not they stick with these payments and these new ways of working in the future, or whether or not actually it's easy to slip back into old habits, because what we often find with businesses is that they’re idea rich but time and energy poor – i.e. it's normally one person running the show, to put it bluntly.
It's fine for that one person to do the online payments now, while the physical store or the old ways of working are possible, but when you have the option to do both, that one person then has to make a decision that they do one, they do the other. They try and do both, and probably don't do either quite well enough, or they look at expanding. They look at taking someone on to fulfil some of the gaps now that have been built up in their business. Then that's how you will begin to get that growth.
Our hope is that it's the latter, that people learn the lessons over the last years and adapt with it, instead of falling back on the old ways of working, but in all honesty we're not going to know that until we are six months in, at least, into whatever the new normal looks like.
Gareth Priest: Okay, so a watching brief there. Thank you. Naresh, over to you for your predictions for the next couple or three years.
Naresh Aggarwal: Just following on from some of what Daniel said, and appreciate that a lot of our members are, as treasurers, the larger enterprises in the UK, in Europe, and US, but I think, at a personal level, I think what I saw from last year is a lot more customisation at a B2C level, so the experience for me. How was it around buying things? How was it around refunding? How quickly I got my refunds, all those sorts of things.
I think the challenge for businesses is that consumers now, having seen that, will not want to go back to, “The refund will come in 7 to 10 working days,” and all these sorts of things. I think the demands of consumers will have changed and will not go back. I think that's going to make it quite… I think it's going to be an added challenge for a lot of Daniel's members, who are going to, maybe, have to spend double to have both an online and a physical presence, and how do we manage all that process?
I think at a medium term, I think part of what we will see is much more – many more – organisations looking at building payment strategies and looking at not just what has happened and adopting existing technology, but also what is coming down the line.
When we look at things like Request to Pay and the rollout of Confirmation of Payee to larger enterprises, I think organisations will start to see that they need a strategy for how to adopt it. Not because it's just purely around payments, but it touches other parts of the business around stock, around CRM. There’s a whole load of other systems that need to be [considered 0:50:06] to move at the same pace as the payment technology is moving.
I think, for a lot of organisations, we will start to see more coalescing of payment factories, teams that actually manage card payments, whether in the UK or scattered across the globe, and greater concentration towards centralised payment hubs.
I'm going to be slightly controversial and say, “My long-term prediction is no payments.” By that I don't mean no Bottomline, because, as we have at the moment, when a lot of my members make payments and they use Bottomline, [all have 0:50:48] no idea, genuinely, who's actually providing the payment rails, and who's providing the technology and the plumbing. They just expect the money to move.
I'm reminded of when, before lockdown, I used to use Uber. My main concern with Uber was, “Is it here? How much is it going to cost, and how long is the journey?” The payment transaction itself I was completely indifferent to because it has already been loaded somehow, somewhere, hopefully in some sort of secure environment.
So, my long-term view of payments is that we will not be having these conversations about payments. Not because folks like you have gone, but because the payments will be delivering enhanced, data-rich information. They will be delivering goods and services from one person to another. The payment will be intrinsically wrapped into that service and goods that are being delivered itself, rather than at the moment, where we're still in the, “Here are the goods,” and, “The cheque is in the post.”
Gareth Priest: Yes. I think there was an interesting article. I think it was the largest seed funding in Europe this year. There's a company called ‘Sunday’ that’s setting up, effectively, so you don't ever have to ask for your check or your bill in a restaurant. You just pay from an app, so that's your point of that. Payment still happens, but it disappears into the process, whether it's a consumer process or a business process, so that’s very interesting. There are lots of, as you say, examples of that.
We're going to move to Q&A now. We do have a couple, but for any of the attendees, please, feel free to drop any questions real time into the Q&A channel. I'll pick them up and ask our panellists, but we've got a couple that we already have in that I'll start us with.
One that's an interesting question, but perhaps not a surprise, is the question that came in and said, ‘I've noticed that digital currencies aren't included in the report, but I'm keen to know, with all the chatter around CBDCs, what the future is for digital currencies as a payment type,’ so, kind of, a controversial one off the bat. Let’s start with you, Gavin. What's your view on digital currencies as payment types?
Gavin Maclean: I would actually say that digital currencies, or a closely related family member of the digital currencies, are in the barometer this year. That is blockchain and distributed ledger technology, but actually in previous years, having featured in the middle of the list of priorities for business, it has now slipped down to the lowest significance for businesses.
I tend to think about digital currencies in the same way, at least in the short term, Gareth. I think, as we've had the discussion today, businesses are more concerned about the currencies of sterling, euro, dollar, and others that have been around for a few centuries. I don't think that the focus has shifted, certainly as a payment tape, onto digital currencies in any meaningful way yet. I think there's a lot of interest in them as an investment or as an asset class of their own, but not really as a payment instrument.
I think that will come. I think, as we move forward, they will naturally rise up and they’ll increase in prominence. But as a big theme of today's conversation, I just think, with everything else that businesses have been through over the last two or three years, and everything that they’ve been through and are still going through right now with the pandemic and then, hopefully, the recovery that's to come, I just don't think they’re a focus for British businesses just now.
Gavin Maclean: Dan, would that be reflective of your membership, as well?
Dan Bellis: There are probably a few small businesses that are out there accepting all sorts of cryptocurrencies, but it's definitely few and far between. Most SMEs this year have been focused on the immediate cash injections that they can get in sterling, euros, or US dollar, or wherever it is in the world that they're looking to trade. There are very few businesses out there seriously looking at these cryptocurrencies, going forward.
Doesn't mean to say that it won't happen. There's obviously a long way to go. Depending on how secure they are and what the adoption rate is like among consumers, as well as those businesses accepting it, it’s a possibility, but right now can I see it in the next two to three years? Probably not.
Gareth Priest: Naresh, what about treasurers? I’ll have to ask you for a quick answer on that because we're running up against time.
Naresh Aggarwal: Other than the treasurer for Tesla, who clearly spent a lot of their money buying into digital currencies and Bitcoin, I think a lot of them are waiting and watching on the side-lines of where this story goes, especially as a digital asset.
One of the things that I'm encouraging a lot of our treasury community to do is to do research to understand what these digital currencies genuinely are, whether it's a central bank digital currency or it’s a distributed ledger technology, because I think there are still, especially with people my age, there are a lot of myths and a lot of history. “It’s easy to hack. Can I lose them?” There are all these parts of the story.
So, part of what I'm saying to a lot of treasury folk is, “Understand and learn: what is the current state [of it 0:56:47].” I think I read there are over 10,000 cryptocurrencies out there at the moment. That's a very crowded marketplace, and it will not continue so varied and so large.
Understand what it is. Understand the, “So what? What is the point? What is the benefit to my business?” Go to the board and say, “This is the current analysis,” because I don't think you can ignore it, but again, and I think, as risk managers and as payment specialists, we should be able articulate: “What is the current state, and what does it mean for my business?” But, as to, “Do I see a lot of them rushing in tomorrow to actually start using it?” I'm not that brave a person to say, “My members are doing that."
Gareth Priest: Okay. We’re actually coming up against time, so, if you put a question in and we didn't get through it, we will answer you offline. I'd like to say, “Thank you [ever so 0:57:37] much” to our panellists for a fascinating conversation with you all. Always enjoy talking with you. Thank you, everybody, for joining today's discussion.
As a reminder, the report is under embargo until Wednesday, 9th June, at 9:00am. We’d be happy to connect you to any of the panellists. I know they'd be happy to discuss any of the themes further. If you're interested in doing so, please, reach out with any follow-up questions you may have. With that, I'll say, “Bid you all good morning.” Thank you ever so much for joining. Stay well and stay safe. Thank you very much.
[Break in audio 0:58:10 - 0:58:24]
Voiceover:
The Payments Podcast, from Bottomline Technologies.
END AUDIO
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