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Featuring experts from Lloyds Bank, ACT and the Federation of Small Businesses.
This year’s results in the Business Payments Barometer would impact businesses differently across the landscape, this was due to 2020 being unlike any year before it.
The Payments Podcast features a round table hosted by Bottomline, asking three industry experts; Gavin Mclean from Lloyds Bank, Naresh Aggarwal from ACT and Daniel Bellis from FSB what the results mean in the context of COVID-19 and how this evolves as we emerge into a new normal. This episode gives good insights into the split of the results dependent on business size.
Ed Adshead-Grant: This year on the Barometer we have actually doubled the survey. We have got 800 British businesses. We have gone out to the financial decision makers with the help of Ipsos MORI and pulled in what we think is the voice of business for the UK. It’s a space that we think needed a little bit more data. We have been running this for a number of years to try and raise the interest of the community of business and corporates.
This year, given the timing of it, it is actually the very final snapshot of business and their thinking just before COVID struck the UK and worldwide. So quite an interesting rich dataset just pre-COVID to set a benchmark for the future.
Today themed, we have broadly prepared three areas, change, efficiency and also risk and compliance.
We have Gavin Maclean from Lloyds. Gavin, let’s see if the tech is working here.
Gavin Mclean: Hi Ed.
Ed Adshead-Grant: Hi Gavin. Good to see you, good to hear you.
Gavin Mclean: You too, thank you.
Ed Adshead-Grant: We have Naresh Aggarwal from the Association of Corporate Treasurers. Morning Naresh.
Naresh Aggarwal: Morning, just trying to get my video up.
Ed Adshead-Grant: We have audio. Super, morning Naresh and we have Dan Bellis from the Federation of Small Businesses. Dan.
Dan Bellis: Hi, morning Ed.
Ed Adshead-Grant: Morning. Super, well we have got this far. What could possibly go wrong in the world of digital working? We have our panellists online ready to explore the Barometer.
As a first question, if I may, folks, and I’ll go in the same order of Gavin, Naresh and then Dan, perhaps you could just give a short intro of your area of interest and just pick out one statistic out of this year’s Barometer that really stuck out for you. Gavin?
Gavin Mclean: Thanks Ed. I’ll tell you the statistic that stood out for me and then I will explain a little bit about my role and why that was important. I think the one that stuck out for me was 21% of small businesses feeling vulnerable to changes in the trading environment. Given the key role that small business plays in our economy that was a striking figure to me anyway but what is also so significant is that, as you said, this was the sentiment before COVID happened to us.
When respondents, according to the study, were probably worrying about those traditional worries of fraud and risk and regulation and all that stuff and certainly before any of us knew what the heck furlough meant or had ever heard about social distancing. So having felt vulnerable before, they must feel like all of the nightmares have come in one night.
I also wonder if the larger businesses that did not feel quite so vulnerable pre-crisis are maybe feeling that they actually were a little bit more vulnerable to changes in the trading environment than perhaps they realised.
I have spent 20 years building and running payment products to help businesses pay and get paid. Actually, much of that time has been trying to minimise or insulate businesses from the impact of all of those changes. Actually, we now all face unavoidable changes to that trading environment on a scale, certainly that I have not seen in my career and I guess many of us have not seen in our lifetime.
So, on a personal level, as a dad, that gives me a few worries for the coming period but also professionally I’m reasonably optimistic about the role that the payments industry can play in supporting those businesses to adapt to the changes and ultimately come through and recover from the crisis that we are now facing into.
Ed Adshead-Grant: Thanks Gavin. Naresh, one statistic and a brief intro please.
Naresh Aggarwal: I’m going to do reverse to Gavin, so a bit of introduction, my name is Naresh Aggarwal. I’m one of three members of the policy and technical team at the Association of Corporate Treasurers.
ACT is the only professional treasury body with a royal charter. We have got over 6,000 students and members across 94 different countries. I have been a treasurer for about 30 years, 20 years in industry and almost 9 years at PWC where I lead the cash management payments for the firm.
At the ACT I sit on some Bank of England and Pay UK panel. So payments is an area that I am really following a lot of interest.
The stat for me is 89% of late payments and although it is down from 92% last year I think it still is a really blunt instrument for many people trying to manage working capital. It is going to be interesting to see how things like product payment code will affect this going forward.
I know from my conversation with treasurers we see during this COVID crisis doing the right thing, helping make sure the supply chains remain resilient is really important. So, it will be interesting to see next year whether numbers go up or go down.
Ed Adshead-Grant: Indeed, fantastic, thank you Naresh. Dan?
Dan Bellis: Hi, I’m Dan Bellis from the Federation of Small Businesses. I’m the FSP representative of 150,000 small businesses right across the UK, everything from the butcher, the baker, the candlestick maker right the way through to the FinTech’s on the other side of the scale.
The big stat that really stuck out for me was the 88% of small businesses recover less than 50% of their losses due to fraud. This really speaks the idea that actually when fraud hits your business, when you have a loss of this scale, too many businesses consider this part and parcel of their day job. Quite frankly it shouldn’t be like that. We would not accept account of fraud in our personal lives. We would try and rectify the situations. There are too many small businesses out there for me that don’t go forward and try to claim these losses due to fraud. They don’t have protections in place to try and stop fraud occurring in the first place.
Ed Adshead-Grant: We will circle back on the fraud, it is the third of our themes, change, efficiency and fraud. Quite a wide splash already guys from vulnerability around trading, through to late payments and then into the core considerations.
Let me come back to yourself, Gavin, and I’m interested to see in the Barometer that one of the statistics, and by the way we have splatted up some statistics for our audience today that we can circle around, some have already come up, some may not. One of the ones that are on here actually, the 59% showed us that actually 59% of businesses were ready for open banking. That was down from last year, down 8 percentage points from last year’s trend. What do you think is going on here, Gavin?
Gavin Mclean: I think 2018, 2019 was that intense period of preparation for open banking. It was very public, long awaited, you could not go to a payments panel like this or a round table without open banking being discussed. At that time there was a very strong focus on getting ready for the regulatory change and the requirements of the reg change as it was often the case in the change cycle around regulation. What has followed has been the modest or perhaps slow emergence of new services built upon open banking.
Actually, we are still in the period where many new services will be tried and only some will succeed. So, businesses may feel that open banking does not have that same intense focus as it did 12 to 18 months ago. Having said that, I think there is cause for some optimism and I don’t think it’s the end of the story for open banking at all actually. So, to give a banking perspective on it, Ed, I mean we now routinely see tens of millions of calls upon our systems every month for account information service which tells me that customers are gaining an awareness and confidence and ultimately use of those third-party services.
There is now over 200 third party providers on the open banking directory, over 100 of those are registered to provide payments services. Again, from our own experience at Lloyds, we saw in February and March the largest number of any months where new third-party providers and some of them very notable names actually making their first payments. So that tells me that competition amongst those providers for new services is really starting to heat up.
I think it has been high on the priority list at times. I think it has dropped down the priority list as other things have come to greater prominence. Now new services are emerging and I think the best is very much to come from open banking.
Ed Adshead-Grant: Do you think, Gavin, there is almost a fatigue in the corporate and businesses? If they were to pick up the payment press, they hear about confirmation of pay, request to pay, open banking, AML5 PSTs and ASPs and all kinds of things, do you think there is actually a fatigue in the user base of the payment industry?
Gavin Mclean: I’m not sure if I would use fatigue. There is certainly a constantly busy agenda probably fuelled by advances in technology. The kind of anabolic rate of change is certainly on the increase and as fast as it’s ever been. Regulatory driven collaboration has given us some, frankly, brilliant systems here in the UK. Faster payments is great for us as consumers and businesses. Open banking, you were railing off the list there, Ed, more recently confirmation of payee is a real innovation from the UK payments market.
I think we have always got to look on the regulations as an opportunity to innovate and improve what we have. We have got to help businesses pick out the advantageous parts and the commercial edge that they can obtain by adopting those new services.
So, whether that is a market leader in proposition facilitated by instant payments, whether that is a reduction in fraud brought about something like confirmation of PAYE, we have really got to work as a community to make sure our participants extract the benefits out of those large pieces of work that we undertake in the main.
Ed Adshead-Grant: Dan, perhaps I can bring you in, at the other end of the pipe then, is it feeling like a wonderful lush of opportunity from this regulation?
Dan Bellis: I think eventually we might get to that stage. I think now for small businesses looking at everything that is in the pipeline it becomes quite overwhelming for small businesses to begin to understand all these different products, all these different sets of regulation and what it is going to mean for them in the long term.
What we often forget is that small businesses have very staff and those often do multiple jobs. So, they don’t have teams of people to go through the different bits of regulation, the different products that are coming down the line. It will very much be as and when that small business owner has time to go over these issues.
I think Gavin really hit the nail on the head when he mentioned that actually for small businesses this is going to be about picking out the advantageous parts of effectively the agenda that is coming up.
Ed Adshead-Grant: Naresh, did you want to add to anything on the fatigue idea and who is responsible to address this overwhelming element?
Naresh Aggarwal: I think everyone is right around fatigue. I think part of the challenge for certainly the people I speak to in the treasury community, I think for large companies they are pretty well embedded with banking solutions. I think the opportunities that come from open banking really try and prise them away from things they have built and spent a lot of time embedding across their core infrastructure.
I think there is a real challenge and I think it is really hard to find a compelling business case for businesses to adopt some of these things. We have had a huge change tag treasury folk I speak to are working long days just keeping the wheels turning. We are talking about adding something new in the mix. I think one of the challenges that I find is still around education. What Gavin and Dan were saying is trying to explain what is benefit, why should you invest time and energy looking at some of these new changes when you have got other things, firefighting things you have to face here and now.
Ed Adshead-Grant: People often forget the day job with all this opportunity coming down the pipe. If I can just wrap up just one comment there, picking up on the access to aggravated data and payments. I think another experience that we have certainly seen the Bottomline is it gets a lot more interesting when the payments come online. A lot of people are sweeping together aggravated data, real time views on cash positions. Now we are seeing some cases emerge where payments are actually introduced. That becomes more real as there is a relationship that is initiated with repercussion that needs to be followed through.
An interesting area of change and an exciting industry to be in right now.
Let me move on to efficiency, our second theme, Naresh, you mentioned in the introduction this figure of 89% of late payments, actually down a little bit from last year, we had 92% recorded in the fields in 2019 on late payments. That is an enormous figure in my mind, what can companies be doing to address this?
Naresh Aggarwal: I think part of the challenge around the numbers is actually it is much more complicated story. I know when there were some naming and shaming i.e. in relation to prompt payment code. A number of treasurers were quite- I guess the word is were quite unhappy about the process because if they negotiated 90- or 120-day payment terms with suppliers they would be shown as being delinquent on payment code which is to try and encourage 60 or 30 days.
I think it is very difficult to be quite so binary to say 89% says that is a terrible number and therefore industry is really doing badly.
I also think it is a reflection of poor operating processes. So, we still hear many instances of organisations where they are paying on 30- or 60-day payment terms but actually somebody somewhere in the process sits on an invoice for 30 days, 40 days before they actually realise it needs paying. I think that’s the real challenge. A lot of it I think comes down to transparency.
I think whilst the number is really a bad thing it is more about how we communicate this information to our supplier. We are going to pay you late but at least we are going to pay you. I wonder if part of what we are experiencing is a lot of uncertainty. Last year we had Brexit, sort of, featuring, and I wonder if part of the holding on to the cash is a very blunt instrument which says, “I don’t know if I’m going to get paid because I don’t know with Brexit, with COVID-19, all these things reflecting my ability to pay my staff and run my business. So, I want to hold on to my cash as long as I can.”
I think it is a really good metric around uncertainty and lack of trust across our supply chain. Without doubt when we talk to people it takes a lot of their time, especially the smaller segment of our community, it affects them with their mental health, it affects their business, their ability to invest in the future if they are not sure if they are going to get paid on time.
I think there is a lot more we can do. I think we need to again shine a light around the processes internally but also shine a light around creating more transparent relationships with our supply chain. Hopefully COVID-19 will be an accelerator for this.
Ed Adshead-Grant: Thank you. Dan, at the smaller end of the business, I mean these were statistics pre-COVID. We have all watched the news over the last three months of how small organisations, cash, cash, cash, what is your view on the late payments trend for the rest of the year?
Dan Bellis: I think late payments for small business quite frankly sinks the ship. It is devastating for them. With the recent pandemic our advice line I have seen unprecedented demand and one of the key themes that we have seen is that people’s invoices are being frozen or payment has been postponed indefinitely. I was speaking to a small business just the other week who sent their invoice in very early in January. That invoice is now overdue and when they have gone to chase it they have been told that they will not be getting paid until the current pandemic has subsided and that they were delusional for thinking that they were being paid in the first place.
Now this is not happening to one or two small businesses, this is happening across the piece. It is devastating for small businesses when they think that they have a working relationship with their larger business provider that they have done the work, they have done their day job, as it were, and yet they are still waiting 200, 300 days in some circumstances or if they get paid at all with the current pandemic.
This for small business is a devastating issue. We are pleased with the work that the small business commissioner and other organisations and government are doing on this issue but there is still a long way to go. Small business commission is still limited in their powers to be able to address this. Small businesses still feel as if this is something that is largely outside of their control because they don’t want to go through the act of taking larger businesses to court, enforcing interest provisions on late payment because they lose that relationship. There is always the fact that actually future work goes out the window.
So late payment for small businesses is critical and especially the time like at the moment it is more important than ever to make sure that small businesses in supply chain, small businesses working in all sorts of different structures are actually paid on time.
Ed Adshead-Grant: I heard recently about this idea of pay forward scheme which on a positive note, is that something to watch?
Dan Bellis: Yes, we have seen this initiative taken forward by Taylor Wimpey, the house builder. They were really looking to ensure that they had a supply chain to come back to when they start building again. So this was about ensuring small businesses actually if it weren’t for this pandemic you would be doing x, y, z for us right now and we want to pay you a bit of that money as an advance, as it were, so that that can then go down to your subcontractors because obviously house building is quite a complicated supply chain relationship to ensure, a, that there is food on the table for these businesses while they are not initially working due to these social distancing measures or because the site is closed. Also, to ensure that when we do get up and running again that that supply chain is still there, that the businesses have survived the immediate pandemic and that actually large company, Taylor Wimpey at the top of this chain has actually got that supply chain underneath them so that they can all move forward together.
That really gives small businesses a sense of certainty that actually they are not going to be hung out to dry over this. The large businesses are not holding on to cash to protect themselves. Actually, they are aware that if the large businesses hold on cash and does not pass it down the supply chain as they are supposed to then actually that large business might not have a supply chain and might not be able to do their job when we get back to normal times.
Ed Adshead-Grant: Interesting but almost using payments as a competitive edge perhaps in the relationship there.
Gavin, can I bring you in as we move into real time payments which featured heavily in the report as well. Last year we had some quite optimistic data come through from the business sample saying that many of us will be using faster payments, the majority of us plan to adopt. This year was a little bit lower. I think it was 50%, a flat 50% to 53% last year, what is your view on the adoption of real time payments for businesses now?
Gavin Mclean: I must admit I was slightly surprised at a slight digression in the sentiment towards instant payments between last year’s survey and this year’s. Although the number of businesses citing an expectation to adopt instant payments down, actually we still see a very healthy growth trajectory amongst instant payments, particularly here in the UK. So, the number of organisations adopting might not be rapidly on the rise but those who are adopting and consumers frankly, are driving up the volumes at a very healthy level indeed.
I go back to what I said before about extracting the edge and the competitive advantages out of the changes that are going on in the UK payments landscape. There are a number of organisations who view payment and view instant payments as a way to drive a competitive advantage. So, whether that is being a recruitment agency that can pay contract staff instantly after they have completed an assignment or a shift, whether it is an online investment platform that allows you to withdraw your savings on an instant basis. Those can be differentiating factors that as consumers we would view as being differentiators between the available providers in the market.
I think instant payments remains an important topic, 50%, 53% is still a significant proportion of the businesses in the survey. I think the businesses who are adopting it will find that when they have done so the competitive opportunities that it enables, the list just grows and grows.
Ed Adshead-Grant: That is interesting. I think when you put together this new access to data to open banking regs and real time networks, that is a world of possibility in terms of data and real time access to information.
Where are we in the UK at the moment on levels for faster payment in terms of transaction limits, Gavin?
Gavin Mclean: So, across the scheme the upper maximum is £250,000. That is a number that is hotly debated industry on a pretty regular basis. I don’t want to give any secrets away but if I was a betting man, and I must say I’m not, but if I was, I would be planning on an increase to that limit probably to single digit millions in the early part of next year. I think the COVID crisis should make us all thoughtful about what that change agenda is and make sure that we are prioritising the things that can best support businesses and the wider economy to recover from the shocks that we are now in the middle of.
I would imagine that we will move that up from a number in the hundreds of thousands to a number in the millions next year, the change agenda permitting, and to your earlier point, Ed, avoiding any fatigue or initiative overload that is always a risk.
Ed Adshead-Grant: Maybe that is a good segue than to our third and final theme, risk and compliance. Dan, perhaps I can come to you and then Naresh. So faster payments, a million plus pounds per transaction. Does faster payments mean faster fraud? All sorts of questions in the background but when you come to the statistic you pulled out at the top of the call which was 88%, unable to recover more than 50%. If we said it in reverse, it would be only 12% can recover the majority of fraud driven losses. So how bigger problem is this leakage in the small business arena?
Dan Bellis: I think for small businesses, again, too many of them see losses due to fraud. It is just part and parcel of the day job. It is often down to human error, human instinct and it is very difficult for small businesses to manage internally. As I said at top of the call, small businesses don’t have by and large dedicated financial teams to take care of payment fraud. So, an innocent looking email that comes in for an invoice that vaguely looks familiar is all too easy I’m afraid for small businesses to end up paying when they are surrounded by the plethora of other jobs that require their immediate attention.
So small businesses are more vulnerable to these types of attacks, to these types of fraudulent claims against them, simply because they don’t have the resources to be able to cope with this.
Now mechanisms, like, push to pay, for example, to help increase the speed within which payments can be sent, payroll can be sped up and authorised with different measures to make sure that there is more security in there. It is important that when we are looking to speed up these payments, especially the small businesses are making that there are adequate protections in there to ensure that actually they are paying the right person for the right invoice.
We need to make this, not necessarily quicker for small businesses, but we need to make it easier for them to understand. Now this might mean taking some of the security measures and implementing them in the background as opposed to asking the small business for x, y and z before a payment is made. There is perhaps more we can do on the background side of things as opposed to placing the additional burden on the small business.
If we can begin to get these payment structures correct and get them in place and importantly get small businesses actually using them, hopefully we can begin to mitigate the amount that is lost to fraud each then.
You then get the other side of the scale which is an incident of fraud has happened, money has been lost and what can that small business do recoup that? Small businesses have better relationships with their banking providers than others. So normally when they have fallen foul to fraud or their payroll provider, that is normally their first port of call when they seek to address this.
As I said, they are not necessarily experts in fraud recovery but they are looking for help from somebody who is. That really is where good relationships between the small businesses and their financial service provider, whether that is their bank or payroll offering to- that is where that really comes in incredibly helpful for small businesses who are looking to recover that loss.
Ed Adshead-Grant: That is great. Thanks Dan. We know from industry statistic actually the fasting growing fraud on the planet right now is the authorised pushed payment, the APP, which has now gone through the £300m to £456m last year and probably growing. We will see how some of the initiatives in the industry can hold that back.
Naresh, I would be interested in your views whether larger corporates on fraud, is it similar, it is just a cost of doing business or is it something that has continual investment that is reviewed?
Naresh Aggarwal: I think it is a matter of both. I think for larger businesses it still remains a key challenge for them. It is often not the big amounts that are taken out, it is often smaller amounts taken out on a regular period.
I think there are two things, one is I think as organisations are creating more payment factories. It is easier to train and educate their teams to make sure they are putting in place some of what Daniel has talked about, about educating to ensure people are aware of the key controls they need to think about to prevent authorised- to mitigate fraudulent payments being made.
I think no one wants to be responsible for payments. One of the things that I’m very mindful of is responsibility for payments often can be spread across a lot of different people. Treasury teams often make their own payments. Payment centres then making their own payments and if there is a fraud committed one of the challenges before that is training, looking at the technology that’s sat behind it or who owns the payment processes. So I’m a big fan of trying to encourage organisations to reach out together not just payment fraud, things like credit card fraud as well into a single lab that creates greater ability for fraud across an organisation. It is not just in one place, it necessarily happens across multiple places in an organisation.
Ed Adshead-Grant: Good. I think UK Plcs are waking up because our bandwidth does struggle a little bit on the last two contributions but we did manage to pick up the themes.
Perhaps, Gavin, if I can come to the bank seats looking at fraud and also, we have an area of sanctions in the Barometer research. This is quite fascinating compared to last year. We are seeing a trend where last year 70% of businesses were pointing towards banks and their responsibility for sanction checking. That has actually dropped now to only 58% of organisations and enterprises think they can leave the bank only on the sanction checking. What is your view on the overall bank support for both fraud and sanctions?
Gavin Mclean: Fraud first, just to summarise the points the other contributions made, constant battle. Unfortunately, as we see with most significant events that take place in the world, the bad guys will use COVID and the uncertainty and the challenges that it throws up to come up with ever more sinister and elaborate ammos to try and trick us out of our money. I think from the banking perspective, particularly on the authorised push to payment or the invoice diversion type modes, I think confirmation of payee is a good tool and the kick back to try and help banks and businesses and other payment service providers to combat that type of thing.
It won’t be a silver bullet but bringing some of those fraud fighting measures that we have embedded in the payment systems up to the front where businesses are actually carrying out the payments and giving more of the insight and the control to businesses I think only can be a good thing.
On sanctions, if more businesses or if businesses think less of the sanction checking lies with the bank, I can assure you we don’t feel any less burden to undertake our duties when it comes to sanctions checking. I think that what we are seeing coming through the survey results, Ed, is that with more payment providers, more technology companies and more FinTech’s being involved in the payment processing chain, I think just more of those organisations are becoming aware of their responsibility and what they need to do around sanctions checking.
So, it’s been well known to firms like Bottomline and banks like Lloyds for a long time. I think with more participants, the more third parties that we are seeing emerging into the market and providing competition I think what we are maybe seeing in the results is just a reflection that there are now more people who have a duty and a responsibility to do those things that were typically done by a bank in the past.
Ed, I think you might be on mute.
Ed Adshead-Grant: Thank you folks. Forgive me, the amateur mistake there on my mute button. We will start to wrap up the first parts of this with one more question and perhaps I can encourage any of the media on the line to start thinking about any Q&A and hitting the button at the bottom and we will try and field those- we fielded a couple as we have gone. The last question I want to go to is a bit of a crystal ball question as we look forward into the future and taking into account the new conditions that have happened post-Barometer with COVID. Let’s go in reverse order this time, so Dan to Naresh to Gavin. The question would be what are the key considerations you would highlight in payments for the business world, Dan?
Dan Bellis: I think we would like a fundamental change really in the culture when it comes to late payments. There is a plethora of reasons why late payments occur and it is something that we have to get out of to help the businesses survive. If we are able to do this it will mean there are more small businesses out there, more jobs for the UK Plc. For us we need to have better transparency over the data. So, the duty to report data is currently self-certifying. So, we would like to see these payment statistics actually put within companies’ annual report. So that effectively they go through independent auditors and we know what the payment performance is like of these types of companies. Really, we are looking for these big businesses to help lead the way on this to help fight the charge to increase speedier payments for small businesses.
Ed Adshead-Grant: Super, thank you Dan. Naresh, looking forward what are your highlights and advice for the business world?
Naresh Aggarwal: I think to follow and understand more of what is going on in the payments arena or what changes are occurring. Picking on one of the things Gavin said, it is around how payments really are moving away from being a utility function about I’ve just got to get the payment- there is a richness to that interaction with customers, whether it’s B2B or B2C, which can provide a real advantage.
So I think that it is a great opportunity for anyone involved in payments from a business perspective to really look more widely at the changes. I’m seeing things around where people can start moving away from banks to faster payments. It allows things like the gig economy to be supported more effectively, get cash moving into smaller businesses much more quickly.
I think there are some really exciting areas where payments are really delivering an opportunity for change. I think businesses need to understand a lot more around what works for them.
Ed Adshead-Grant: Very good, thank you. And Gavin, your forward looking advisory to the business world please.
Gavin Mclean: I would have said this anyway but I think COVID has upped the antic and accelerated the need in many ways. Businesses right now urgently need to review their processes and the methods for accepting and making payments. Whether that’s cash, card, contactless, the ordering systems, ecommerce and they need to urgently address how are they going to run those processes and keep cash going through the business in a socially distanced world for however long that is going to go on.
I think we are starting to see through some of the data in the bank that COVID is certainly causing an acceleration of some of the trends that we have been used to over the last few years, away from cash, electronic payments, ecommerce and all of that kind of stuff.
I think that is the short term. I think there is cause for optimism here in the UK. I think we have got a great track record of cross industry collaboration to deliver things that can make a positive difference for businesses. We have progressive regulators. We have that platform to innovate from. I don’t know how and I don’t know why but I just think that as we recover and we come out of the COVID crisis I think we are all going to be grateful for some of the great payment systems that we have got and some of the innovations that we have seen over the last few years.
Now whether that is open banking or whether it is some of the fraud detections that we have talked about today, I think here in the UK we are as well placed as any developed economy to use our payments infrastructure and payment systems to help us trade our way out of this crisis.
Ed Adshead-Grant: Thank you Gavin. I think probably all of us have spent time in payments have probably being fairly happy actually with how the industry has performed under COVID conditions. We talk a lot about resilience, robustness and keeping that critical national infrastructure running. I think thankfully we have played our role in keeping that pretty seamless and invisible under the covers as the whole economy has adjusted, I would hope.
Let me just check, we had one question here, so we can more formally to Q&A sessions, please keep them coming. Here’s an interesting one which maybe Naresh, I will start with you if I may and then please others chip in, can you create competitive advantage via payments?
Naresh Aggarwal: Let me give you an example that I came across a few years ago, it was an insurance company, I think it was AXA, announced that within a claimant putting a phone down on a claims handler that money could be in the bank account within three minutes. Which I thought personally for me was minimalist comments. It wouldn’t make change what I did but it was a great marketing strapline. I remember meeting the treasurer for another meeting and he said he had been in a board meeting a week earlier and he had been asked when they were actually making faster payments.
I think there is definitely potential. I think the practical applications of it may not mean very much as a marketing concept, being able to pay people in a way that we pay Uber, the way we pay for many of our things IT perspective. As a business we can see just what difference that can make to a customer user experience. I think there are plenty of examples of how it can create real competitive advantage.
Ed Adshead-Grant: Super. Dan, do you have any views there you will share about payments having a competitive advantage?
Dan Bellis: Yes, certainly. I think it is part and parcel of having a good relationship between the small businesses in our circumstances and the large businesses or the large contractor. We have seen it with the likes of Taylor Wimpey where payment is prompt, where various mechanisms are put in place to help small businesses through the immediate crisis then businesses do favour doing more work with that company. Construction has always had a bit of a black cloud over it when it comes to paying people on time. It has been notorious as one of the industries where late payment tends to be rife. What we have seen from Taylor Wimpey is that actually small businesses are much more open to working with those companies if they have payment structures in place.
If I was a small business construction company, and that is a long way from my own construction skills I must admit, if I had a choice of whether or not I’m going to work for somebody who is going to pay me in 200 days or I could work for Taylor Wimpey and go to this scheme, based on those payment performances I know who I would rather work for quite frankly. It just gives you certainty, it helps with the mental health aspect as well of running a business knowing that actually you are going to be paid for the work you do.
Ed Adshead-Grant: Got it. Gavin, from the bank view how do you view payments in terms of competitive advantage?
Gavin Mclean: I would just echo what the guys have said. As consumers we are increasingly intolerant of anything that takes any time whatsoever, can’t be done 24 hours of the day and that I can’t do self-service typically on a digital device, like, a tablet, a PC or indeed my smartphone. That expectation as a consumer drives my expectations of the businesses that I transact with. So I will not wait for a refund on my gas and electricity account. Why should I wait several days for my credit card company to recognise that I have paid money towards my balance? Why should I wait to get money out of my savings account?
That intolerance and impatience as consumers that then becomes a competitive factor. It becomes an order winning factor when I decide where to place my business.
I completely echo what the guys have said. I know what house builder I would want to be working for, Daniel, if I had any practical skills whatsoever, I don’t, but if did that would be a really significant factor for me. That is precisely how we see it at the bank. Making payments fast, transparent, seamless and as free from error as they can be is what we are striving to do. Frankly, consumers and businesses won’t accept anything less.
Ed Adshead-Grant: I think it is probably outside the scope of today but it has been fascinating to watch a lot of companies that as things got cancelled with COVID, we heard about cash refunds by law, then it turned into a voucher, then the call centres are empty so you are going to have to wait a few months. There have been real stresses on those form of payments and I think we still need to come through the wash. Personally, I set up a little COVID voucher file on my computer where I’m just putting all of these delayed payments to one side.
We have had a question in I think from accountancy, Jeremy, despite best efforts fraud continues to go up, is there an underlying cause or is it just a larger volume of transactions? Can someone take that one? Underlying cause or is it just larger volumes of transactions?
Dan Bellis: I can speak to it from a small business perspective. To some extent transactions going up, increasing in volume is largely a good thing for small businesses. It shows actually there is work coming in and there is turnover being created. With that does come increased risk, you become a bigger target for fraudsters. Equally small businesses, as they go and as they evolve they get more advanced and better at using various payment structures. So, there is quite a steep learning curve for small businesses getting used to these different payment structures and making these volumes of transactions.
What we would like to see is that learning curve flattened off a little bit so that small businesses are learning to use these but they are learning to use them quickly and correctly, which means that they are not making these mistakes as they get their small team used to using these different bits of software and complying with the different regulations when making various payments.
Ed Adshead-Grant: Naresh, is there a difference, if we go from small business to larger corporates in terms of what the businesses are doing to try and rein it in in terms of fraud losses? Is there a difference there?
Naresh Aggarwal: I don’t think there really is. I think it is the combination of preventative with a whole load of training. I think that as Gavin said it is an ongoing fight. I think as Daniel said, businesses typically are growing. The volume and the value of fraud will naturally increase. The things that I am really interested by is how things like artificial intelligence will hopefully star out anomalies in terms of payment behaviours, [benefits 00:51:12]. It will be another great tool. Of course the fraudsters will find their own ways of using AI to counteract this. One of the things that I’m hearing a lot about is AI application.
Ed Adshead-Grant: That has certainly a long road of value propositions to come I think with AI. Gavin, I saw public information on Lloyds success at stopping fraud, with confirmation of payee going live. 31% reduction in APP fraud, what is your view on what more businesses can be doing to try and reduce this figure that seems to come up every year in our datasets?
Gavin Mclean: I think as the other guys have said, it is an ongoing fight. When you squeeze the sponge and reduce - I’m going to mix my metaphors here, I’m really sorry - but when you squeeze a sponge and you cut out a leak somewhere then it generally just squishes out somewhere else. So, we are pleased with the start that confirmation of payee has had. It has landed as well or better than we expected and it has had a positive impact on the APP, the authorised push payment type scams.
There is a spectrum of sophistication here from malware and actually trying to hack the technology down to more human social engineering and just tracking people into making payments that they shouldn’t be. That means that the range of defences that a business has to employ is really quite wide and quite sophisticated. So just when you think you are getting on top of it because you have upgraded to the latest firewall and you have locked down a lot of your security protocols then somebody gets duped by an alter invoice or something like that. So it really is a constant fight.
The question says as payment volumes and values go up I think we will be constantly fighting to make sure that the values of the impact of those frauds does not increase. None of us can afford to be complacent in this regard. We have all had wins along the way but that will just mean that the threat migrates elsewhere and then we will have to tackle it in a different way.
I think the work that the ACT and actually Daniel and his organisation do around awareness and education and the advice and support lines that they’ve got is a great help in addition to some of the controls and measures that we can put in place on the actual payment systems.
Ed Adshead-Grant: I saw recently an organisation very sophisticated fraud where it was an email account takeover so the contractor who was working for the businesses was asking for details to be changed on the bank account. There was a dialogue, it looked like it was the contractor and the contractor had no idea that his email box had been compromised and emails from the company had been diverted and the fraudster was busy redirecting funds. It is really quite amazing.
Any other comments around the fraud area and the internal behaviours that we often hear about being monitoring to try and reduce fraud, that is the other interesting area.
Naresh Aggarwal: I can contribute one insight and that is definitely as we have seen a lot of our members move towards the centralised payment factories and the sort of centre of excellences, I think it is much easier where organisations are concentrating payments in one place to put in place the number of things including monitoring internal activity. It is always very difficult when you have got one person doing payments and no one else actually keeping an eye on those payments or if you’ve got it spread across a large organisation.
Ed Adshead-Grant: Excellent. I think that is most of the questions. There is one more question on real time payment technology, we have had it since 2008 in the UK why has it taking so long to get to this point of adoption? Perhaps a quick fast fire answer there and we will close up. Gavin, do you want to start with adoption of faster payments, why not quicker?
Gavin Mclean: I mean how quick do you want it? Faster payments has gone from a stand and start in 2008 to being bigger than the BACS credit scheme but by quite some way now. BACS had a 40 year head start. I think faster payments is on an adoption curve like anything else, I think it will continue to grow. I think the UK faster payments is envied from other parts of the world. It is a technology that the UK has actually exported and helped other countries to implement. I think we are doing just fine. Actually I think open banking and some of the other market developments are only going to see an acceleration in the use of instant payments, UK and other.
Ed Adshead-Grant: Any last comment from the business community, Naresh or Dan on faster payments?
Dan Bellis: I think I might add on this point is that it does take time for small businesses to get used to new technologies. Ultimately whether it is fraud or whether it is late payment I think you have to begin to understand that actually there are human beings on the end of this and this has a very real impact. It is not necessarily taking money from a faceless business. This is a human being at the other end of it. I think as soon as we begin to realise that we understand how fraud mistakes are made. We also understand the importance of things like payments.
Ed Adshead-Grant: Super. Sorry Naresh, final word please.
Naresh Aggarwal: I was going to say I think one of the challenges around faster payments is a lot of organisations still had very old legacy customer and payment systems for which FPS cannot yet connect to. I think legacy systems slowly get replaced we will start so see an increase in take up.
Ed Adshead-Grant: Got it. Let’s draw this to a close. I would like to thank our panellists for helping us out here today and shining some light on the fifth business payments Barometer. I think there is some very rich data in there that we can share with the industry and hopefully move the dialogue forward on payments.
Apart from that, please stay safe, have a good rest of the week and we will be reading with interest the further coverage on the payments Barometer. Thank you very much.
The 2020 Business Payments Barometer arrives at an unusual time, amidst COVID-19. It provides a snapshot of how companies are managing their payments pre-pandemic. The report analyses where companies are set to make investments over the next year, where they won’t, and how a ‘new normal’ might influence these findings as we emerge from the pandemic.
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