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Are we happy with our bank cards or is paying with your smartphone really the answer?

Payment methods have been evolving since ancient times where the smart solution was the ‘split tally stick’.  A hazel stick was marked with notches to indicate the debt and split into two pieces so the seller and buyer both had a record that could be authenticated by fitting the pieces back together.  Natural materials meant the unique split made it very difficult to forge. However taking a bunch of sticks with you every time you make a transaction is a little impractical.

Today “Smart Payment” usually means a smartphone App or contactless ‘near field communications’ or NFC payment card. Payment is certainly changing, but we think Smart is about to mean something quite different.

What's wrong with focusing on the technology in payment?  Like the tally stick it is an enabler relevant at one moment in time.  Putting the tech to one side allows us to get back to the basics of what we are trying to achieve.

Payments are a trusted way to exchange money for goods, and vice versa. With NFC payment, even those normal small payments are all going digital. So a concept of a virtual token to 'pay' for goods is already reality to many.  So if we’re comfortable with the idea of virtual banking, and electronic payments, what next? Maybe we're not far away from the generation that doesn't use cash any more.

People don't tend to get very excited about payments. They do get excited about what they're buying.  So how can we embrace relevant technology in such a way that it further enhances that experience? At the moment, the best payment experience is all about getting more ‘frictionless’ – easier and faster - perhaps the best example being payment via smartphone with fingerprint recognition. But it still requires you to get something out of your pocket, having downloaded the correct App and typed in your card details.

What about payment in the optimal retail experience? A system that follows you around the shop, pick up what you want and your final selection is automatically paid for as you leave, without a second thought for money? iBeacon technology could make this a reality but is not yet permitted from a regulatory perspective. By exploring user experiences that aren’t led by technology, but instead are guided by the aims of the user, opportunities for disruptive thinking are uncovered. 

Whilst current banking regulations somewhat limit wireless payment, they’re far from static.  The Payment Services Directive II (PSD2) was ratified by the European parliament in 2015, which leaves just 2 years to get it into local legislation. It is potentially a game-changer because it was designed to promote innovation and competition in payment technology. A critical part of the new legislation is called Access To Accounts, or “XS2A”. This is all about who owns and controls your personal details. Historically your bank would own the relationship between the account and the user but this no longer needs to be the case. The user will be able to control who has access to their personal information and can decide who they interface with (subject to some accreditation requirements).

This significant change makes room for a new ‘middle layer’ between banks and the customer.  These new organisations don't have to be a bank and will be regulated in a much ‘lighter’ manner, but they can own the customer relationship. The actual transaction element will be handled by a service provider - pushing the banks further into the background and potentially meaning they lose most if not all their current interactions with the customer.  That new service role isn't going to be hugely regulated - anyone can play – including the experts at customer relationships such as Facebook and Amazon. It also makes for an attractive focus for start-ups. No banking baggage required. It is not by chance that the FinTech investment space is one of the most well-funded new business sectors ever seen.

Post Brexit vote it’s not clear how PSD2 will influence how payments are conducted in the UK.  But the ‘Open Banking Standard’ was developed at the request of the UK’s Treasury, and has similar goals of openness, innovation and competition. It is clear that the playing field is changing and the historical incumbents may need to worry about the future of their business.

There are parallels in other sectors - the emergence of highly customer focused service providers that sit between the customer and the regulated big boys. Think car insurance, with telematics service providers providing the vital link between driver and insurer. Or consider connected medical devices, where start-ups play the role of generating insights from patient usage data. It is these insights that are provided to the big Pharma companies. Banking will inevitably move to the same model.  Agile and young businesses offering targeted, value-add insights and services will sit between banks and the customer.

Another influence is the data ownership question.  Gone are the days where the usual incumbents can dictate the rules because they own the data.  Consumers are far more data savvy, and will only share their info when they're happy they're getting enough in return.  Once they own their payment data, their interest in who gets access quickly snowballs.  Insurance is already seeing this and soon your quote may be generated from the usage information you're prepared to offer to the price comparison websites, not just your profession, age and post-code. Medical data is also becoming more patient-centric. And shock-horror, consumers are turning to gamification to gain extra rewards!

This change is both a threat and an opportunity. What is needed in payment is a fresh look at what the consumer actually wants.  They want convenience, an easier life. They want joy in the retail experience. Frictionless payment is going to happen because it makes sense; it is only a question of who, how and when.

At Cambridge Design Partnership we are innovating in this space. Connected payment solutions are becoming more and more widespread and whilst we can’t say which we’ve helped with, we can blend technology, regulations and consumer benefits into innovative and practical solutions. Smartphone Apps are an immediate solution, but we remain unconvinced that this is the eventual replacement to cash as we know it today. Our vision is integration of payment capability into everyday clothing and jewellery.  A solution that takes payment to the next level and provides the crucial stepping stone to the ultimate retail experience of the future.

If you’d like discuss how we can help your company on this journey please get in touch with Tom at twl@cambridge-design.co.uk or James at jgb@cambridge-design.co.uk .

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