Retailers say that card processing fees take a bite out of sales. Then why not, asks Marion King, director of payments at NatWest, remove card rails and replace them with new, real-time payment rails? In this month’s Faster Payments Tracker, King says using new real-time rails to transfer funds directly from a consumer’s bank account into a merchant’s account speeds up settlements, and lowers costs — provided they do all the things that card rails do now. That interview and more details, inside the Tracker.
The world was a very different place when the U.K.’s Faster Payments Scheme launched in 2008. It was the country’s first new payment system in two decades, and just one-third of U.K. consumers had used online banking at the time. Comparatively, two-thirds have today.
The number of scheme participants rose from 13 to 21 within the last decade, system oversight has been passed to the New Payments Systems Operator (NPSO) and merchants have increasingly expressed demand for ways to be paid faster — thus creating new use cases for the payments rail.
PYMNTS recently caught up with Marion King, director of payments for NatWest, about what Faster Payments has meant for the bank and how its use may develop in the future.
Faster Consumer Expectations
Customers have come to trust the Faster Payments Scheme’s reliability over the years, thereby enabling banks to introduce more products and services that leverage it, King explained.
NatWest offers many solutions that use the rail, including a service that sends money to connected accounts via mobile banking. It is also currently piloting another service using the rail, allowing eCommerce and in-store customers to click a button and pay via instant bank fund transfer rather than entering card or account details.
“Now 10 years old, [the scheme] has given us a platform and suite of customers who are very comfortable using Faster Payments because of its track record,” King said.
The payment rail grants customers the benefit of seeing transactions appear on their accounts right away. Merchants, meanwhile, get quicker cash flow, empowering them to do more with their businesses through speedier — and cheaper — alternatives to card acceptance.
This is important to merchants on both ends of the size spectrum, she added. Card fees take a notable bite out of coffee shops’ already slim operating margins, for example, as they rely on revenue from small daily purchases to survive. The fee percentage also takes a significant dollar sum from luxury car sellers and high-end retailers, some of which find the amounts so friction-filled that they are more reluctant to accept card payments.
The Customer Dispute Challenge
But the Faster Payments Scheme is running into new challenges as it is increasingly leveraged for consumers’ daily purchasing, King said. The real-time payment rail was designed for interbank payments, after all. Clearer protocols must be established now that it’s being used for everyday payments, particularly surrounding what will happen should a customer deem a received service or product unacceptable and want compensation or a payment reversal.
That’s a problem card networks have solved, partly by charging interchange and acquiring fees — which creates a pool of revenue that can be used for customer protection — and partly because of the three-day window before payments clear. Services using Faster Payments tend to have fewer fees, in an effort to make them more competitive against cards, and the payment moves instantly. According to King, this issue will need to be addressed to enable continued expansion of retail-focused Faster Payments use cases.
Unifying Systems
The U.K.’s Faster Payments and other domestic payment schemes were recently brought under the oversight of the NPSO. King was involved in the strategy forum that proposed this plan, and said that drawing the schemes together will help create a more holistic, standardized approach for the country’s payments. This would also facilitate applying common messaging standards, best practices, updates and improvements across different payment types.
“It enables us to think about a payment more broadly rather than, ‘Is it Bacs, is it CHAPS, is it Faster Payments [or] is it check?’” she said.
These discussions aren’t just happening on the domestic front, either. The next step to more seamless, connected instant payments is achieving interoperability between various countries’ real-time payment schemes. King expects that will require getting banks around the globe onto a standard messaging system, and noted that Europe’s Single Euro Payments Area (SEPA) Instant Credit Transfer (SCT Inst) reflects an early step in the interoperability effort.
She also anticipates that the Faster Payments Scheme will be accessed from an increasing array of digital channels. This could mean that when a customer instructs Amazon’s voice assistant, Alexa, to buy him a train ticket, she could do so using the Faster Payments rail.
Predictions aside, one thing is clear: Customers and merchants alike have a taste for faster transactions. Financial operators are working to provide solutions and find new ways to connect as consumers and businesses increasingly turn to instant payment schemes in everyday retail transactions, extending speedy payment rails further than ever in the process.
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