Payback Time

For an industry not normally associated with innovation, the banking community has delivered some interesting initiatives for retail payments in recent years. The introduction of the UK’s Faster Payments Service has been one of the most significant developments, consigning to history the three-day float period for person-to-person transactions for many customers.

According to a recent VocaLink research paper, The Voice of the Consumer, which looked at awareness of, and attitudes towards, Faster Payments, just under a third of people who are aware of Faster Payments, are now making more payments online, in preference to cash or cheques. This allows customers to delay payment until nearer the due date. The appeal of Faster Payments is growing – the UK Payments Council recently also reported that the use of Faster Payments increased by 67 per cent in 2010 to £16.9bn, as more banks launched the service so that consumers can make instant transfers between accounts.

More importantly, mobile payments are now a substantial part of the retail payments revolution and look set to imminently hit the mainstream. So what are the opportunities and challenges that banks face in rolling out mobile payments to their customer base.

Speed and convenience
With the experience of the UK’s Faster Payments service for online and telephone banking, a natural next step would be to make inter-bank payments available in real-time via the mobile phone. Worldwide, 1,000 new mobile phone users are signed up to networks every minute of every day, and mobile users are now close to numbering 5bn. With the mobile phone as a new channel already used for contactless payments and mobile banking, transferring payments immediately between accounts holds a strong appeal for consumers, due to its speed and convenience.

This is also backed up by our research. The proposition for using the mobile phone as a payment device already appeals strongly to consumers. Two in five of all those with bank accounts, and over half of those who already make online payments, believe that transferring money immediately would be very or extremely valuable, and will make it easier to send money to friends and family.

The survey also revealed that even small and medium-sized enterprises agree the service would appeal to them, as it would enable them to be paid straight away with the assurance of not being paid late, and no concerns about bounced cheques.
As immediate payment transfer becomes more and more popular, especially with the use of the mobile phone, consumers and sole traders claim that they are already prepared to pay for the service. A third of people queried in the survey suggested that 5p per transaction is the fee they would be happy to pay for a more convenient transfer service. This provides an opportunity for banks to benefit from in revenue terms by offering the service to their customers – something they missed out on the first time round, following the introduction of Faster Payments. Even if some bank customers envisage using the service occasionally when convenience and immediacy are most important, some already view an immediate payment transfer service as ‘electronic cash’ and envisage using it extensively.

Hurdles to overcome
Any new payment innovation will be accompanied by challenges, and mobile payments are no exception. To date, as is often the case with a new technology, there are still concerns about the safety of payments made on a mobile phone, in case the data is stolen or the phone is lost. So it’s still early days for mainstream awareness of this proposition. While it’s clear that people want the convenience of a real-time payment service, at the same time, they also want to be reassured that the service is secure. This will be one of the key challenges to overcome, with a combination of a secure central infrastructure, allied to handset security and multi-factor authentication. 

But mobile payments are already a reality and, for many of the remaining hurdles, there are already solutions under discussion and conducting real-time payments via the mobile phone has the potential to become omnipresent. In today’s modern world, both consumers and small businesses expect to be able to move money instantly and easily, and the Faster Payments Service in the UK has already facilitated this requirement. Now that banks have the ability to offer a real-time payments service to international audiences via the mobile phone, payments truly are ready to adapt to the pace of the new decade.


Chris Dunne is strategy director at VocaLink