Are we about to see a battle royal in what is about to become one of the word’s most dynamic business areas, involving Apple, Facebook and more traditional players such as Barclays?
From a forgotten corner of the financial services netherworld, where once the big issue was clearing a cheque in less than four days, the payments industry is suddenly making news and attracting big names.
Barclays got the ball rolling last week when Pingit, its mobile phone money transfer app, showed it was about much more than mates paying their share of the curry bill (featured in one of Barclays ubiquitous ads) when the service was used by a home-buyer to pay a £23,000 deposit.
Since its launch two years ago Pingit has racked up more than 2.5 million downloads and its users have sent £350m through the service. Barclays reports a 149 per cent increase in those downloads in February 2014 compared to February 2013, and more than 30,000 businesses now use it. Darren Foulds, Pingit product director, said: “Consumer appetite for making payments via their mobile is on the rise... as users adapt to use smartphones and technology for everyday transactions.”
In addition to making payments directly to a person or business while on the go, phone scanning means users can pay bills or purchase directly from merchants.
Pingit is no gimmick. In fact, the Centre for Economic and Business Research predicts that by 2020, 20 million adults will use their mobiles to pay for goods and services and that the total value of mobile payments will reach £18.1bn by 2018, in a combined value of all mobile payments and bank-to-bank transfers.
It isn’t just banks that are interested in cornering parts of this market. Tech companies which hold the card details of hundreds of millions of customers are wondering if they can’t join the payments party too. Apple, which declined to contribute to this piece, has already filed patent applications. Facebook and Twitter are also being talked about.
In comparison to the UK, America’s payment system is sclerotic, lacking the sort of chip and pin systems that have taken root in Britain and across Europe, and where cheques are still far more widely used.
This has led to some innovations which Britain doesn’t have – for example, Bank of America allows customers to photograph the front and back of a cheque with a camera phone – although with Pingit why would you bother?
You’d think Apple could change all that. And if it works over there, the chances are it will bring it over here: iPay anyone? The computer giant’s online stores executive Jennifer Bailey is to push its entry into payments, not so much to take on banks but to attack established tech payment players such as Google and PayPal (which interestingly has a banking licence in Luxembourg).
There has even been speculation that an “iPay” may eliminate checkout queues, enabling supermarket customers to pay for items in store with their iPhones while they shop.
Duncan Chapple, managing director of technology business advisory firm Kea Company, said: “The iPhone 5 already uses a thumb print as a biome, so Apple has many, many people already able to make payments using thumb prints. For the iPhone 6 there is already chatter about facial recognition software.”
Offering technology like this, Mr Chapple added, means Apple will fulfil a key strategic object with its potential entry into payments. In addition to capitalising on the consumer relationships it already has, these services would drive further hardware sales.
“I think it sells every Apple device,” he said. “It’s also about trying to prevent people going to alternative payment devices on other platforms or from downloading what Apple wants to offer from other sources.” Such as Barclays, for example.
All this innovation, of course, presents a headache for the Payments Council which oversees this rapidly changing landscape in the UK. It wasn’t so long ago that it was being told off for suggesting the end of the cheque. Now cheques are the least of its problems.
As Pingit draws attention from envious rivals, how do you ensure these various services work together and that the consumer doesn’t have to have an iPhone full of them to transact with the merchants they want to transact with?
Adrian Kamellard, the chief executive of the Payments Council, said: “Innovation and competition lie at the heart of the council’s approach to setting the strategy for payments in the UK – and so it’s exciting to see new entrants ... coming to the market with ideas that can improve the way we pay.”
He describes the payments system as “the hidden wiring” at the heart of the banking system. Without it, ordinary consumers, charities and SMEs simply could not function, and it plays a crucial role in keeping the economy moving.
To help address the issue of massive expansion in services and providers, the council is launching a mobile payments service that will enable payments to be sent directly to bank accounts using just a mobile number – so no sort codes or account numbers.
Financial institutions – including non-Payments Council members – representing around 90 per cent of the UK current account market have already committed to offering it, with discussions continuing for more to join.
This could potentially include what are traditionally seen as “tech” companies.
What those companies and others are doing means that the wiring isn’t going to be hidden any longer. There will be greater investment in technology from all concerned. The decades of underinvestment that left RBS customers shut out of their accounts may become a thing of the past because if it doesn’t invest in the future it will be doomed. Not even the world’s biggest bailout will save it.