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This issue of Payments:Unpacked is brought to you by Card Industry Professionals and we take a look at digital solutions where size no longer matters.
Card Industry Professionals are trusted providers of Card Payment facilities for UK based businesses. With a number of unique benefits, including No PCI Compliance Fees, No Authorisation Fees, No Minimum Monthly Service Charges and Next Day Payments coupled with experienced 24/7 365 customer support teams, more and more business owners are getting advice and guidance from the CIP Sales Professionals every day.
Digital solutions where size no longer matters
Credit card usage has grown exponentially since the launch of Barclaycard in 1966 and card payments overall from the first debit card, also from Barclays, in 1987. The move from paper vouchers to electronic processes led to greater growth in businesses offering card acceptance but entry and fixed monthly costs still meant that, until relatively recently, a card terminal were less common in smaller businesses.
The arrival of the internet led to the development of e-commerce. According to Wikipedia “The first online food order was a pizza from Pizza Hut in 1994”. However although the order for a large pepperoni and mushroom pizza with extra cheese was placed online, revolutionary for its time, it was little more than an online order form, as the order was then verified by a phone call and payment made on delivery. To link together the whole transaction online required a complex payment gateway connection to link the order with the payment.
Systems developed further with the launch of pioneers such as Amazon in 1994 and the beginnings of online orders with payment online by credit card (although you could still phone and give your credit card details over the phone). However, the technology costs still meant that these were large scale solutions for large scale businesses.
The growth of card, online and mobile payment acceptance has increased as digital technology has developed in recent years and further fuelled by the pandemic. The payment solutions initially available to the multi-nationals has now been replaced by capability at everyone’s fingertips, literally, in the smart phones carried by nearly 4 billion people across the globe today.
Integrated payment systems are now unrecognisable from their costly, clunky and frankly not-very-integrated early days.
What is available and why should a business bother?
Read the full blog: Digital solutions where size no longer matters.
VRP: The beginning of a new payments revolution
In July 2021, the UK Competition and Markets Authority (CMA) announced it would require the nine biggest UK banks to implement Variable Recurring Payment (VRP) APIs to enable customers to sweep money between their accounts.
You may already be familiar with how Direct Debit works, where businesses can collect payments of variable amounts from the same customer on a recurring basis, without needing to gain new permission for every payment. VRPs will essentially allow businesses to do something similar using Open Banking.
VRPs are an additional Open Banking API that banks will now need to build, which enables third party providers (TPPs) to initiate a series of payments for a customer at variable amounts and intervals. This is obviously a change to the current Open Banking status quo where TPPs can only initiate single immediate payments and customers have to authenticate each payment separately.
With VRPs, the customer will agree the payment parameters with the TPP and authenticate the payment mandate with their bank upfront. From then on, payments will be initiated without the customer having to take any action.
It’s important to note that even with this additional capability, VRPs have been designed to ensure it maintains the central ethos of Open Banking of the customer being in control. They will be able to ask the TPP to cancel the recurring payments at any time. They will also be able to ask their bank to remove the TPP’s access, as an additional way to cancel.
Currently, the CMA has only required banks to provide VRPs for ‘sweeping use cases’ – the transferring of money between two accounts belonging to the same person. Sweeping payments are also referred to as ‘me-to-me’ payments.
The new requirement from the CMA means TPPs should be able to provide recurring me-to-me payments for any customer that banks with one of the nine biggest UK banks, from January 2022 onwards. That, of course, is still reliant on the CMA9 banks implementing the APIs on time and with sufficient quality.
Matt Parish’s (True Layer) article: VRP: The Beginning of a New Payments Revolution
Which is better for collecting recurring payments, Card or Direct Debits? A view from Elliot Richards.
Jack Wilson over at TrueLayer has been getting excited
The FCA has done it! They've removed a big barrier to open banking.
Their (FCA) changes to solve the 90-day problem in open banking have been finalised.
From 26th March 2022, banks are strongly encouraged to only authenticate for the first access request of an account information service provider.
After that, it will be for the AISP to manage the customer's data sharing, by asking the customer at 90-day intervals whether they wish for data sharing to continue.
There will be no need for customers to jump through the credential sharing hoops with each of their connected banks every 90-days.
AISPs will be required to start sending consent confirmations out no later than 26th July 2022.
Read Jack Wilson’s post: The FCA has done it! They've removed a big barrier to open banking.
Why Maestro is retiring after 30 years
Valerie Nowark at Mastercard has been blogging about a Maestro that is about to retire:
In 1991, Tim Berners-Lee flipped the switch on what he had initially described as “a large hypertext database with typed links” in a proposal to his bosses at Switzerland’s famed research laboratory CERN. He later settled on the slightly catchier name the World Wide Web.
That same year, Mastercard launched its Maestro debit card brand, the world’s first online point-of-sale debit network that gave cardholders secure access to their money wherever they were. Though the debit card – and its partner-in-cash, the ATM machine – had been around for years, the rise of the debit acceptance network helped hasten the decline of paper checks and traveler’s cheques.
Maestro effectively became the only pan-European debit brand accepted almost everywhere across Europe. There are now more than 400 million in circulation worldwide.
But a lot has changed in 30 years. A lot has changed in the last 20 months, when the World Wide Web became, for all intents and purposes, our entire world. We are living far more digital lives, learning, working, socializing, and spending online. Businesses of all sizes – even the smallest – have met the moment with expanded digital presences and online payment options.
With e-commerce growth far outpacing physical retail, it’s time to upgrade those Maestro cards. Built primarily for a physical world, Maestro cards cannot consistently be used for e-commerce payments, in part because the numbering convention on Maestro cards (up to 19 digits) is not compatible with widely used e-commerce portals.
Yet, the debit card is the preferred way to pay for many people and its use should not be dependent on whether its owner is in a physical shop or on his favourite e-commerce platform.
That’s why, starting July 1, 2023, banks and other card issuers will begin replacing expired or lost Maestro cards - for instance with a Debit Mastercard, which is accepted wherever Mastercard is accepted online and offline, in your hometown or abroad – and globally, that’s in a lot more places than Maestro.
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From Morse code to Monzo
Raconteur have been thinking about the history of Fintech.
Innovations in the financial sector have transformed the way we save, spend and trade. Banking systems, which once relied on London bank clerks meeting in the Six Bells tavern to exchange cheques, are now automated thanks to advances in technology.
Customers have also benefitted, with a slew of fintech companies bringing the benefits of digital banking to the masses.
Raconteur have traced the history of Fintech from Morse code transactions to Monzo.
A number of my contacts have said what about X or Y and perhaps the infographic is too Western centric but its a great infographic nonetheless.
Source: Raconteur: The history of Fintech.
In the 12 months to the end of October 2021 we see that cheque:
Volumes have decreased by 22% (12 months to September 23%).
Values have decreased by 19% (12 months to September 23%).
Despite the introduction of the image-based cheque clearing system, the volumes have continued to drop over the 12 month period. Volumes processed by the Image Clearing System in October were 23% lower than during October 2020. In August the value increased year on year, however for September the value again fell by 12% for September 2021 compared to September 2020. This has occurred again in October 2021 with values falling by 14% compared to October 2020. Thus although usage is falling as many have undoubtedly switched to digital payment options, there is some underlying resilience which continues to be seen in this method of payment.
However, with volumes of digital payments continuing to increase, the share of legacy payments within the total continues to fall. For the twelve months to October 2020 the volume of Cheque payments accounted for 1.9% of the total (for Bacs / CHAPS / Faster Payments and Image Clearing System) falling to 1.4% in October 2021.
Help me out here ... how can 'pay by link' even be a thing?
Chris Higham’s recent Tweet on push payment fraud (below) prompts me to reshape my blog “Help me out here ... how can 'pay by link' even be a thing?”
Darian Moody @djm_UK SMS Sender ID is so spoof-able that you can pretend to be a bank (@monzo) and end up in the same message thread as them with minimal effort. I feel for non-technical people. How on earth do you educate against this risk? https://t.co/j75CaE4zIT
Pay by link is growing in use within the financial services industry, as banks and other financial services companies adopt the mechanism in their apps to service growing demands for mobile payments.
But does that make sense when it encourages payers to click on links?
Longer Read - Crypto in the classroom
Dave Birch has recommended an article by Lucy Kellaway from the Financial Times - grab a coffee and learn about crypto in the classroom.
Lucy: I ask how he would feel if the market crashed and he lost everything.
Ibrahim, 15: That’s not going to happen — if it goes down one day, it’s going to go up again.
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