Kids Money, just another Minecraft!

Issue 169 | 6 September 2021

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Kids Money, just another Minecraft!

Nigel Walsh has been looking at bank account options for his digital natives.

Long gone are piggy banks, the regular race around the house over the last 18 months to find 50p for the tooth fairy is getting harder and harder. There's no cash around, anywhere. We've even raided the car, where once there would be money for parking meters, now moved entirely to apps and PayByPhone. Very few people give cash these days - birthday parties are much more convenient with print-at-home - Amazon gift cards... I doubt the next generation will have any clue about Piggy Banks at all, it will be our version of Video Tapes!

School is now a digital payment zone:

But as my son heads back to school, the need is here and now! Everything has gone contactless in the school (as with most of the places we go as a family), so with that I can no longer just lend him a card to nip down the road for a haircut or to pick something up from the shops. I have two kids, so this something I need to do for both at some point. My daughter a little younger, and still believes all things are just paid for by magic and me tapping my phone. Magic! That's a whole different story!

So Emma (Nigel’s wife) set him a task to find a solution:

I knew the folks that had entered the market over the years, namely Go Henry and Rooster Money. But what else was out there? I knew Starling Bank had launched their Kids product too, Kite - but what about the traditional banks? For people who know me - I'm also a huge fan of Metro Bank and their coin counting machine - Magic Money, 5 in 5 and much more. Something else I've not been to in 18 months+ a bank branch.

It’s A Branch, But Not As We Know It

Here are two great quotes that haven’t stood the test of time:

There is no reason anyone would want a computer in their home.

Ken Olsen, president, chairman and founder of Digital Equipment Corporation (DEC) in 1977.

Ken certainly got that wrong. Conversely, the history of tech is littered with over-optimistic predictions of how our lives will be transformed. 3D TVs, anyone? And exactly what is happening with driverless cars?

In their article Glory (It’s a branch, but not as we know it) point out that: tech gurus, pundits and the industry more generally are very good at accurately forecasting what technology will be capable of, but they often struggle to predict the “x-factor” – and that x-factor is peoples’ attitudes. Consumer adoption. The users of the tech.

The world needs banking but it does not need banks.

Bill Gates.

It is worth reminding ourselves of the simple fact that Bill was also wrong. Without banks, there would be no banking.

In a recent article Glory argue that this need for banks extends to bank branches stating that they are the ultimate interface between banks and consumers.

With bank branches falling by more than 22% between 2016 and the end of 2020, and a further 20% fall forecast by the end of 2025, Glory predict that, in addition to coffee shops, community hubs and yoga classes, bank branch can strike back by offering convenience, people and technology.

As a lead investor in OneBanks Glory obviously feel that their predictions are far from wild predictions.

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The displacement of cash by alternative payments is not a new thing

A few days ago we were pleased that LINK (the UK’s ATM scheme) published our cheque pointers article - you’ll find the whole piece here:The displacement of cash by alternative payments is not a new thing.

Here’s a bit of cheque history that introduces the full article:

Innovation at a pedestrian pace

Bills of Exchange began to be used as an alternative to cash for domestic payments during the 17th Century. The earliest surviving cheque printed with the name of the issuing bank is dated 1759 and was drawn on Messrs Vere, Glyn & Halifax.

Innovation followed, albeit at a somewhat pedestrian pace, after 52 years The Commercial Bank of Scotland is believed to have been the first bank to issue personalised cheques and 19 years later customer demand led to the Bank of England issuing bound or stitched books of 50, 100 or 200 cheques.

From these humble beginnings, cheque usage grew over three centuries as the cheque took centre stage as the pre-eminent non cash payment instrument.

Cheque volume growth in the 1970’s was between 4% and 10% per annum but during the 1980’s growth had reduced to between 2% and 6% per annum.

Peak Cheque

Peak volume was reached in 1990 following 30 years of rapid innovation which included the introduction of MICR reader / sorters (1962), the introduction of cheque cashing cards (1965), the launch of cheque guarantee cards (1966), abolishing cheque stamp duty (1971) and an increase in the cheque guarantee limit to £50 (1977) which was followed by a further guarantee limit increase to £100 and then £250 (1989).

In 1990, 4 billion cheque payments were made. Of these, 2.5 billion were cleared through the inter-bank clearing managed by the Cheque and Credit Clearing Company, the remaining 1.5 billion being in-house cheques which were either paid into the branch on which they were drawn or processed intra-bank without going through the clearings.

A steady but profound decline

In the 30 years since the 1990 peak cheque volume, there has been a steady but profound decline in cheque use. This rapid decline is brought into sharp focus by the latest published cheque data: in the 12 months to June 2021 only 173 million cheques were processed representing a 26% reduction in volume and a 34% reduction in the total monetary value of the cheques.

With 330 years of cheque growth, followed by 30 years of decline to a point that cheques are on the cusp of becoming an historical artefact can the humble cheque predict a likely pattern in the future use of ATMs?

After a long and illustrious career

After a long and illustrious career, the use of cheques is in terminal decline however the humble payment instrument offers some insights into the challenges that cash will face as it too experiences declining use.

World’s first variable recurring payments hackathon

Variable Recurring Payments (VRPs) are one of the latest ideas in open banking, some say that they might rival Direct Debits.

Open Future World, Ozone and UK Finance have decided to host the world’s first open banking Hackathon, with sponsorship from Accenture, Mastercard, VOLT and Worldpay from FIS

The hackathon will focus on financial institutions can use open banking to implement variable recurring payments (VRPs), which includes moving money between accounts, subscriptions and bill payments. 

UK Finance has always been a strong supporter of open banking, which is already benefiting millions of UK consumers and businesses. Expanding into variable recurring payments provides a great opportunity for the industry to collaborate and for firms to demonstrate what open banking can deliver next.

Jana Mackintosh, managing director of payments & innovation at UK Finance.

Starting on 13 September and running for four weeks, participants will aim to demonstrate open banking solutions for developers, banks, payment initiation service providers and tech platforms.

Participating teams will not only gain kudos from entering the event, but the winners of each of the six categories will also receive a bespoke 12-month plan of promotion and support from Open Future World—worth well in excess of £10,000.

Bacs, Faster Payments, the NPA and Specific Directions

Did you know?

In issue 5 of NPA:Unpacked we shared nine takeaways from the Payment Systems Regulator’s (PSR) decision on lowering the risks to delivery of the New Payments Architecture but have you ever thought about how the PSR compels the scheme operators to act?

Regulatory Tools

The PSR has a number of regulatory tools including legislation, rules issued by the PSR (called general directions and requirements), written guidance, and decisions (sometimes called specific directions and requirements).

These rules, decisions and guidance apply to the participants of the payment systems that the PSR regulates:

  • operators of regulated payment systems

  • payment systems providers

  • infrastructure providers

In the case of compelling the scheme operators to act in relation to the proposed New Payments Architecture the PSR has chosen to issue Specific Directions in relation to the operator of both the Faster Payments and Bacs schemes.

Specific Directions

Specific Directions and requirements are the decisions that the PSR adopts under FSBRA which relate to individual named industry participants and are based on individual cases.

Individual specific directions and requirements may include guidance to clarify how a decision will be applied.

Bacs, Faster Payments and the New Payments Architecture 

The PSR currently list ten Specific Directions on their website two of which relate to Bacs and Faster Payments as an integral part of the proposed New Payments Architecture and these were published in July 2018:

Specific direction 2 - this requires the operator of the Bacs payment system to procure any future contracts for central infrastructure services in a competitive manner. Additionally, the first central infrastructure contract competitively procured in accordance with this specific direction should be capable of receiving and sending all relevant messages (used in the payment system) in the ISO 20022 messaging standard.


Specific direction 3 - this requires the operator of the FPS payment system to procure any future contracts for central infrastructure services in a competitive manner. Additionally, the first central infrastructure contract competitively procured in accordance with this specific direction should be capable of receiving and sending all relevant messages (used in the payment system) in the ISO 20022 messaging standard.

The original deadlines were 2 December 2020 (SD2) and 1 July 2020 (SD3) however following applications under section 4 of each Direction the deadlines were extended to 2 December 2023 and 30 June 2023.

Subsequently, the PSR told Pay.UK that, pending further review and consultation, it did not need to to take the actions necessary to meet the 2023 deadlines under SD 2 and SD 3 to have a competitively procured central infrastructure contract in place for Bacs and Faster Payments

Following the PSR’s consultation on lowering the risks to delivery of the New Payments Architecture which was launched in February 2021 the PSR plan to review SDs 2 and 3.

The PSR have stated that, as a result, they may vary, revoke or replace the Specific Directions, for example by imposing new deadlines for the current obligations or making more substantive changes. 

The PSR are consulting on the proposed changes to the Specific Directions required for the PSR to implement their decisions relating to Bacs and Faster Payments - these consultation document can found here: Annexes 3 and 4.

The PSR’s consultation closes on the 10 September 2021.

Half of UK’s smaller businesses are owed £17.5 billion in late payments

Research published by Pay.UK, which sets out to track how many organisations suffered from late payment and the impact this has on their future sustainability, has found that more than half of all of the country’s smaller businesses suffered from late payment, facing a collective debt burden of £17.5 billion.

A significant 51 percent of UK small and medium size enterprises (SMEs) were affected by delays in receiving payments for goods and services; that’s broadly in line with 2019 data which showed 54 percent of SMEs experiencing late payments and well above the figures reported in 2017 and 2018.

When it comes to a regional split, Scottish businesses are the worst affected. Three in five of those surveyed (60 percent) have experienced late payments, with Wales at 59 percent and Northern Ireland 57 percent.

And, while the overall amount owed to the country’s SMEs fell from £23bn in 2019 to £17.5bn in 2020, the total remains considerably higher than the £12.9bn late payments debt reported in 2018 and 2017’s £14.2bn.

On a more positive note, the average overdue amount dropped to just under £20,000 compared with 2019’s £25,000, although it isn’t clear if the reduction in overall business activity throughout the pandemic had an impact on those numbers. The average overdues also need to be seen in the context of feedback that says the futures of 59 percent of SMEs would be threatened if late payment volumes reached £50,000 or more.

The research, carried out at the end of 2020 by the people responsible for Direct Debit, Faster Payments, and cheques in the UK, also showed that UK SMEs are paying out billions to collect money they are legitimately owed. Almost a fifth (18 percent) of those waiting on funds spent more than £500 per month chasing payments in 2020, adding up to a hefty £5bn total bill for the UK’s smaller businesses.

Notwithstanding the challenges of COVID, I find it disquieting that more than half of the country’s smaller companies are struggling with late payments. Right now, there are more ways than ever to settle a bill and I’d encourage any business dealing with overdue invoices to make payment as easy as possible. Offering a choice of payment options or dates, or moving to automated collection with Direct Debit, could help to remove perceived barriers, and may go some way to helping overcome the problem.

Dougie Belmore, Pay.UK’s Chief Payments Officer.


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