Paying the way: the future of payments in a digital world

Transcript

Paying the way: the future of payments in a digital world

TOM 00:08 The payments industry is undergoing big changes that have a big impact on the global economy

All  payments lie at the heart of Commerce and the digital economy with a market size of around $240 trillion.

TOM 00:13  How people are paying for products and services in a digital world is constantly evolving

Avritti in 2022, nearly nine in 10, Americans were using some form of digital payments, that's pretty mind blowing

TOM 00:19 and it can make or break an online sale

Marc:  fraud losses, globally ran around $28 billion, that's expected to rise to $49 billion by 2030

TOM: 00:27

I'm Tom Parker, and welcome to the next five podcast brought to you by the FT partner studio. In this series, we ask industry experts about how their world will change in the next five years, and the impact it will have on our day to day. In this episode, we will explore the future of online retail and payments in a digital world, how consumers are paying for products and services and how businesses are navigating the payments space to build resilience, retain and gain customers.

TOM: 01:00

The world is online. We are in the fourth industrial revolution where digitisation is taking centre stage in every industry. The payments landscape has come a long way in the last few years already. Growth in digital payments over cash has been spurred on by the pandemic, a strong e-commerce market, government support and investor sentiment. Tim Cook, on launching Apple Pay nearly a decade ago said ‘You may have blinked and missed it’’. It’s true, the rate of change in the industry is staggering, blink and you will miss it.

Alla Gancz 1  00:16

The payments industry is going through a period of radical transformation with profound changes occurring across the sector.

TOM: This is Alla Gancz, Partner and UK payments leader at EY.

And fundamentally, payments lie at the heart of Commerce and the digital economy with a market size of around $240 trillion. We have seen a boost of innovation and new propositions that are redefining the payments landscape and powering connected commerce while offering consumer choice that we have never seen before. In terms of key trends that we're seeing. Fundamentally, it's the rise of real time payments. It's a lot of focus on cross border payments, but it's also open banking, unlocking the rise of account account payments and pay by bank option. We're seeing a new payment method which is buy now pay later, and digital wallets are going mainstream. Equally, we're seeing embedded payments are becoming a very prominent and significant trend where merchants are embedding payments into specific customer journeys. And we're seeing the emergence of digital currencies together with Central Bank digital currencies.

Alla Gancz 2 And clearly payments are becoming a critical business business enabler, they are becoming the growth driver for the firm, but also a source of strategic differentiation. Historically, payments would sit within the CFO Treasury function because it's all around cash management liquidity. But now what we're seeing is that as payments are being embedded across specific customer journeys, payments are becoming part of the product, commercial discussions, but also technology. So payments are part of the storefront experience of the E commerce experience. And therefore all products and business commercial teams need to embrace and understand the role of payments within that context and overall modern payments modernization agenda is becoming Top of Mind

TOM: Today, one fifth of retail sales are from e-commerce. It’s never been more important for businesses to align themselves with the needs of their customers online. The future of shopping will be determined by a seamless payment experience with the customer journey making or breaking an online sale. What importance does payments have in the digital e-commerce landscape? What are the challenges and opportunities?

Avritti Mittal  08:40

I would start by clarifying that payments play a really foundational role in enabling e-commerce. 

TOM: This is Avritti Mittal, VP and General Manager of Payments at eBay.

Avritti Mittal  06:17

And so a person researched global share of mobile ecommerce, exceeding that of desktop commerce in 2021. And if I recall this correctly, in 2022, nearly nine in 10 Americans were using some form of digital payments, that's pretty mind blowing, that's very different from the world that we knew several years ago. And so while the pandemic has accelerated this change, the shift in consumer behaviour has been pretty prominent, if you will. And so consumers have become much more comfortable with digital payments, and it's become more and more mainstream,

Avritti Mittal  

So thinking about a sale, whether it's online, or if it's offline, it is not complete, unless the value exchange really happens. And the value exchanges are the buyer paying the seller.. And thus payments will continue to play a really important role in fueling ecommerce over the years to come. And so in terms of challenges and opportunities, it's really two sides of the same coin. Number one, ensuring the experience communicates Trust and Safety that's really foundational. And while we often think that the customer experience in the form factor is important to consumers, when it comes to payments on money, trust is everything. And this is broader than checkout. So it encompasses everything from identity verification, multi factor authentication, for certain transactions, to shipping to post purchase experiences, and managing fraud as well. Number two, ensuring the experience is grounded in the customer's context. And it feels personalised and relevant to them. And what a terrific time to be exploring this space, when you have all these advancements happening with AI and machine learning, etc, where you have the technology to create experiences that truly feel unique and truly feel like they're speaking to the one customer that they're engaging with. And then finally, number three, I would say, I think this is where the bar can truly be raised. Which is how you create a magical customer experience, which is frictionless and delightful. And at the same time making sure that it is really welcoming?

Tom: One thing Avritti mentioned there is the importance of managing fraud because when it comes to payments, trust is everything.

Marc: the one that we are very focused on his fraud, 

TOM: This is Marc Pettican, Head of Barclaycard Payments.

Unfortunately, we continue to see a rise in fraudulent transactions that's expected to really increase through the next decade.

If you look at the stats, it's suggested that fraud losses, globally run around $28 billion, that's expected to rise to $49 billion by 2030, which just sort of demonstrates that our customers, you know, need to keep fraud and you know, preventing fraud at the forefront of their mind. But at the same time, not creating consumer journeys that create a lot of friction in the process, it'd be very easy to see cart abandonment, even if you make a process too elongated, too complicated, etc. So you have to remain very focused on customer experience, but also protect yourself from a fraud perspective.

TOM: Alas nearly 70% of online shopping carts are abandoned, one fifth of which are down to a complicated checkout process. E-commerce stores lose $18 million due to cart abandonment. So Marc, how do seamless payments systems help reduce cart abandonment? 

Marc:  Yeah, I mean, you're right, cart abandonment is a material issue. And you know, you can quickly turn off your consumer, if you create friction, you know, one of the things that people need to really think about is sort of tokenization. So this whole how when you go to a point of sale device, or if you're on an online transaction, you know, that sort of one to click Checkout capability, perhaps using biometrics, but effectively where your card is embedded either on file with a merchant, or you're using some kind of digital wallet, think Apple Pay or Google Pay, where effectively you not only you're authenticating yourself, but you're also some some level of transfer of data across whether it be your address, the delivery address, etc. But it makes it very easy for you to purchase. But you're using tokenized data, which enables there to be a high level of security for the merchant and prevent future fraud losses. Ultimate if you get that right, it can really help with all kinds of different purchase types. So I think subscriptions, you know, having to enter your details every month for a subscription would be a pretty frustrating journey. You want to be able to, as a consumer, put your details in once and then know you're gonna get your subscription on a month by month basis, but ultimately know that you're protected as a consumer but also the merchant is protected going forward.

TOM: Avritti, your thoughts?

Avritti Mittal  

The cart and checkout experiences tend to be a goldmine for E commerce in general, because there's such an opportunity to mine the data and insights customer behaviour insights, and that part of the experience to drive conversion. In terms of stats and you know, high level insights, I would say cart abandonment, in general can be a result of various factors. Number one, maybe I would start with value. So let's say you use what you see as an item and you're interested in buying it. And by the time you get to the checkout experience, the total cost of the item after including shipping taxes into account is much higher than the item price itself. And so in those instances, ensuring transparency and managing expectations throughout the customer journey really can go a long way so that at the end of the experience when the rubber meets the road moment. They don't have this allergic reaction when they look at the total as well as offering payments that give the user the flexibility to pay overtime can help So that's more on the value side. In terms of the experience. This is where you use the word clunky: the experience when it's clunky or complex, or it might have too many steps at every step of the way. There are if you will, at every click, you run the risk of losing the customer. And so for example, things such as you know, the user is ready to make the transaction, but then we suddenly forced them to create an account before they can make the purchase is guest experiences can be very helpful here, I would also call out that a clean and clutter free checkout and cart experience can be very valuable. And then number three, trust is incredibly important. So if I'm at a point where I'm ready to make a purchase, but the transaction does not feel secure, and safe to me, I am likely to walk out. And then last but not least in a world that's all about instant gratification, delivery time and shipping speed can often make all the difference as to whether I finally make that purchase, or I walk away and decide to go somewhere else to buy the item.

TOM: You mentioned data at the top of your answer. Systems and processes must be powered by technology and fuelled by intelligent data that help companies make better decisions based on risk. Get it right and you’ll eke out a competitive advantage now and in the future.  So Avritti, how can business leaders use payment data to help build resilience, remain agile and gain a competitive advantage?

Avritti Mittal  

So the amount of data that we have today in the world is unprecedented, which is very exciting. And then at the same time that technologies were with all that companies have to chapter this amazing data storage process and then glean insights from it is also equally unprecedented. So data is truly an incredible asset. And when used responsibly and efficiently, and with high velocity, it can really help unlock seamless and hyper personalised experiences that are also safe and secure. So as an example from if you look at it at a customer's shopping history, their preferences or their demographic profile, it can really help a brand create an experience that is personalised so that could be in the form of curated offers or recommendations and targeted messaging that can nudge the user very, very seamlessly across the crowd commerce journey and help them complete a transaction. So that's, that's more on the customer side of the house. But at the same time, companies can also tap into this troves and troves of data and apply artificial intelligence machine learning models to better understand things such as potential bad actors or fraud vectors, to proactively work towards creating a more safe and secure environment for the customers to interact and create that business resilience muscle. Because if you think about fraud and losses, that's really the other side of the coin, when it comes to payments.

TOM: Marc, Your thoughts?

Marc Pettican  using data to fuel your business and business growth is fundamentally critical. Within Barclaycard, we're pretty lucky we see one in three transactions here in the UK, which gives us pretty unique visibility, we actually provide some of our data to the ONS on a monthly basis just to really inform what's happening in the economy at large  It can talk to, you know, the age you can talk to address, it can talk to the loyalty of that customer, do they have a propensity to keep coming back to you or to your competitors, we can give a sort of insight around the life stages and life events that a customer might be experienced. Also, as well, when you think about in store journeys. We can use our data to understand for example, how many contactless transactions we're seeing in certain industry verticals, we know at the macro level 91% of all eligible transactions now go through contactless, but that's something as a business leader you need to consider around what's the journey that you want for that consumer to move around your store. And all these decisions are invariably fueled by data.

TOM: Alla what’s your take?

Alla Gancz  Payments is the engine of the digital economy. And therefore they play a crucial role in helping to build business resilience for everyone within the financial ecosystem, whether it's banks, payment service providers, or merchants who accept payments. In the UK, Bank of England, and the Prudential Regulation Authority issued a new regulation back in 22, really focusing on opera resilience requirements of firms who provide important business services for which they're required to set impact tolerances. And this particular policy objective is to improve the resilience to operational disruptions of both firms and the wider financial sector. So there is a lot of focus on driving that resilience across operations, but also across the technology stack. And therefore, the importance of modernising your IT infrastructure is becoming ever so much more important.

TOM: What does the next five years look like in payments? Marc?

Marc Pettican  

Yeah, I mean, look, the payments ecosystem is a truly exciting area to operate in. I've been blessed, I've been in it for 20 plus years or so. But it's, you know, the pace of change is incredible. Where you've got is the sort of traditional players of the banks and the card schemes, the Visa, MasterCard, combining with FinTech organisations, which continues to drive innovation and creates amazing experiences for consumers and merchants alike. And I think, you know, is a truly exciting time, we're seeing the rise of accounts for account transactions, we're seeing more of a, an embedded finance, ethos, where effectively payments are embedded into software solutions as an ingredient to the overarching sort of tech stack, Rise of data and insights, also seeing a lot of much needed regulation, which continues to drive good outcomes for customers, you know, something called consumer duty here in the UK, which is, you know, only good for merchants and end consumers. And certainly, we welcome that regulation coming into force. And then we're seeing the rise in sort of personalization. So you as an individual have a much more personal concierge type service with the retailers, the merchants that you operate with, and you kind of expect them to, to know more about you, and therefore give you offers that are relevant. And so we're sort of expecting to see that continue at pace, with merchants, thinking about the technologies and innovations that help them do that.

TOM Alla?

Alla Gancz 2  23:08

So there are seven areas that we regard as having significant influence over today's payments landscape, open banking, real time payments, Rails, but now pay later digital wallets, embedded payments, digital currencies and cross border payments, each one is an indication of how quickly the sector is evolving. In our EY GLOBAL PAYTECH report, we are really exploring the evolution of these forces and looking ahead to what's driving these models going forward. And also, what this means for the new and incumbent players, and also merchants who are accepting payments within the new digital ecosystem.

So for the next five years, and looking ahead, these are the trends that will continue to make a difference and will continue to impact the evolution of the industry. While the pace of adoption, the scale and impact of these individual forces may vary across markets. We believe that each one signifies a fundamental change.

Personally, I'm very excited about real time payments, a very exciting time for the industry. For us in the UK as we embark on the NPA journey, I am very excited to solve the complexity of cross border payments, which is so important to unlock the efficiency of liquidity and cash management. I'm very excited about embedded payments. I think from my perspective, that's going to be the focus area for many merchants and many firms in the future as they embed payments into their operations. And digital currencies represent the emerging payment rails that we're going to develop together with central banks with the key players within the payments ecosystem.

TOM: And Finally Avritti

Avritti Mittal  26:32

I'm personally truly excited about the innovation and rapid developments that we'll continue to see in payments in response to tech advancements, consumer expectations, business needs. And very importantly, let's also remember this continuously evolving global regulatory landscape. The trend that we increasingly see happening but it's also what I'm personally as even as a consumer excited most about is this notion of embedding financial services in broader commerce experiences. And so I, you know, sometimes I have to tell mind that every company in a way is turning into a bit of a fintech company. And this is because companies are realising the value of embedding financial services and payments experiences in their broader ecommerce experiences. So some stats to share in, in financial services embedded in E commerce or software platforms accounted for about $2.6 trillion, or nearly 5% of total US financial transactions in 2021. And this number is expected to increase to about $7 trillion by 2026. That's significant growth in a very short period of time. And this demand will continue to grow. Given the promise of everything that we are seeing in terms of the tech advancements, the focus on seamless, contextually relevant and accessible commerce experiences for consumers. And so regardless of where I'm located, or the payment methods that I have available, when I am in the middle of a commerce transaction, companies have this opportunity to show up in a compelling manner across the end to end commerce journey. So from a seller standpoint, it could be anything from working capital management, to insurance for buyers, that via financing, loyalty, and whatnot. And so this trend is a fantastic opportunity on two fronts. For consumers, it gives them all that they need and the support and services that they need in the moment, without having to engage with five different companies to avail of those services. On the side of the businesses. This creates an amazing opportunity to increase the addressable market, creating more stickiness with their customers and driving more loyalty and also unlocking brand new revenue streams that can result in sustainable long term growth. So personally, that's the trend I am very excited about as to how we can make payments and financial services truly commingled with broader commerce experiences for consumers. 

TOM 04:20  and what would you all like to see happen over the next five years?

04:05 Alla?

Alla Gancz 22:53 I would say what I'd like to see in the payment space over the next five years is a continued focus on innovation, collaboration and customer centricity. By working together to develop new and better payment solutions that meet the needs of consumers and businesses, we can create a more efficient, secure and inclusive payments ecosystem.

Alla Gancz 2 04:00 There is a tremendous potential to unlock the value of payments and unlock the economic benefit of payments to the digital economy. As we bring more efficiency as we bring instant settlement and unlock liquidity for the overall economy. In terms of challenges, I think we need to remain focused on resilience on the modernisation agenda. As we move into the new world. We need to have much more resilient, responsive and scalable technology to support them.

TOM: Marc?

Marc Pettican  

So the thing I'm most excited about is biometrics. You know, I think we've already seen it with the likes of the digital wallets, where you sort of click the side of your phone and face recognition. But actually, if you think about where that can be taken, you know, is there a world where you can walk in a store, and your face or your fingers will ultimately authenticate you and you check out? It's highly secure, because hopefully, you know that your facial fingerprints can't be defrauded. But it creates a really slick consumer journey  that you know, our merchants can benefit from. And that we've seen that already here in the UK and further afield where you can now go into certain stores, and you can pick items off of the shelf and effectively walk out and I think that's definitely where retail is going. And therefore payments need to keep pace with it, which makes it truly exciting.

TOM: Avritti?

Avritti Mittal  I'm personally excited about this financial services embedded and commerce experiences trend because that has the power to unlock truly differentiated. value for consumers. And going back to my point that I made earlier about keeping the customer needs front and centre and at the heart of what we do when the customer wins everybody else when 

Avritti Mittal  35:16

and recognising the amount of change and transformation that has happened even two years and three years ago, let alone five years, I do think the next five years will look very, very different from how we experienced the last five years. So this transformation is more and more permanent. And I think the only thing likely that will change is the speed at which we've seen these changes happen in the past, it will just get faster. And I sincerely hope, result in experiences that are more wow, and amazing and magical for customers.

TOM:

In 2019 ,Alex Ricard, CEO of Pernod Ricard was quoted in a report about climate change  “I need to recognise where consumers want us in ten years…I believe businesses that are only targeting profits will die.” 

This could not be more true of the payments landscape. But 10 years is a long time with the speed of change in the sector. 

We’ve learnt today that how people are paying for products and services in a digital world is constantly evolving. In 2021, 114 billion non cash payments were made in the euro area alone, totalling €197 trillion, an increase of 12.5% and 18% from 2020. 

Payments lie at the crossroads of commerce and the digital economy. As the digital economy grows so too is the appetite for frictionless, fast payments. Merchants must remain agile to keep up with consumer demand. 

The key is that seamless, trustworthy payments systems and integrated e-commerce journeys are make or break for both businesses and consumers alike. 

As a business, your online presence and engagement with your customer can be a competitive advantage, but get it wrong and you’ll pay for it one way or another.