Alternative payments – are we moving too fast?

The payments sector is moving so rapidly finance firms are no longer afraid to fail – as long as they fail fast and recover quickly

The payments sector is moving so rapidly, finance firms are no longer afraid to fail – as long as they fail fast and recover quickly. Earlier this year, Barclays launched biometric vein-pattern scanners to replace the need for PINs, making it clear that no method of authentication is now off-limits.

The fast-moving sector has often seen companies change direction to incorporate new technology. It was announced in September 2014 that Orange and Barclaycard are discontinuing the use of their QuickTap contactless payment service in favour of EE's Cash on Tap alternative. Meanwhile, the Telegraph reported that mobile wallet service Weve has been rejected by mobile networks due to disagreements over functionality.

More recently Apple has announced plans for its own mobile wallet, Apple Pay, so users can pay for goods via contactless NFC. TfL will also allow customers to pay for travel on the underground using contactless payment cards, and according to the Financial Times the firm is currently in talks with mobile operators to allow NFC smartphone payments in the future.

But is the market moving too fast?

Technology presents new ways to pay

Alex Kwiatkowski, head of IDC Financial Insights Europe, said people are trying to reinvent the business of payments. 

"There’s a lot of hope and expectation about trying to let technology have a transformative effect on what has been a very traditional method of using cash and, more latterly, card.”

Banks have started taking on board these new payment systems to differentiate themselves and attract new customers. Barclaycard recently trialled its bPay band to support near-field communications (NFC) cardless, phoneless and walletless payments, adding to the number of different ways to pay.

In August alone, PayPal launched a one-touch payment beta, mobile wallet Paym transactions exceeded £6.5m in 100 days and contactless payments reached an all-time high.

It seems consumers had only began to grasp Chip and PIN before the next payment method arrived. It has been a year since Barclays announced a scheme that allows customers to pay cheques into their accounts via pictures taken on their mobile phones, at the time sparking debate around whether this would spell the end for the need to physically visit a branch to pay in cheques.

Now contactless card payments are replacing Chip and PIN payments for purchases under a certain amount, and NFC payments are following closely behind, meaning that in some cases there is no need to use a payment card at all.

Kwiatkowski said these technologies, although innovative, need to solve a consumer problem rather than just prove the technological capability exists.

“The most obvious example is the push to increase the pervasiveness of contactless payments, which have been around for quite some time now yet merchants still remain reasonably apathetic towards them and consumers don’t seem particularly fussed whether their device has NFC capability or contactless capabilities or not,” he said.

“Just because something is a good idea, or is technologically possible, doesn’t mean lots of people are going to want to do it.”

Despite these innovations in the payments sector, it’s clear that unless consumers are interested, technologies will not get off the ground. A recent report by Intercede found that 53% of consumers refuse to use mobile banking services because of concerns about device security.

Richard Parris, CEO of Intercede, said there are weekly reports of high-profile hacks. "From major attacks – such as Heartbleed – to eBay’s recent data breach, it’s not surprising that consumers don’t trust mobile security," he added.

Legacy systems could lead to technology failure

Traditionally, banks have developed in-house systems, but with new standards such as Paym evolving, they have had to allow space for third-party systems, resulting in two sides to IT systems. 

While they offer customers the most up-to-date ways of transferring money, banks themselves find it difficult to update systems due to cost and risk of failure.

Just because something is a good idea, or is technologically possible, doesn't mean lots of people are going to want to do it

Alex Kwiatkowski, IDC

Despite an unwillingness to update internal legacy systems, the financial services industry is also the leader in investment in new technologies and support of startups, making financial services both the fastest to develop technology and the most reluctant to update it internally.

Banks and startups have learnt over the years to develop a “marriage of convenience”, according to Kwiatkowski. The banks need the creative ideas provided by the startups, and the startups need funding from big banks to implement their technologies.

So can users trust firms with legacy IT systems to develop the technologies handling their money?

“If you’re trying to perform 21st century technology transactions on systems that were never designed for it, you run the risk of increasing technology failure,” said Kwiatkowski,

“It’s great if you want to deliver these new payment services, but you’ve got to be absolutely certain that your existing architecture, IT systems, hardware and software are capable of delivering it, otherwise you run the risk of mismanaging customer expectations,” he said.

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