By Peter Smith, Director, Seneca Investment Managers & Independent Industry Consultant, FinTechReguLab
Interview ahead of Payments Forum 2019 (Get 15% discount on the Forum using presenter code: PAYMENTS88)
Can you please tell the Risk Insights readers a little bit about yourself, your experiences and what your current professional focus is?
Peter has nearly 50 years experience working within the Financial Services Industry, where he works closely with UK & European Parliaments, Treasury, HMRC, DWP, TPR,PRA, ICO and the FCA, on a wide variety of regulatory & digital innovation issues. He has wide experience of both regulation & market strategy, together with insight on innovation.
He is a Non Executive Director, SME, Independent Industry Consultant, Financial Services Regulatory Specialist, Strategy Adviser, FinTech Innovation & Regulatory Specialist, Keynote Industry Speaker, Industry Commentator on Financial Services & FinTech Policy.
What, for you, are the benefits of attending a conference like the Payments Forum and what can attendees expect to learn from your session?
The benefits of attending the conference are to share knowledge & opinions with peers within the industry. To compare & contrast opinions & views on key issues, whilst observing what trends are evolving and to network and share with the industry.
Can you provide an overview as to the current regulatory landscape and changes on the horizon in the payments sector?
The current & proposed regulatory landscape for payments is very complex at the present. Firms need to look at a matrix of regulation and read across between regulations and not look at them in isolation.
Depending where you are in the payments chain, you will need an understanding of the interlinking between for example GDPR, eIDAS, UK Cyber Bill, MiFID, SM&CR plus others.
We may well expect PSD3, MiFID3, MLD5 and the 2019 FAMR Review to add further expansion of the regulatory landscape.
In your opinion, how equipped is current infrastructure to manage changing regulation and innovation?
Retail bank profits have been suppressed for several years by narrow interest rate margins, with over £40bn paid out in compensation payments for PPI and the higher compliance costs imposed on the industry to prevent recurrence of both mis-selling and another banking crisis. Therefore development on PSD2 & Open Banking is naturally a slow burn at present. So the scope for spend over and above what is required to meet regulatory needs is limited. Open banking is also competing with other significant challenges – separating retail and investment banking activities (ring-fencing) and complying with the General Data Protection Regulation (GDPR) – for budget and executive attention.
By accelerating the digitisation of banking, open banking creates an environment where new entrants – large and small – can more easily gain a foothold. These new players will either displace incumbents directly or, more likely, as we are seeing, effect disintermediation or reshape the verticle business model. Therefore the current infrastructure is not fully equipped yet.
What impacts do you feel GDPR has had on the payments industry and will do in the future?
GDPR has a large impact on payments, a lot of it positive in the consumers interests. 25thmay 2018 was just the start point of a different type of data protection regime which will continue to evolve over the coming years. Again, this regulation needs to be aligned with PECR and the EU electronic communication regulations as well as e-IDAS and the UK Cyber Bill.
How can firms ensure that they look beyond compliance and ensure business value for customers?
Simple – by having a clear & easy response/communication channel to have dialogue with customers to survey their key wants & needs
How do you see the impact of the payments industry evolving over the next 6-12 months?
The traditional retailer mindset has been that payments are effectively a “cost of doing business” – a necessary evil required to facilitate a sale. More recently, certain merchants have realized that payments can be a strategic lever. There is a deeper understanding that payment infrastructure serves as a critical digital experience factor that directly influences customers’ likelihood of converting and returning. This is resulting in an enhanced focus on the role of payments in powering digital commerce experiences, as evidenced by wallets such as Kohl’s Pay and order-ahead apps like Shake Shack’s Shack App. Greater attention is also being paid to supporting local payment methods to court cross-border shoppers and delivering a streamlined checkout experience to reduce cart abandonment. Of course, the expense and margin compression associated with payments has not been forgotten, either. Digital paves the way for more merchants to get creative with tender steering, as we’ve seen with Amazon Prime Reload and Uber Credits.
For many decades, payment products and services have been driven into the market almost exclusively by issuing and acquiring banks. Digital is reshaping this distribution model, with payments migrating into native apps, POS software, wallets and other connected environments. Banks and payment companies now have a seemingly endless list of partners to align with, running the gamut from application developers and technology partners to emerging payment gateways and ISVs. This more complex partner ecosystem requires APIs and agility to ensure customers can be connected with the commerce experiences they value most. The growing importance partnerships fueling many trends within the industry, including heightened M&A activity in merchant acquiring, the growing popularity of developer programs and even changes in the regulatory environment with PSD2 in Europe.