Thredd customers are constantly innovating to meet the changing needs of global consumers. But to keep one step ahead of your competitors, you need a partner equipped with the latest technology, regulatory knowledge and ability to pivot in an instant. We take a look at what payment innovations are on the horizon, and how regulation will shape the payments industry of tomorrow.
It’s now been five years since debit card payments overtook cash for the first time in the UK. While this is not the case globally – Romania and Japan, for example, remain heavily cash-reliant countries [1] - it’s predicted that within the next 15 years, cash payments are likely to fall to as little as 10% of all UK transactions [2], and some countries are well on their way to being a completely cashless society. Sweden is even piloting a digital currency, the E-krona, with a view to potentially establishing its own central bank digital currency.
The demand for contactless payment methods, such as the services offered by Thredd customer Curve, was already on the rise pre-pandemic, and it certainly has not waned. The pandemic may be behind us, but customer expectations of effortless - even invisible and embedded - payment experiences, are here to stay.
This means the demand for contactless innovation will continue to increase. In fact, the number of unique digital wallet users is predicted to grow from 2.6 billion to 4.4 billion by 2025 [3]. There is so much potential for you and your business in this field, and the key to success is harnessing it.
A brave new world of payments
In recent years we’ve witnessed the rise of some interesting new payment methods that removed the need for face-to-face contact. For example, many food outlets replaced human cashiers with self-service kiosks, and biometric payments flourished in China, where hundreds of restaurants rolled out digital technologies to improve customer experiences, growth and operational efficiency.
In the US, voice command is live at more than 11,500 Exxon and Mobil gas stations across the country. Customers can use Amazon to pay for fuel without even getting out of their cars, using voice commands via Echo Auto and other Alexa-enabled mobility devices. To get started, customers can say, “Alexa, pay for gas,” and Alexa will then confirm the station location, pump number and activate the pump.
So why do these developments matter to your business? Because they demonstrate how the role of payments has grown beyond a simple exchange of value for goods and services. Payment innovations not only improve the customer journey, they are imperative for ongoing growth. Put simply, enabling your customers to pay how they want, with ease and speed, will ultimately benefit your bottom line.
Of course, with innovation, comes more regulation.
The regulations impacting innovation
Regulatory bodies, such as the Financial Conduct Authority (FCA) in the UK, oversee the functioning and fairness of financial markets. They help protect consumers, keep the industry stable and promote healthy competition between financial service providers.
For financial services providers looking to scale internationally, working around the nuances in regulation is one of the single biggest hurdles to overcome, and requires working with global partners – such as Thredd – to leverage their cross-border experience. But regulations also can drive new technologies and services.
A great example of this can be seen in the US, where Tesla has invigorated the electric car industry. The Corporate Average Fuel Efficiency (CAFE) regulations required the development of more efficient vehicles. Generous tax credits for the purchase of electric vehicles helped accelerate vehicle sales without interfering with the natural, competitive market dynamics. The combination of CAFE regulations, tax credits and entrepreneurial companies like Tesla has created such a massive boost to innovation that electric vehicle engines are poised to become less expensive than internal combustion ones.
In the EU, PSD2 also aims to encourage innovation. It is expanding the financial ecosystem, opening bank data to third parties, streamlining payment possibilities and reinforcing security measures. It means in the UK, open banking is giving customers a more holistic overview of their finances and allows them to choose the products and services most beneficial to them.
The regulations have opened the market and new actors, predominantly fintech companies, have developed innovative payment systems to facilitate information-sharing for more effective customer-focused services. A great example of open banking comes from Thredd customer Currensea, which has the UK’s first direct debit travel card and uses open banking. Currensea is a layer in front of your current bank account, giving you extra security and making your bank work that bit harder.
Naturally these regulations will change the financial landscape dramatically. Banks will no longer have a monopoly on the creation and distribution of financial products; fintech companies, developers and aggregate financial management providers will make up the ecosystem.
Banks must now think about providing third party services to their clients, improving the customer experience using shared data to create a consolidated platform. Banks will also be required to create Application Programming Interfaces (APIs) to connect and share information with third party providers.
Keep on top of regulation with expert help
At Thredd we support our customers by staying up-to-date with the regulatory requirements of all the territories we operate in, giving financial institutions peace of mind that their solutions meet the required standards. Thredd is a trusted and proven partner, right at the heart of the fintech ecosystem, depended on by global brands like Revolut, Zilch and WeLab.
Our standards mean you don’t need to be concerned about security or durability. On top of our PCI DSS L1 accreditation, we are certified for ISO 27001 (which covers information security) and ISO 22301 (which covers business continuity) and we work towards the latest measures in compliance.
Our solution satisfies the rigours and expectations of tier 1 banks as we have passed the test to work with them. Royal Bank of Scotland for example, came to Thredd when looking to develop its digital proposition.
A partner with such regulatory knowledge is essential as the pace of change in fintech shows no sign of slowing.
Innovations on the horizon
There are some exciting areas of development coming up, and Thredd technology and expertise can help you to capitalise on these trends.
One of the biggest impacts of the pandemic was on how and when we work. As a result, the gig economy has boomed, and we know our customers will be investing in services and platforms to better support microbusinesses. Thredd customer Holvi, for example, enables self-employed people to manage their financial administration tasks like invoicing, expenses and tax preparation, and brings all their business finances under one roof, in one business account.
The popularity of alternative payment methods (APMs) will also continue to grow with the continuing the shift towards ecommerce; one of the biggest examples of this to come out of the pandemic was Buy Now, Pay Later (BNPL). Popularised by embedded fintech brands such as Zilch, BNPL offers users rapid access to low-interest credit options to better manage their finances.
Environmental, social and corporate governance (ESG) will once again top the agenda as consumers become more engaged with the brands they follow. Gen Z – naturally the most digitally-native demographic – place great importance on corporate social responsibility (CSR), with 94% saying they believe companies should address environmental or social issues [4]. As a result, we’ll continue to see more of our customers spearhead CSR initiatives in the coming years, with a key focus on areas such as sustainability for example through the issuing of recyclable cards, or initiatives to fund green startups and financial inclusion.
We also believe 2022 will be the year that cybersecurity companies usher in more advanced technologies designed to stop digital criminals.
Arming you in the fighting against fraud
Fraud is expected to cost the debit and credit card industry more than $400 billion in losses over the next decade [5], with chargebacks a growing problem. Merchants of all sizes report that friendly fraud is the No. 1 fraud attack they have to deal with (up from No. 5 in 2019) [6]
Fortunately there are innovative products that can process the vast volumes of data needed to identify sources of financial crime. For example, Thredd security technologies offer advanced fraud mitigation rules that help reduce the risk of fraud, reassure customers, and adhere to ever-evolving payment regulations and industry standards, without impacting on the user experience.
Thredd Protect significantly reduces exposure to financial risk by automatically checking transactional data near to real-time, before calculating risks based on a customisable set of fraud rules, while Thredd 3DS prevents fraud in online credit and debit card transactions by offering a choice of authentication methods including biometrics, OTPs or OOB. You can also utilise our real-time data feed to verify a user before issuing a dynamic CVV number, providing complete authorisation control and flexibility.
Your partner in innovation
Whatever innovations your business is working on, it’s crucial to partner with someone who has global regulatory knowledge as well as cutting-edge technology. As a tried and trusted fintech enabler with proven experience supporting customers to bring new propositions to market, we are the partner of choice for innovation and growth, able to help our customers adapt to the future of payments, whatever is on the horizon.
Resources
[1] https://merchantmachine.co.uk/most-reliant-on-cash/
[2] https://www.accesstocash.org.uk/media/1087/final-report-final-web.pdf
[3] https://www.juniperresearch.com/press/digital-wallet-users-to-exceed-4-4-billion-by-2025
[4] https://prowly.com/magazine/why-csr-is-essential-in-2019/
[5] https://nilsonreport.com/upload/content_promo/NilsonReport_Issue1209.pdf
[6] https://www.cybersource.com/content/dam/documents/campaign/global-fraud-report-2021.pdf
