00;00;00;24 - 00;00;26;03
Unknown
What is the outlook in terms of the payments space? Welcome to CurrencyCast. My name is Agustin Mackinlay. I'm the Senior Financial Writer at Kantox and your host. In this episode, we have the pleasure to welcome Lorraine Mouat, Head of Payments at Thistle Initiatives. Hi everyone, it's a pleasure to be here. Great! Lorraine, can you start by introducing yourself to our audience?
00;00;26;05 - 00;00;59;09
Unknown
Yes, thank you, Agustin. My name is Lorraine Mouat. As you just so very kindly said, I'm Head of Payments here at Thistle Initiatives. And I look after our clients who sit within the authorized payment institution or electronic money institution sector. We're supporting clients through the authorisations process, but also in terms of providing regulatory compliance audits, assistance with variations of permissions change control and just general ad hoc advice and guidance. And of course, horizon scanning.
00;00;59;09 - 00;01;31;07
Unknown
So keep your clients up to date with everything that's going on out there that might be relevant to their sector rights. Okay. Let's start our discussion with a very general topic. In its 2023 letter, Stripe said that payment methods are proliferating around the world. In 2023 alone, it added 50 new payment methods, supported 50 new payment methods, bringing the total to over 100.
00;01;31;07 - 00;02;01;06
Unknown
So Lorraine what's going on here? Tell us a little bit more. Why is there so much interest in different payment space? Yeah, very good. Very interesting question. I think there's been a bit of a rapid proliferation of new payment methods globally, really. And I think that's a reflection of a few key trends and developments in financial technology, particularly. So in 2020 itself,
00;02;01;11 - 00;02;26;29
Unknown
there were, as you said, 50 new payment methods bringing that total to 200. So I think that that's been predominantly driven by a combination of technical advancements. There's been changes to consumer preferences and increased regulatory attention as well. I think in terms of the need for financial inclusion and security. So with that, we've seen a rise of digital wallets.
00;02;27;05 - 00;03;02;09
Unknown
Of course, we've got things like cryptocurrencies or contactless payments, and that's really been brought about by advancements in mobile technology. And all of that just enabled, I suppose, more efficient, secure and convenient payment solutions that therefore are able to cater for more diverse needs of consumers but also for businesses. But also I think we've witnessed a change in consumer behaviour in recent years, which I think is very important to note.
00;03;02;11 - 00;03;29;16
Unknown
And I think it's fair to say that as consumers demand a little bit more convenience, more speed and more flexibility in terms of how they are going to make and receive payments. So I think there's a number of things at play here. But I think most importantly, businesses themselves are increasingly recognising the competitive advantage that they're going to get from offering multiple payment options.
00;03;29;18 - 00;03;57;15
Unknown
And I suppose, if you're supporting a wide range of payment methods, then you're going to be able to cater to a much broader customer base. Maybe with just the cart abandonment rates I guess and just overall enhance that customer satisfaction and loyalty. That's right. So it's a convergence of technology and the fact that that technology itself puts consumers at center stage, Right?
00;03;57;17 - 00;04;31;26
Unknown
Absolutely. There's a, let's discuss a little bit instant payments or sometimes called real-time payments. They have been on this, under the spotlight for some time now, perhaps especially after the introduction of FedNow, the initiative from the Federal Reserve Bank of the United States. Now, the systems allow, of course, people to move money instantly. And CFOs, which is also something so people very important to us,
00;04;31;29 - 00;05;06;04
Unknown
they see instant payments as a potential method to improve liquidity management, working capital management. So again, describe to us what's going on in the instant payments space. Firstly in the UK and I understand the UK has been sort of a pioneer in this space, is that right? Yeah, I think instant payments overall are gaining traction globally and I think there are various countries that are adopting and developing their own systems in that regard.
00;05;06;07 - 00;05;40;24
Unknown
But I think for me the UK is most definitely a global leader, certainly in the fintech and payments landscape. And we're particularly known in the UK for our advanced instant payments infrastructure, including things like faster payments, open banking. But also and if we look towards Europe with SEPA, with increasing participation in that as well, and I think in the US they've got, of course, Real-Time Payments Network providing instant payment capabilities for financial institutions there as well.
00;05;40;26 - 00;06;14;22
Unknown
And I believe it, FedNow launched on July 23, giving the customers that real-time payment capability outside those normal banking hours. And we are now starting to see some other things I believe in the likes of India, Australia, and of course we know Australia’s got the new payments platform. Something I think the UK is looking to try and emulate. And other regions that are up-and-coming, such as Brazil, Singapore, Hong Kong, all of whom have developed their own instant payment systems.
00;06;14;25 - 00;06;52;22
Unknown
Right. Okay. Really interesting. What is hindering or what is say, preventing instant payments to become even more popular in the corporate world? Is it maybe lack of access? Is it cost-related issues with legacy systems? What's your view? Yeah, an interesting one. I think the development of instant payments in the business-to-business world is facing a few challenges and I think I would broadly categorise these into access issues, cost related concerns and other type of operational and regulatory factors.
00;06;52;22 - 00;07;20;11
Unknown
So for example, if we look at access issues, sometimes there may be issues associated with a need for both senders and receivers needing a deposit account connected to that instant payment system. Or maybe a need to upgrade backend systems to integrate payment capabilities, which might in themselves be quite costly. Or it could be the cost of the associated transaction fees themselves.
00;07;20;11 - 00;07;49;20
Unknown
But I think firms may also have some liquidity issues as those of instant payments, as you know will require that meet the availability of funds. But of course, it could perhaps even be something as simple as reconciliation challenges. So I think there are a number of challenges just depending on the business type, and I guess their, the level of developments in each firm, I suppose.
00;07;49;20 - 00;08;22;15
Unknown
But it can be kind of multifaceted, I guess. Okay. Yeah. Now, BNP Paribas, the French bank who owns by the way, Kantox, has recently announced a joint venture with Billie in continental Europe but also in the UK. And the aim is to extend the use of buy now pay later solutions. What is, describe for us
00;08;22;17 - 00;08;57;03
Unknown
what's the BNPL, buy now pay later, what's the technology behind that? Why is it so popular? I think it so yeah, I think it's becoming very popular all round. And even in the obviously business, the customer space it's driven I guess by I suppose economic challenges. But also I think it's becoming more of a thing in the business-to-business space as well.
00;08;57;06 - 00;09;26;03
Unknown
And again, I think that there will be several factors involved there, including again, some technological advancements, allowing more sort of mobile digital type payments. But we, you know, particularly in the business-to-consumer angle, we've got a changing demographic as well. And there's been a bit of an influx in what I would call more, what shall we call them, like digital natives.
00;09;26;05 - 00;09;56;18
Unknown
So I think that those who have had the luxury perhaps of growing up with technology, I'm not one of those individuals. I certainly, I came from an era before mobile phones, that's for sure. And I think what those individuals are doing is introducing that into the world of business. So those digital natives basically are kind of bringing what they know and what they’re used to into the world of work.
00;09;56;25 - 00;10;38;20
Unknown
And so they're bringing their experiences as consumers and then helping to evolve sort of business expectations around that and particularly, I would say, including that demand for efficiency and speed as well. And that's right. I was making those gestures because I'm not a digital native either. So that's really, I think the key point. Right? To us, it matters enormously because CFOs in coming years are all going to be digital natives and they're going to ask and they want to design and implement those new payment methods.
00;10;38;20 - 00;11;08;15
Unknown
So you really think demographics, the convergence of demographics and technology is what matters, right? I think so. I think, you know, things move forward, things move on. And I think that, you know, as consumers, we I mean, despite not being a digital native, I've still managed to keep pace with the way in which payments for the payments are changing, even for me like a very, very rarely carry cash.
00;11;08;18 - 00;11;45;26
Unknown
I very, very rarely even use my card. Everything is attached to my mobile phone. So I think this is the direction of travel that we're headed in and I think as consumers, we’re used to operating in a particular way and having convenience and having, I guess, funds ready to our fingertips. And I think therefore taking that mindset as a consumer into the workplace is therefore influencing more that business-to-business type of buy now pay later kind of mindset in the same way that it has from a sort of business to consumer.
00;11;45;28 - 00;12;16;20
Unknown
Absolutely. Now, Marc Padrosa, Kantox Global Industry Director for Travel, makes an interesting point. He says that we're witnessing a business acquisition of sorts in many industries in particular in travel. And one of the leading examples is, of course Booking.com, right? They introduce a payments platform. They wanted to have more control of the over the transactional flow.
00;12;16;23 - 00;12;48;05
Unknown
And but here's my here's my question to you and I have the feeling that this is easier said than done right the bookings themselves Booking.com themselves admitted that they had some difficulties with things like regulatory issues, compliance, fraud prevention. So what is what is your view? What would you advise so many companies just to set their own payments platform?
00;12;48;05 - 00;13;15;26
Unknown
I kind of guess you wouldn't, right? I kind of wouldn't. And I think that's look, I think horses for courses. And I think that, of course, Booking.com, if you look at the, you know, the market that it's in, it clearly has expertise relevant to that market. It's about getting people to use their platform to build quality hotels, travel, etc..
00;13;15;28 - 00;13;48;16
Unknown
It's not really, it doesn't sit naturally within their sweet spot for them to suddenly know how to operate a payments platform and everything that goes with that payments platform, from technology through to regulation. So I think there are some significant, there may be some advantages, I'll give them that. But I think it comes with some significant challenges that I think of any business that is not a payment services business,
00;13;48;18 - 00;14;18;19
Unknown
trying to wear those that have dual hats needs to really carefully consider. And so there may be benefits such as maybe that enhanced customer experience, perhaps increased efficiency, etc... But I think there are definitely very key challenges around regulatory compliance, which is something not to be messed with. Let's be honest, if you're not doing things in a compliance manner, then there's risks to consumers, there’s risk to market.
00;14;18;19 - 00;14;45;16
Unknown
And of course then that risk is going to arrive at your front door as a business specialty, even reputational risk. When exactly? Because if you're falling foul of the regulation, then, of course, any regulator is going to take that very seriously and could very easily and very quickly put requirements on your business, which could stilt to business, halt your business and obviously that's not good.
00;14;45;19 - 00;15;07;09
Unknown
That's not positive branding for any business. Right. But I also think, you've got to think that there’s wider implications and that these firms need to think about fraud and security risk. Which, you know, fraudsters are getting smarter, are getting clever, and, you know, they're finding new ways to defraud us. So, you know, what's their strength and their understanding in that regard?
00;15;07;12 - 00;15;32;23
Unknown
There ought to be some cost and operational issues, I would assume, associated with that. And for all I guess, all of this really means for me that any business such as Booking.com, which really need to approach that payment platform side of the business with absolute caution right now. You know, Lorraine, we are Kantox, a foreign exchange management company,
00;15;32;27 - 00;16;07;22
Unknown
we specialise in currency risk management. Marc Padrosa again, so stay with him the Global Director at Travel, makes another interesting point. He says those clients look it's fine if you want to have your own payments platform but, why don't you start by treating currencies as payment methods? What would you say to that? Okay. I think I think that businesses should be taking advantage of currencies.
00;16;07;22 - 00;16;38;06
Unknown
And I think that that sometimes is maybe a little underappreciated as a payment method, but I don't think it's necessary to try and reinvent the wheel necessarily. I think, you know, it can help firms manage currency risk, but definitely something that's critical for those firms perhaps operating more internationally. So I think it is an underappreciated payment method.
00;16;38;06 - 00;17;16;12
Unknown
So yeah, as you say, let's not try and reinvent the wheel, but let's try, you know, benefit from the use of that as a payment method, right? In fact, we just launched the In-House FX solution that allows those companies in general to have headquarters act as the entity that sets a FX policy, that executes external trades with banks, that grants liquidity on a 24/7 basis if needed to subsidiary.
00;17;16;12 - 00;17;53;13
Unknown
So there are lots of ways, I think, to use currencies as payment methods themselves before embarking on trying to develop your own payments platform. Lorraine, in 2023 the UK's Financial Conduct Authority introduced a regulatory initiative, it's called Consumer Duty. As I understand it, you take a broadly positive view of that regulation. Tell us a little bit more about the details involved here.
00;17;53;16 - 00;18;23;02
Unknown
Yeah, absolutely. Indeed I do. And I think it represents a significant step forward in enhancing consumer protection is very important, of course, and then some from the regulators always behind. But also fostering trust in the financial services sector itself. So what firms really need to have to do now is demonstrate that greater accountability for their actions. It's all about consumer outcomes and how they can evidence good consumer outcomes.
00;18;23;04 - 00;18;50;22
Unknown
I think it seeks to deliver improved product and service design, which is a big consideration of the consumer duty, but with greater transparency so that you genuinely are meeting the needs of your target market. It's not just a finger in the air and also it demands higher standards of communication. So you need to also consider the channels that you're communicating through, the methods of communication that you're using.
00;18;50;24 - 00;19;22;27
Unknown
And it's all about empowerment for consumers and of course, a big increase focus on vulnerable customers, which obviously, depending on the nature of that vulnerability, may need a different type of communication style and also a consideration in terms of the product and service design itself. So there's a few things in play here, but genuinely, I think it is a big step forward in terms of ensuring that firms are responsible and accountable.
00;19;22;29 - 00;19;55;04
Unknown
Right. Lorraine very recently I read a paper by the Bank of England and it was a bit of a shock. It's about what we call at Kantox the FX cliff, namely those very short movements in the exchange rate and their consequences. Of course, the UK had, or the GDP-USD exchange rate had two such episodes in recent years.
00;19;55;04 - 00;20;29;06
Unknown
Of course, the Brexit episode and in September 2022 the so-called flash crash. There were the findings of that paper by the Bank of England already startling. They say that many firms in the UK have indeed dollarised or are starting to invoice their non-EU exports directly in dollars. Do you think that would have consequence on the pay, in terms of the payment space?
00;20;29;06 - 00;21;01;24
Unknown
It is true and yes, I think Brexit has had quite a notable impact on the UK financial ecosystem and I think that impact I guess we can see both as a positive and a negative. So from a positive perspective, the UK appears to still remain a bit of a global hub for fintech and tech developments or, you know, open banking and the regulatory sandboxes and such that are being provided by the FCA.
00;21;01;26 - 00;21;38;19
Unknown
And but I think as a country, you know, we're still attracting significant investment. And I think overall the UK has demonstrated a degree of resilience. But of course, there is a downside too, such is the end of passporting rights, which previously allowed UK businesses to operate freely across Europe. And what we're seeing is in fact a bit of a shift to places such as Amsterdam. And even now the Middle East as well, incidentally, it's becoming more of a bit of a financial hub.
00;21;38;21 - 00;22;11;08
Unknown
And has there been some movement towards the dollar diminishing the pound's role? I think yes, there absolutely has. And perhaps there's been also some investment in talent drain with that restriction of free movement. So I think a few things there that have had a bit of an impact in the UK environment for sure. Right. It's a sort of spontaneous dollarisation that has caused my mind.
00;22;11;11 - 00;22;42;09
Unknown
I just calculated the degree of forward discount or premium of the British pound versus the US dollar. And it's all but vanished. So there's, the pound is acting a little bit more like the dollar, in fact it's been appreciating of late. Lorraine I think we've covered a lot of ground, we started discussing trends in payments and things like instant payments and then buy now pay later solutions.
00;22;42;09 - 00;23;16;22
Unknown
We moved on to the possible shift towards well, not shift, but the movement of B2C methods into the B2B space in general. And then we discussed some fintechisation related issues and of course the UK, the British pound. Lorraine Mouat, is there something you would like to add? Yeah, I would like to give a bit of a mention to the role of data analytics here.
00;23;16;22 - 00;23;56;11
Unknown
I think it's a really important one because I reckon that where you have the proliferation of fintech solutions, like I mentioned right at the beginning. That in itself tends to generate vast amounts of data which of course can be used to gain useful insights, predict trends, but also personalise services for consumers and for businesses. And I think alongside that, it's important to mention the post-pandemic shift towards digital payment solutions.
00;23;56;13 - 00;24;32;13
Unknown
That's coupled with the more remote working initiatives, which I think has then helped of course, to drive that. And finally, I mean, let's not forget that as digital payments solutions grow, so do cybersecurity threats. So I think the innovation and digitalisation fintechisation, whatever you call it, they are really, really key themes. But I think that businesses want to take the advantages of those new and innovative ways to do to make and more facility payments.
00;24;32;16 - 00;24;56;24
Unknown
It's to be aware that they need to remain vigilant and, you know, make sure that you're prepared for that. And one final point, which is probably a conversation in its own right, and we wouldn't have time for it here. But I think looking to the future, I think it'll be interesting to know what, you know, the central bank digital currencies, CBDCs have in store for us all.
00;24;57;00 - 00;25;33;05
Unknown
We know China and other countries around the world are already ahead of the game. The UK seems to be a little bit late to the party, but I think it'd be good to keep an eye on that and where that takes us. Absolutely. And we haven't even mentioned the elephant in the room, namely artificial intelligence. But it's implied in this conversation right, now with the, so there's that famous case of fraud there with fake identities, AI created fake identities.
00;25;33;08 - 00;25;58;02
Unknown
And all of that reinforces the point about the centrality of data management. Lorraine Mouat, Head of Payments at Thistle Initiatives, thank you very much for joining us today on CurrencyCast and I hope we will see each other soon here. Thank you Agustin. It's been an absolute pleasure. Thank you very much for inviting me along.
