Trust is key in the ever-evolving payments ecosystem

3 Dec 2019

The new wave of payment options, (think: ‘tap and go’, QR code payments or other mobile or ‘contactless’ payment methods) is a far cry from the days when cattle, goods and fabrics were used as a method of payment.

The pursuit of more efficient forms of trade and trade routes laid the blueprint for many a superpower, from ancient Rome, the Aztec empire, the grand voyages of the Spanish and Portuguese, to the clearing of the “silk roads” by the Mongols.

The evolution of societies, advancements in ideas and the blending of cultures was the catalyst for the development of the multifaceted payments ecosystem we globally enjoy today.

Though a developing economy, battling innumerable developmental encumbrances, South Africa is refusing to ultimately “eat the dust” kicked up by global trailblazers. The South African Reserve Bank is currently investigating the feasibility of a central bank-issued digital currency.

The new “invisible” era of payments has arrived with much fanfare, bringing with it a raft of new opportunities, and challenges too. Nowhere is this new “wave” more evident than in the growth of contactless payments. These forms of payments are essentially the ability to pay without having to insert a card. Enabled by near field communications (NFC), this functionality doesn’t only make it possible to tap your card, but is also the technology that is used when paying with wearables like watches and mobile phones.

According to recent research, four out of 10 point of sale devices, internationally, are contactless-enabled. European, American and Asian markets have demonstrated strong adoption of tap and go payments, with New York, Singapore, London and Sydney offering Visa tap and pay transit payments already.

In South Africa, card-based contactless payments are seeing discernible growth in certain customer segments. There is more work to be done to catch up with leading global markets. Balancing the number of contactless cards issued with contactless-enabled terminals will be key in driving growth.

A major cog in the equilibrium is the need to ensure congruency between these new solutions and industry issuance and acceptance interoperability.

The quest for convenient, faster and safer forms of payments has been the inspiration for high-speed progress on the payments front. As technology and innovation permeate the payments universe, speed and convenience levels improve the “act” of making a payment. The by-product of these dramatic payment improvements is that the tangibility of paying for goods and services is vastly reduced.

Think about it, paying for something using cash or making a trade feels like you are making an actual purchase. A physical exchange naturally brings with it trust and predictability as the exchange clearly feels more material.

But where is trust in all of this? Surely there is no replacement for the trust that comes with a physical payment? Trust is certainly one of the most important parts of the payments ecosystem. With the proliferation of this technology set to continue, it is vital that levels of trust increase among customers, businesses and members of society. Convenience, safety and trust have to coexist as the world readies itself to embrace a new era of payments.

History will remember this era as one of amplified development and evolution of South African payments. These shifts are different to previous strides made – many of the improvements do not simply address speed and convenience. They prioritise safety and by extension, trust.

The industry will soon be implementing DebiCheck – a new debit order verification process that gives customers control of their debit orders. DebiCheck will essentially give customers the power to verify their debit order information and confirm it electronically. Customers will be assured that when they authenticate a debit order, they have signed up for it, approved it and know exactly how much will be debited.

DebiCheck is a global first, built on the latest technology. Banks will now keep a dynamic, digital mandate registry that will be the ultimate source of “truth” from which customers’ debit orders are actioned.

A major hurdle currently is the fact that South Africa is lagging behind markets globally in its evolution to modern, faster payments. Real-time clearing or immediate payments, which launched in 2006, have not gained any material traction locally. At their core, modern fast payment services ultimately aim to displace cash and drive digital payment adoption.

Markets globally have achieved this through the development of national fast payment brands such as India’s Unified Payment Interface, the UK’s Faster Payments and Thailand’s PromptPay.

Governments, regulators, payments service operators and banks, globally, have invested significantly in these brands to achieve consumer trust and critical mass adoption of this new payment form. Within these markets, fast payments are free for consumers and regulators have incentivised businesses for accepting this new payment form.

As we look to the future, customer-centricity and reliance on human-centred design thinking will be absolutely critical for banks as we aim to get the balance between technology, functionality and trust synchronised.

There has been a lot of hype around fintechs, cryptocurrencies and blockchain technology in recent years, even though there are still question marks around blockchain’s readiness for wide-scale payment adoption. It is anticipated that the integration of new alternative solutions into traditional payment business models will take between three and five years. Yet, the concept of distributed ledger technology, which forms the base of cryptocurrencies, fundamentally challenges the concept of trust as we understand it today.

Banks are still the trusted intermediary facilitating a payment transaction in the context of a “payer’s bank” and “payee’s bank”. The two banks, through the possession of banking licences, are required by law to assume the role of the trusted holder of funds, lender of funds and transmitter of funds (payments).

Blockchain technology places payments, into the “hands” of multiple computers which play the role of trusted intermediaries. Digital funds (cryptocurrency) are moved across the network and distributed from computer to computer, creating an irrefutable and permanent record of a transaction (ie, a distributed ledger). What will the future of traditional financial services and payments hold once this technology gains wide-spread adoption?

Integrating and improving this as part of the wider banking and financial service ecosystem is paramount to creating a sustainable solution that benefits customers in the long term.

Undoubtedly, Facebook Libra (Facebook’s own blockchain digital currency) is the most significant challenger to traditional financial services, with China being very close to launching its own central bank digital currency as a response to emerging threats like Libra. As mentioned earlier, the SA Reserve Bank is also investigating the feasibility of a central bank-issued digital currency.

As we enter the new digital, non-tangible and invisible era of payments, the security risks that are top of mind for customers is a critical barrier the industry needs to address. There is a common misconception that the proliferation of new financial technology is hampered by a lack of customer education – we need to give customers more credit. Fraud, debit order abuse and privacy concerns are impeding new payment technology proliferation.

Can we blame customers for being a little apprehensive? A cursory view of industry complaints to the Ombudsman for Banking Services suggests that they are justified. It is up to the industry to lead the way and create solutions. Customers should rightly be unapologetic in their demands for convenience and safety as a prerequisite for any technological development.

As banks, regulators and technology companies, getting the “tech” right is only part of the equation – addressing the real concerns of customers and embedding trust in payment enhancements is the only route to creating lasting solutions that will become the new foundation for our payment universe, banking and our economy at large.

As we craft our future, injecting humanity and trust in our solutions will be key for the customer. At all costs, we must avoid what Albert Einstein once described: “It has become appallingly obvious that our technology has exceeded our humanity”. BM

Cowyk Fox is the managing executive for everyday banking at Absa’s Retail and Business Bank.

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