Iwoca has found that female applicants are 18% more likely to repay small business loans on time than their male counterparts. Women-led small businesses make up an estimated 20% of iwoca’s customers and it has supported an estimated 2,400 women business owners in the UK with almost £50 million in lending since its launch in 2012.

iwoca uncovered the data in response to a study by the Federation of Small Businesses (FSB), which found that a quarter of female small business owners cite the ability to access traditional funding channels as a key challenge, with many relying on alternative sources, such as crowdfunding, personal cash and credit, for growth.

While this technology-driven risk platform draws on thousands of data points to make credit decisions, gender is not included. iwoca’s data scientists were able to calculate gender-based statistics on loan repayment rates by checking customer application forms for self-identified female titles and then comparing the approximate default rates for both cohorts.

Christoph Rieche, Co-founder and CEO of iwoca, said: “More can be done to narrow the entrepreneurial gender gap in the UK. Making it easier for women to access business funding would go a long way to achieving that. Sadly, the reality is that banks are withdrawing critical finance from across the entire small business sector and unless the Government takes action to encourage greater competition that will allow alternative providers to fill the hole, women will continue to be at a greater disadvantage from an unfair system, regardless of their higher propensity to repay on time.”

(Source: iwoca)

Trading is no longer a male-only club. Women now represent 19% of online traders worldwide, and they’re also more successful at it than their male counterparts. This stems from an international report assessing the habits and demographic data of more than 500,000 traders. It was published by BrokerNotes, the online trading comparison site.

What’s caused the shift
The shift has been driven by the democratisation of trading as a result of the internet. This has paved the way for women to enter an industry that’s historically been dominated by men. But it’s not only that female trader numbers are increasing. They’re also better at it.

Women are depositing less than men in their online trading accounts (on average $424 less) and are making fewer, more calculated trades. Men, on the other hand, make more trades and are much more likely to be reactionary to changes in the market, which is proven to have a negative impact on overall return on investment. This type of trading costs men money – the average income of a female online trader being £35,743 compared to the average male income of £32,525.

The female crypto boom
The crypto boom has had a big role to play in fuelling the surge of female traders. Last year, there were 9.6 million total online traders worldwide. In 2018, it’s now 13.9 million, with 2.7 million of them being female. Interestingly, 59% of women choose to trade crypto over traditional assets like forex.

Although both genders are trading Bitcoin, women only represent 10% of total Bitcoin traders. This points to the fact that women are looking to altcoins when investing in crypto with females accounting for 18% of Dash traders and Ripple also attracting a higher percentage of female traders.

Other data points

• Highest percentage of female traders in the UK are in Herefordshire (21%).
• 42% of women describe themselves as experienced traders.
• 16.23% of female traders earn more than £50k/year compared to only 10.93% of male traders.

Marcus Taylor, CEO at BrokerNotes, commented: “When people think of trading, they think of testosterone-fuelled ‘Wolf of Wall Street’ characters. The reality is there’s no place for stereotypes in an online world. By offering anyone the tools to research and develop trading strategies, the internet has opened up trading to the masses. With more women demonstrating a flair for trading, it points towards a transformation that’s also moving towards gender equality.”

E-commerce has experienced exponential global growth over the last decade. A wider array of markets has encouraged greater competition and provided more opportunities for online merchants to reap the rewards. However, staying ahead of the competition in such a climate is easier said than done and, if not approached properly, going global can put merchants at risk of falling behind. With this in mind Finance Monthly hears from Ralf Ohlhausen, Business Development Director at PPRO Group, who sets out ten simple steps to help make a success of going global.

1. Assess cross-border market opportunities

Consider the barriers to trade in the regions that interest you, making sure the benefits of doing business in the area outweigh the costs of meeting market needs and expectations. Also, don’t dismiss high-growth markets, such as Vietnam and Poland, which might be relevant for your business, but not the regions that spring to mind when looking for new sales opportunities and cross-border expansion.

2. Know your market and audience

This is important not only in terms of what you sell and to who, but also in terms of the most relevant payment preferences. Online casinos do not accept credit card payments due to the fraud potential, while travel websites need to offer customers the option to pay via credit card due to the high value of the transaction. Sale conversions are linked to the provision of appropriate payment methods – and payment behaviour varies by demographic, just as purchasing behaviour does. In many cultures, younger people are more likely to use non-traditional payment methods, but if your target audience is primarily older, this may not be relevant. Do your research by considering all important marketing segments before you begin to trade.

3. Plan your marketing strategy

If you are new to a region, you need to raise your profile and gain customer trust to convert browsers into buyers. Consider your target market carefully. For example, a German national buying furniture online would rather not pay for a new sofa in advance, but wait for delivery and then pay directly from their account. Think about the behaviour of your target customer and which marketing strategies will resonate most successfully with them. If this is out of your remit, then working with a local marketing partner will provide the necessary knowledge to attract and retain business in the region, supporting long term growth.

4. Plan your market entry

The best marketing plan in the world will fail if not supported by a well thought through market entry strategy. Consider the best way to set-up shop in a new region, as it will differ depending upon your business model and regional knowledge. Do you need to use a partner to begin with, to sell via an online market place, auction site or through an established local vendor? If so, for how long? Or can you go it alone from the start?

5. Consider your market share and positioning

Your current market/s may be crowded or dominated by one or two big names. If you enter an emerging market with a carefully tailored and localised offering, you could grab a large slice of that niche before others do.

6. Review payment methods

When it comes to payment options, decide how much risk you are happy with. Some payment methods may be convenient for customers, but carry a greater burden of chargeback/refund risk or other cost to the vendor. Such risk can often be mitigated, for example by offering less riskier forms of payment, such as SEPA direct debits, for goods below a certain value or to trusted customers. So-called ‘push payments’, which are proactively sent by the client, are less risky in terms of chargeback but their use must be balanced with local preferences. Examples of push payments include giropay in Germany and iDEAL in the Netherlands.

7. Personalise your e-commerce offering for local needs

Make sure customers are only offered the products and payment methods relevant to their location, in a regionally-appropriate format. There are several ways of doing this, including local versions of websites and identification of site visitors by location (e.g. according to their IP address), which then dictates the pages and payment options available. You should offer each visitor at least three, or ideally around six, of the most popular payment options in their location, to maximise your chances of making a sale.

8. Do not leave it too late

Online retailers wanting to take a share of emerging markets need to act now, while the trend towards internationalisation is in its infancy and market niches are free.

9. Compliance matters

As a business, you must comply with a multitude of legal, financial and customs regulations of the markets you trade in. It is therefore crucial to keep abreast of and respond to any regulatory changes in a timely fashion. This generally demands external expertise, particularly as the penalties for non-compliance can be extremely tough.

10. Consider third-party support

When making a foray into a new market or region, it is important to keep on top of commercial and regulatory barriers and implement the best alternative payment methods. This is fundamental to the success of your business expansion. However, very few retailers have sufficient expertise in-house to manage all of these matters optimally, so finding a partner who can support you on your global journey can be the key to success.

While the prospect of ‘going global’ is still new for some, it’s vital for merchants to break into new regions quickly, armed with the best strategy and proposition to seize the opportunities, before the competition swoops in. Only by taking this approach can merchants win new customers and multiply their bottom line, building new revenue streams and expand into new regions. Global success is only a few steps away, and now is the time to go for it.

If cash is in decline, how does the future look for finance?

Once the preserve of banks, states and major institutions, the world of finance has seen big changes in its product offering. A huge growth in tech companies creating ways to make spending easier for both consumers and institutions has seen a shift away from banks ruling the finance industry. Cryptocurrencies have gone even further, removing the need for major institutions to even get involved with both positive and negative results.

Money comparison experts Money Guru have analysed the growing payment trends, how tech and finance have formed an unlikely partnership, and what the future has in store for our spending.

World

Payments

Cashless payments and the plight of cash in society has been something of a subject over the past few years, but a conversation many aren’t having is that of financial exclusion; something that has happened in the past is likely set to happen again. Below Jack Ehlers, Director of Payments Partnerships at PPRO Group, delves into the details.

In 2016, according to a report just published by the European Central Bank (ECB), EU citizens made €123 billion worth of what the ECB calls ‘peer-to-peer’ cash payments. That’s just another way of describing the money grandparents tuck inside birthday cards, donations to charity, payments to street vendors and the hundreds of other small cash transactions people make all the time.

But even as cash remains central to the economy, cashless payment methods become more common with each year. The use of e-wallets such as Apple Pay and Samsung Pay is predicted to double to more than 16 million users by 2020. Overwhelmingly, the rise of the cashless society is a good thing. It promises greater convenience, lower risk, and improvements in the state’s ability to clamp down on practices such as tax avoidance and money laundering.

But what about those micro-payments? And even more importantly, what happens to the estimated 40 million Europeans who are outside the banking mainstream? These are the EU’s most vulnerable citizens and they have little or no access to digital payment methods.

If we don’t plan properly, the transition to a largely cashless future could see the re-emergence of financial exclusion, which we thought had been vanquished. In Western societies. Ajay Banga, CEO of Mastercard, has talked of the danger that in the future we’ll see “islands” of the unbanked develop, in which those shut out of the now almost entirely digitised economy are left able to trade only with each other.

But are we really going cashless any time soon?

The ECB report quoted above, also found that cash is still used in almost 79% of transactions. So, do we really need to worry about what will happen when we finally ditch notes for digital payments? Yes and no.

Even though contact payments are on the rise, the demand for cash is also growing. A recent study found that the value of euro banknotes in circulation has increased by 4.9% over the last five years. Given the historically low rate of inflation over the past few years, this would seem to be largely due to a cultural preference for cash. Low interest rates could also be encouraging Europeans to spend rather than save. But whatever the reason, cash isn’t going away soon.

But that doesn’t mean we can relax. Some markets are already much closer to going cashless than the European average would suggest. In Sweden, consumers already pay for 80% of transactions using something other than cash. In the Netherlands, that figure is 55%, in Finland 46% and in Belgium 37% [1]. Today, Britons use digital payments in 60% of all transactions. By 2027, that number is expected to rise to 79%. Already, 33% of UK citizens rarely, if ever, use cash.

Unless we take this challenge seriously, we risk stumbling into a situation in which the majority in these countries use cash-free payments most of the time, even if they still use cash in minor transactions. In such cases, there is the danger of many shops and services no longer accepting cash, leaving those who still rely on it stuck in the economic slow lane.

For most people, cashless payments can offer easier and faster payments, greater security, and improved access to a wider range of goods and services. But to maximise the benefits and reduce the downside, including those for strong personal privacy, we need to start thinking now about how we can manage the transition in a way that minimises the risk of financial exclusion for already marginal groups in society.

Charities and mobile payments show the way

The rise of digital payments does not have to mean the growth of financial exclusion. It is possible to create an affordable payments-infrastructure for small traders, churches, and charity shops — and, even more importantly, for economically marginal consumers.

In the UK, charities are leading the way. After noticing that donations were tailing off, the NSPCC and Oxfam sent out one hundred volunteers with contactless point-of-sale devices, instead of charity collection tins. The rate of donations trebled. The success of the NSPCC trial shows that it is possible to roll out the supporting infrastructure for cashless payments even to individual charity collectors on the street.

But that’s only half the story. While charities and shops — even small independent retailers — may be able to afford and install point-of-sale systems to accept micro-payments, normal citizens cannot. Here, mobile payments may be the answer.

The example of the Kenyan M-Pesa, a system which allows payments to be made via SMS, shows that it is possible to create an accessible, widely available and used mobile payment system that does not rely on the consumer owning an expensive, latest-model smartphone. Already, 17.6 million Kenyans use M-Pesa to make payments of anything from $1 to almost $500 in a single transaction.

An inclusive cashless future—in which mobile e-wallets and other contactless forms of payment dominate—is possible. But it won’t happen by itself. As an industry and a society, we need to plan and work towards it: starting today. The stakes for many businesses and some of the most vulnerable people in our society couldn’t be higher.

Sources: 

The use of cash by households in the euro area, Henk Esselink, November 2017, Lola Hernández, European Central Bank
FinTech: mobile wallet POS payment users in the United Kingdom (UK) from 2014 to 2020, by age group, Statista.com.
Close to 40 million EU citizens outside banking mainstream, 5 April 2016, World Savings and Retail Banking Institute​
Insights into the future of cash, Speech given by Victoria Cleland, Chief Cashier and Director of Notes, Bank of England, 13 June 2017.
Why Europe still needs cash, 28 April 2017, Yves Mersch, European Central Bank.
Europe’s disappearing cash: Emptying the tills, 11 August 2016, The Economist
UK Payment Markets 2017, Payments UK.
The Global State of Financial Inclusion, 5 March 2015, Pymnts.com

In 2018, consumers enjoy more choice and power over their purchasing decisions than ever before. The retail market has evolved to the point where the strength of a product and its price no longer call all the shots. Below Peter Caparso, President North America at Checkout.com, explains why payments may even be considered a commodity in today’s markets.

To stand out with a clear differentiator, merchants now need to emphasise the customer experience. As an essential business function, payments have long been considered a utility. But perceptions have shifted, and to compete and thrive in a hyper-competitive retail environment, merchants must focus on delivering excellence across the entire customer journey – and that includes the all-important payment experience.

As digital innovation continues to transform how people shop, the quality of the customer’s remittance experience is now just as important as any other commodity or offer. It needs to be easy, intuitive and user-friendly. Ultimately, it must make the buyer’s life easier, not just ensure that the seller gets paid.

Delighting customers

When a customer becomes disillusioned or discontent with their experience with one service provider, they have the power to simply switch to another. In fact, research reveals that some 54% of customers are being driven to the competition because of poor service.

In this regard, payment solutions are no different to any other commodity. Merchants need them, but they aren’t dependent on any particular provider. Instead, they choose the one that provides them with a smooth and frictionless payment service. This is a critical element of the wider customer experience and plays an important part in winning and retaining business.

Providers, therefore, have to supply merchants with relevant technologies such as mobile and desktop functionality, and stay up to date with innovations like voice activated payments. To keep up with innovation and trends, retailers need to work with tech-savvy payment service providers (PSPs) that can provide exceptional customer service and experience to whichever user base they serve.

And as new technologies continue to evolve how payments are processed, a collaborative relationship between merchants and their PSPs will be all the more important. Working in this way will enable merchants to harness new, innovative solutions effectively – and to deliver faster, better services to match market demand. They can continue to attract and delight customers, and make a profit.

Tech driven excellence

The challenge for many merchants, is that not enough PSPs are aware that a payment is in fact, a commodity. What’s more, while many succeed in developing and providing a top-class technology solution, they fail to consider its usability.

The best solutions succeed in merging excellent technology (i.e. automation), with superior customer service. And to achieve the latter, there needs to be room for authentic human engagement. It’s an almost paradoxical combination but finding the right balance is hugely important.

When a merchant signs up to a specific PSP, the PSP has an opportunity to forge a strong relationship. It can collaborate with the merchant to help solve problems, develop improvements and progress business. Of course, the PSP needs to provide a mobile-friendly purchasing and payment service – or risk losing business. However, the ability to delight the merchant goes beyond simply meeting their tech-driven needs.

PSPs that don’t work with merchants in this way have a much harder task ahead of them. They’ll need to make sure that their technology is 100% perfect at all times. Of course, this is always worth aiming for – but, without a more collaborative relationship in place, it only takes one glitch to drive the merchant into the arms of a competitor.

As we head deeper into 2018, merchants need to go above and beyond and pay even more attention to the customer experience they offer – or risk falling behind their competitors.

Martin de Heus, Head of Business Development at Onguard tells Finance Monthly the situation may get worse before new methods such as segmentation drive improvement.

The issue of late payments is often seen as a major problem for small businesses only, with large corporates cast as the ‘villains’, wielding power by holding cash owed to their suppliers. There is some truth in this assumption. According to YouGov, late payments left UK SMEs £266 million out of pocket in 2016.

However, the business world is a symbiotic environment with few real heroes and villains. The impact of late payment on small businesses is often fast and dramatic – and so more visible. YouGov research also shows that 63% of medium-sized businesses receive late payments at least once a month, compared to 40% of small businesses. According to this study, the impact of late payments in this sector can lead to reduction of innovation spend and even more worryingly, the inability to pay salaries and ultimately, redundancies.

This may be because mid-range companies are most likely to be coping with outdated IT infrastructure with limited support. As a result, they are unable to automate the entire order to cash process and apply methods of segmentation for risk assessment and to ensure customers are invoiced and sent statements by their favoured and most effective method, albeit by post, email or even SMS. This form of segmentation is already considered best practice in the Netherlands and other European companies – and there are now signs of growing popularity in the UK.

But, if in reality, the late payment scourge affects all businesses, what about the belief that it’s

specifically a UK problem? In a further study conducted a few years ago, more than 62% invoices submitted by UK firms were paid late, compared with just 40% in other European countries – so this conjecture does hold some weight.

On top of this, YouGov reports that one in ten business owners believe that the problem has become worse since Brexit – with political and economic uncertainties making firms even more reluctant to part with their money.

So, what can businesses of any size do to manage their cashflow. Here are five things that any self-respecting business should put into place now to help get those payments in more quickly

Be clear about your payment terms

If you don’t make your payment terms obvious, then you can’t really blame the purchaser for hanging on for as long as they can before paying. Make sure your team the correct terms know too. Getting them into print will make the rule more definite and remove any doubt about what is expected and give your customers a consistent message.

Reward early payers

The stick rarely works as well as the carrot – as round after round of research has proved. Incentives for ‘good behaviour’ – that is paying on time can lead to better, feel-good relationships all round.

Stagger invoices

So many companies still batch process invoices once a month. True, it’s convenient, but sending out as soon as a product or service has been delivered could bring more satisfactory results. It also means you benefit from a constant flow of money.

Come down quickly on unpaid debts

Building relationships with your client’s accounts department can pay dividends. If a payment is late get in touch straight away to help create a sense of urgency. If the two departments are on good terms nobody will want to jeopardise this and the client will want to help.

Use segmentation techniques to prioritise and minimise risk

These methods are already strong in many B2C environments where payment methods have multiplied over the past few years. Segmentation can be used to define how statements and invoices are sent and the type of debtor you are dealing with. To give a simple example – in most cases it would be unproductive to send an octogenarian a statement via social media, yet this route could be highly effective when communicating with twenty-year-olds.

Now segmentation is being used increasingly by B2B companies too. Not only can it help in choosing the most effective way of communicating with the company, but it can also help companies pinpoint the types of customers most likely not to pay on time. With this knowledge, accounts departments are aware of the risks and can focus resources on collecting these payments rather than being heavy-handed with all customers including those who always meet the deadline.

Invest in the right tools

The main barriers to automated order to cash and increasingly sophisticated segmentation are out-of-date systems or, worse still, clunky spreadsheets. Credit management software which streamlines and automates the entire order to cash process are becoming used increasingly to solve the late payment challenge, saving time and building better customer relationships. They best integrate with existing ERM and are highly configurable enabling segmentation and other data analysis for the most efficient collection of money owed.

The late payment culture knows no borders. The proportion of UK invoices being paid late - and the amount of time taken to settle them by EU and US firms - has risen dramatically between 2016 and 2017.

Findings from business finance company MarketInvoice reveal that 73% of invoices sent by UK businesses to EU firms were paid late, up from 40.4% in 2016. Across the Atlantic, the number of invoices paid late by business in the US increased from 45.7% in 2016 to 71% in 2017.

Tellingly, the number of days taken by EU firms to settle invoices (beyond payment terms) has soared 30-fold between 2016 and 2017, increasing from just 0.3 days to 9.1 days. Similarly, US firms are also taking longer to settle their bills (beyond payment terms), up from 7.1 days (in 2016) to 19.5 days in 2017.

German firms were notable late-payers. They took 28 days (the longest all of countries surveyed) on average to settle bills to UK firms. Interestingly, in 2016 they settled their bills 0.5 days early. Also, the proportion of invoices paid late has almost doubled from 38.3% in 2016 to 62.8% in 2017. French firms took 26 days (compared to 6.1 days in 2016) to pay their bills and businesses in Ireland took 13 days (compared to paying 0.1 days early in 2016).

It’s not only UK exporters that are suffering. UK businesses operating at home were also hindered by late payments. Businesses took an additional 18.4 days to pay their invoices in 2017, compared to 5.9 days in 2016. Also, the proportion of invoices paid late increased from 62.3% to 66% (2016 vs 2017).

The research examined 80,000 invoices issued by UK businesses sent to 93 countries. Overall, 62% of invoices issued by UK SMEs in 2017 (worth over £21b) were paid late, up from 60% in 2016. The average value of these invoices was £51,826 and three in ten invoices paid late took longer than two weeks from the agreed date to settle, with some taking almost 6 months to be paid.

Bilal Mahmood, MarketInvoice spokesperson commented: “UK exporters are being squeezed globally as more of their invoices are being paid late and taking longer to be settled. Businesses respect long payment terms, but late payments are unacceptable.”

“The new trading environment in 2017, with Brexit negotiations on-going in the backdrop of global economic uncertainty, could have caused some consternation amongst late-paying firms around the world. This is not an excuse to not honour their payment terms.”

“UK businesses need to understand what measures they can take to reduce the risk. These include making T’s & C’s clear from the outset, chasing payments down and enforcing the right to claim compensation from late payments.”

(Source: MarketInvoice)

As we herald a new era of banking, will PSD2 result in FinTechs challenging the dominance of traditional banking services?

13^th January 2018 marked the beginning of the Open Banking era. The EU’s Second Payment Services Directive (PSD2) which took effect earlier this month forces banks to allow third parties, including digital start-ups and challenger banks, access to their customers’ financial data through secure application programming interfaces (APIs), and create a new way for customers to bank and manage their money online. If all goes to plan, PSD2’s main objective is to ensure maximum transparency and security, whilst encouraging competition in the financial industry. The Open Banking revolution aims to create a form of cooperation between banks and FinTechs – however, this doesn’t seem to be the case 18 days after the triggering of PSD2, with a number of banks that still haven’t published their APIs and incorporated the necessary changes. Naturally, the directive is good news for the FinTech sector. FinTech companies and digital payment service providers will gain greater access to high-street banks’ customers’ financial data – something that they’ve never had access to in the past. This will then undoubtedly inspire FinTechs to develop new innovative payment products and services and provide users with opportunities to improve their financial lives, whilst allowing them to compete on a more-or-less level playing field with the giants of the financial services industry, the traditional banks. Does this mean that traditional banks will need to up their game when competing with the burgeoning FinTech industry? Are they scared of it, and if not – should they be?

Traditionally, and up until now, banking has always been a closed industry, monopolising the majority of other financial services. The recent advancement of digitisation has shaken the industry, with FinTech start-ups offering alternative solutions to more and more clients across the globe. From a bank’s point of view, PSD2 will forever change banking as we know it, mainly because their monopoly on their customers’ account information and payment services is about to disappear. Banks will no longer be competing against banks. They will be competing against anyone that offers financial services, including FinTechs. And even though the directive’s goal is to ensure fair access to data for all, for banks, PSD2 poses substantial challenges, such as an increase in IT costs due to new security requirements and the opening of APIs. However, the main concern is that banks will start to lose access to their customers’ data.  Alex Bray, Assistant VP of Consumer Banking at Genpact believes that a possible outcome of Open Banking is that banks could end up surrendering their direct customer relationships. If they don’t acknowledge the need for rapid change or move too slowly to adapt to the landscape, they risk becoming “commoditised payment back-ends as new aggregators or payment initiators swoop in”.

However, Alex Bray also argues that for banks to take advantage of PSD2, “they will need to find a balance between openness, privacy and data protection.” There is also a case to suggest that traditional banks who embrace and utilise the new directive to its potential could transform a potential threat into a huge opportunity. He also suggests that: “they [banks] will need to improve their analytics so they and their customers can make the most of the huge amounts of new data that will become available”. Only a well-thought-out strategy will help banks to survive the disruption to the long-established financial industry – and cooperating with FinTechs can be part of it. Alex Kreger, CEO of UX Design Agency suggests that “Gradually, they [banks] could turn into platform providers of banking service infrastructure… As a result, successful banks may lose in service fees, but they will gain in volume. Many FinTech start-ups will not only offer services on their platform, they will actively introduce innovative products designing new user experiences, thereby enriching the financial user’s journey and transforming the banking industry. This will attract new users and provide them with new ways of using financial instruments.”

Only time will answer all the outstanding questions related to the open-banking revolution. FinTech firms are expected to ultimately benefit from all these changes – however, whether the traditional banks will cohere to the new regulations quickly enough, whilst finding ways to adapt to them, remains to be seen.

From IoT to peer-to-peer offerings, the PPRO Group - specialists in cross-border electronic payments - have predicted key online payment trends for the year ahead. With digitisation in the world of payments progressing by leaps and bounds, the following seven developments are expected to make waves in 2018.

1. Internet of Payments

According to Gartner, the number of devices connected to the Internet of Things (IoT) is set to increase from 6.4 billion in 2016 to 20.8 billion in 2020. Consumers are increasingly expecting their IoT devices to enable more than just carrying out tasks automatically; they also expect them to facilitate payments. For example, consumers with connected fridges can expect to see depleated items restocked and automatically paid for. Visa is also working with Honda to develop technology that can detect when a car’s petrol is low and enables users to pay for a refill using an app that is connected to the in-car display.

2. Context-Based Payments

Anyone heading to the checkout, whether with a real or virtual shopping basket, often takes a moment to decide whether their purchase is really worth it. Integrating payment into the context of the shopping experience and transaction can help remove this barrier to sale. It renders the POS almost invisible, while the payment process runs automatically in the background of a shopping app being used.

Wireless payments – a concept already being implemented more frequently online – will also be used in brick and mortar stores. Customers will, in the future, no longer need to reach for their cash or a credit card; instead, they can pay wirelessly in passing – whether from their smartphone via Bluetooth, using the RFID chip in their debit card, or automatically by facial or voice recognition. This will make the transaction seamless, and leave little time for consumers to rethink their purchase.

3. Peer-to-Peer Payments

In 2018 payment processes will be increasingly integrated into peer-to-peer (P2P) systems. In India, for example, WhatsApp users can already use P2P payments to send money to friends during online chats. Apple is also implementing this feature with Apple Pay Cash. The new voice input technologies, such as Alexa, Siri and Cortana, mean that P2P payments and banking transactions can also be carried out using voice commands.

4. Real-Time Payments

The push pay model makes real-time payments possible. Thanks to the SEPA Instant Credit Transfer (SCT Inst) scheme, the requisite European infrastructure has been in place since 21^st November 2017. In Germany, it is already supported by the UniCredit Bank, the Deutsche Kredit Bank, and many savings banks. But it will probably be some time before the majority of banks are using the new system – perhaps not until participation becomes mandatory.

In 2018, however, additional German participants are expected to join the scheme as market pressure increases. It will be interesting to see the extent to which SCT Inst will open up new payment methods and how much retailers, in particular, will take advantage of the speed and reliability of real-time transfers to convert their processes to genuine real-time transactions.

5. Partnership between Banks and Fintechs

The technical specifications (Regulatory Technical Standards, RTS) defined by the European Commission for the new Payment Service Directive, PSD2, represent a major compromise between the interests of the established banking industry and the European FinTechs.

From the FinTech point of view, it would have been better to offer them the same as banks, and a free choice of using APIs or access via online banking. This would have resulted in good APIs being used while poor ones were ignored, creating a kind of self-regulation. At least, however, the new version is less of a threat to the European FinTech sector than the original version issued by the EBA at the end of February 2017. This is expected to result in a solid foundation which will foster increased competition and security in payment processes, which will provide both retailers and consumers with more choice and information monitoring.

6. Decentralisation through Blockchain Technologies

The technological basis for Bitcoin and other cryptocurrencies will facilitate the creation of more innovative financial solutions in 2018. Institutions will use blockchain technology to establish direct connections, thus eliminating the need for intermediary or correspondence banks.

Nasdaq has already created a platform which allows private companies to issue and trade shares via blockchain. Here, the complete trading process – from execution to clearing to settlement – takes place almost in real-time, while the technology allows traceability. Blockchain can also be used by regulators as a completely transparent and accessible recording system, thus making auditing and financial reporting considerably more efficient. The number of uses for blockchain is constantly increasing and, although the technology has not yet actually achieved breakthrough status, like many radical technological shifts, it needs time to establish itself.

7. Commercialisation of MNO Wallets

More than two billion people globally currently do not have access to financial services. In many countries with low financial inclusion, peer-to peer-payments through mobile wallets or mobile network operator wallets (MNO wallets) are the norm. With growing popularity of e-commerce in these countries comes the commercialisation of such wallets for B2C payment methods. There is a clear shift from P2P payments to B2C payments seen in many Asian, African and Latin American countries.

(Source: PPRO Group)

With a brief overview of end of year 2017, Andrew Boyle, CEO at LGB & Co., introduces Finance Monthly to 2018’s potential highlights, adding some thoughts on the prospects for crypto markets, new legislation and fintech.

Last year was an eventful year for financial markets. Globally, it was characterised by a continuation of the equity bull market, strongly performing debt markets and the surge in digital currencies. We expect this year to be equally exciting yet also challenging, with key issues likely to be whether the global bull market will run out of steam, whether disruption or collaboration will be the hallmark of Fintech’s impact on financial markets and if the significant increase in regulation will yield the benefits for which regulators had planned.

It was a banner 2017 for global equity markets, with the MSCI world index gaining 22.40% and reaching an all-time high. The US equity market was boosted by robust economic growth, strong rises in corporate profits, the Fed’s measured approach to unwinding QE and, latterly the potential of a fiscal stimulus from the much-anticipated tax reform bill. In the UK last year, the robust performance of the FTSE 100, was not only boosted by the weak pound since the Brexit vote, but was led by sector-wide factors that supported housebuilders thanks to the help to buy scheme, airlines, with the demise of Monarch and miners, as commodities enjoyed price rises against a weak dollar in a strong second half of the year.

Looking ahead to 2018, the global outlook for the markets might appear challenging. Valuations appear to be full, unwinding of QE may accelerate and bond markets are already showing signs of being spooked by rising inflation. However, it’s the first time since 2008 all major economies in the world are simultaneously growing, and despite being only the second week of the New Year, $2.1 trillion has already been added to the market capitalization of global equities. Growth still looks resilient and equity markets, particularly in the US, have been supported more by innovation in technology and innovative business models. With further advances of tech stocks underpinning the market, the outlook for equities looks more positive than a focus on the actions of central banks alone would imply.

Fintech has been heralded as a major force for disruption in financial markets. Yet looking forward it would appear that collaboration might be the model. Increased interest from large financial companies backing ‘robo’ investment – such as Aviva’s acquisition of Wealthify and Worldpay’s merger with Vantiv, illustrate this trend. Given this development, regulators are taking a closer interest in the impact of Fintech, keen to ensure if they are partnering with established financial institutions that there is no systemic risk to financial markets. One example of the interest from regulators and policy bodies is European Commission’s consultation on Fintech policy, potentially due out later this month.

Another key question is whether 2018 will see the ‘coming of age’ of cryptocurrencies. Bitcoin hit £12,000 in December last year, a month after the (CFTC) permitted bitcoin futures to be traded on two major US-based exchanges, the Chicago Mercantile Exchange (CME) and the CBOE Global Markets Exchange. Alongside widespread acceptance of cryptocurrency, this year may well see the BoE invest further in technology based on blockchain in order to strengthen its cyber security and potentially overhaul how customers pay for goods and services. It appears that the blockchain could lead to a change in the very concept of money, but also that the current speculative frenzy is overblown. The total value of the cryptocurrency market is at a new high of $770bn and a recent prediction from Saxo Bank states Bitcoin could reach as high as $60,000 in 2018 before it ‘inevitably crashes’.

One final thought is the impact of MiFID II - this presented financial services firms covered by its measures with some major challenges in the first weeks of 2018. Only 11 of the EU’s 28 member states have added flagship legislation into national laws and the sheer scale of legislation has raised questions that although far reaching, it is too ambitious and full compliance will remain difficult to achieve. Yet 2018 will not give companies any respite as both GDPR and PSD2 will be implemented this year. Roll on 2019 some regulation-fatigued financial firms may say.

New rules to be introduced by the Payment Systems Regulator will in future make banks and financial services liable for payment scams and consequent reimbursement. Andy Barratt, UK Managing Director at Coalfire, explains more for Finance Monthly.

During the first six months of this year, victims of Authorised Push Payment (APP) scams were conned out of a shocking £100 million. These simplistic but sophisticated cons have tricked thousands of customers into unwittingly authorising payments in response to fake emails or persuasive phone calls.

Currently, it is most often the victim – the customer – that picks up the tab and any compensation awarded to them is generally qualified as an act of good will, not an admission of responsibility.

But a new contingent reimbursement model being introduced by the Payment Systems Regulator (PSR) in September 2018 will likely shift the responsibility for preventing APP on to banks and payment services providers. Organisations may be obligated to pay out in circumstances where it can be proved they didn’t have adequate security procedures in place or follow best practice.

Though the exact contents of the model is yet to be ironed out, PSR’s focus on redressing the balance between customer and company emphasises the increasing importance for the financial services sector to have its house in order when it comes to protecting its customers from fraud, particularly online.

Legislatory or voluntary?

Whatever the PSR’s judgement, the resulting regulation will likely take one of two forms.

The Government could legislate, based on recommendations from the PSR, for transactional scam protection, which would be underwritten by the Treasury. This would be much like the protection given to individuals and businesses that hold deposits in banks that fail, who are entitled to compensation of up to £85,000.

The government would, of course, be within its rights to recoup these costs from organisations that authorised the fraudulent payment in the first place.

Alternatively, a voluntary system overseen by the PSR could require member institutions to contribute to a collective insurance pot to protect victims.

Both approaches would likely mean greater costs for banks and payment services providers, intensifying the onus on these firms to demonstrate that their defence against APP is as robust as possible.

Preparing for the reimbursement model

It must be said that many financial institutions, and particularly the big retail banks, are working hard to be good corporate citizens.

But across the sector, particularly among smaller lenders or those with more automated service models, a variety of steps could be put in place with reasonable ease that would make organisations far better able to protect customers from APP and less likely to lose money to compensating them.

In the credit industry, for example, a five-day cooling off period is applied to all credit agreements. This allows time for the source and recipient of any payment to be verified. Similar principles could be introduced to other forms of banking. Even in the case of customer-to-customer transactions such as direct debits, payments over a certain value threshold could be held until their legitimacy is confirmed.

Banks with branch networks can also use the personal contact staff have with customers as a way of verifying the identity of a payor or payee. Staff training and awareness days can be used to teach employees how to spot transactions that may be fraudulent.

Alongside this human element, artificial intelligence will play an increasingly key role in helping businesses to detect fraud.

The reimbursement model will necessitate banks and payment services providers to prove they have robust mechanisms in place to monitor consumer behaviour more meticulously and identify and block suspicious transactions effectively.

AI can be used to detect incongruous payments among many millions of transactions – a needle in a haystack for mere mortals. These suspicious payments can then be paused, with the funds placed in temporary escrow, and the customer contacted to confirm authenticity.

This stops the theft from ever taking place, circumventing the debate over who is liable altogether.

Plan ahead

The contingent reimbursement model may not have the wide-ranging, cross-sector implications of other new regulations such as GDPR and PSD2. But one thing it does have in common with these more talked-about directives is the potential to be financially damaging for the organisations that fall foul of it.

The PSR recognises that there is no single measure that will stop APP scams altogether, but impresses on the financial sector the importance of doing everything it can to guard against this form of fraud.

The sector should stay abreast of new developments concerning the contingent reimbursement model and take steps, some examples of which are highlighted above, to ensure they are ready when the regulation takes its full form next September.