New payment methods have enabled people and businesses all around the world to access the digital economy. But we’re only at the start of reimagining the payment experience.
Here are four trends that will shape the way we pay in 2021.
- Retailers went digital, but next, they must diversify their payment offering.
Retailers have responded well to the pandemic by pivoting to online commerce this year, but their work is only just getting started. Payment diversification will be a crucial next step in 2021. As consumers continue to embrace shopping online, often engaging with retailers they haven’t purchased from before, we will see growing demand to introduce new digital payments methods that address customers’ safety & security concerns.
Being able to pay on delivery, tokenisation, biometric fingerprint cards, vein scanning or phone-to-phone payments, alongside a variety of more traditional card payment options, help to create a universe where the consumer can make a choice based on convenience, personal preference and knowing they are protected from financial fraud.
- QR code payments will thrive.
In the quest for truly contact-free payments in the pandemic, QR codes will continue to prove their resilience, especially in emerging markets. We can expect QR codes to dominate in these fast-growing markets such as Asia, over other payment methods such as NFC-enabled cards. Unlike card transactions which require merchants to invest in costly and complex point-of-sale terminals, QR codes are cheap to deploy and easy to use.
In the next year, we can expect to see QR code-based payments become even easier for consumers to use. Thanks to integrations with digital wallets, we’ll start to see wider adoption in both developing and developed markets.
Currently, the QR code payment solutions available today require an app, for example, developed by a retailer, that can only be used in its stores. However, in China, where QR codes are wildly popular, consumers can make QR code-based payments using a digital wallet such as AliPay or WeChat Pay. In developed markets, leveraging popular digital wallets already on consumer smartphones, such as Apple Pay, Samsung Pay and Google Pay, will make QR codes more accessible to them. Customers will no longer need to download separate apps but instead can use their favourite wallet to make a purchase with ease.
Offering a safe, convenient and cashless payment method, QR codes will continue to emerge as an important payment method in 2021.
- COVID-19 will be the catalyst for digitising transport payments infrastructure around the world.
COVID-19 has been the catalyst for national and local governments around the world to embrace digital services. This is becoming particularly visible in transport, where we started seeing individual public transport ticketing systems and piecemeal approach to digitising infrastructure elements replaced with end-to-end services.
We will see the rise of smaller cities in developed countries as well as large cash-based cities in emerging markets easing into joined-up cashless fare collection across different modes of transport. The benefits of a simple tap-to-pay will go way beyond a matter of social distancing, as we expect to see a greater willingness among citizens to use cashless payment methods in other scenarios.
This will be a huge opportunity for the payments industry.
- Voice-enabled payments will get a boost.
While conversational AI has already made great strides in other aspects of lives, we are only starting to see its application in the world of payments. Chatbots with speech-to-text and text-to-speech features have now become more accessible, bringing the ability to transform how we make in-app payments. Digital banking apps that offer this feature are enabling their customers to instruct on transactions and initiate bill payments using voice alone.
And the potential for this isn’t restricted to banking apps. Voice-enabled payments could be used to confirm payments on other apps such as those of food delivery providers.
We are already seeing some retailers integrate voice-enabled grocery shopping, allowing customers to commence checkout by voice. And as we continually seek out touchless payment options as part of the return to brick-and-mortar stores, voice payments could reimagine that experience in the future too.
While still in its infancy, we can expect to see banks, retailers and others explore voice as an emerging payment method.
This trend isn’t one that is unique to the UK either, far from it. The People's Bank of China is tipped by many to be the world’s first cashless society and is currently conducting extensive tests of a digital currency payment system ahead of a planned launch later this year. Elsewhere, Australia’s Central Bank has announced that it too is looking at the viability of a central digital currency.
Closer to home, however, the decreased need for cash has seen an acceleration of an already steady downward trend in ATM transactions, cash withdrawals and the use of cash more generally. So significant was the trend that it led to the National Audit Office concluding, earlier in 2020, that there was increasing pressure on the sustainability of the infrastructure for producing and distributing cash and that, overall, the current approach to overseeing the cash system is fragmented. It has also led to significant infrastructure changes across the sector that have seen a number of banks announce further branch closure programmes.
When many banks are making significant losses, it is difficult to argue with them trying to reduce their costs, especially amid an accelerating trend towards digital banking - TSB’s own website says that 67% of its customers now use mobile, telephone or online banking.
With forecasters predicting that cash may only be involved with 10% of transactions by 2028, the COVID crisis looks set to rapidly propel us towards a cashless future. But, while convenient for some, this transition will cause significant challenges for the banking sector as well as for governments and wider society as institutions look to adjust to yet another ‘new normal’.
On a more macroeconomic scale, coins and notes have acted as the primary means of payment across the globe and, in times of emergency, central banks have often printed banknotes to hand out to their governments.
The stats are certainly compelling, but they don’t change the fact that many banking customers either don’t have access to digital banking or still rely on cash. What’s more, the targeted impact of a move away from cash was clearly laid out when, in 2018, an Independent Access to Cash Review was undertaken (funded by LINK). The subsequent report stated that “technology is often designed for the mass market rather than for the poor, rural or vulnerable”.
On a more macroeconomic scale, coins and notes have acted as the primary means of payment across the globe and, in times of emergency, central banks have often printed banknotes to hand out to their governments. As such, money has become another tool used to manage the economy, and how these same levers would be pulled in a cashless society is not clear.
As is so often the case though, out of adversity comes opportunity and, in addition to the Post Office and retailers stepping in to support those who still rely on access to cash, there is already evidence that some new players are taking a more innovative look at the banking sector.
OneBank, for example, is a new payment institute that will not charge consumers but will instead charge participant banks to allow their customers to use OneBank’s “bank agnostic” kiosks. Retail bank branches cost between £500 and 700k per year to run so OneBank can justifiably claim to be providing a solution to banks and consumers simultaneously. Interestingly, the platform has its own anti-money laundering (AML) and know your customer (KYC) systems, independent to the banks.
Innovators such as OneBank will undoubtedly be important in the short term, but attention still needs to be given to longer-term and more far-reaching solutions.
Whichever way you look at it, the use of cash is declining, and to try and push against this particular tide now seems futile. The focus must be on harnessing technology to deliver innovative new approaches to overcome the challenges that will face a cashless society – tackling the key questions that need to be asked head-on. This doesn’t mean we are starting from a standing start though, as it is possible to adapt or accelerate the adoption of proven technology to help solve some of these challenges. For example, distributed ledger technology has applications for both central-bank-controlled digital currencies and identity verification to enable the unbanked to more easily access bank accounts.
Each of the major players, both new and old, in the banking sector will have their own role to play but one thing is for sure - the next 12 months will be crucial as the sector looks for new ways to deal with these emerging problems.
The drive to access the digital economy during the pandemic has been behind much of the disruption in payments this year. COVID-19 has pushed the industry to think fast and contactless payments have emerged as a lifeline for businesses and consumers. Interestingly, a lot of the innovation that is taking centre stage leverages existing technologies, but in new ways to tackle new problems. Most notably, the QR code saw a revival and has become an increasingly popular way of paying for goods and services.
Crucial to the success of the QR code payment is the fact that simply, it’s a technology that is accessible to anyone with a smartphone in their pocket. And this signals a much bigger trend we’ll continue to see during the pandemic and beyond - we don’t need to reinvent the wheel to create disruptive payment solutions. Instead, the most exciting innovations will leverage technologies that are within reach of consumers and businesses. This will be the key to seeing widespread penetration of new payment experiences.
Opening up the digital economy with the smartphone
While much of the contactless payment drive has focused on the ease of access for consumers, it’s not been such an easy ride for businesses. Large swathes of micro and small businesses that were predominantly cash-based have had little choice but to accept contactless payments during the pandemic. But one of the challenges that come with this payment revolution is that contactless point-of-sale (POS) hardware can be costly and complex to maintain for businesses. This can present a financial burden for micro and small businesses that want to access the digital economy and accept contactless payments.
The launch of Visa’s Tap to Phone solution and the comeback of the QR code show what can happen when you keep innovation simple.
The launch of Visa’s Tap to Phone technology in October is a pivotal step towards breaking down this barrier for businesses. And its genius once more comes down to harnessing existing technologies – again, the smartphone - in innovative ways to open up access. Visa Tap to Phone transforms Android smartphones and tablets into contactless POS terminals so sellers can accept contactless payments from their customers.
By removing the need for costly POS hardware and complex maintenance, it is enabling smaller businesses to download an app and accept contactless card or mobile wallet payments within a matter of minutes. The proliferation of mobile means Tap to Phone is well within reach of businesses of all sizes – and the customers they serve. And this is key if we are to see widespread adoption of new payment experiences among businesses.
Visa’s Tap to Phone innovation signals the end of POS and the start of easy access to cashless payments for businesses.
Easing emerging markets into the cashless economy
What works for one market, might not necessarily work elsewhere. In emerging markets, the technology that is accessible to both consumers and businesses can vary and that can dictate what is possible. With many markets around the world still predominantly cash-based, there is also a greater challenge to ease consumers and businesses into cashless payments, in some cases, for the first time. Again, using technologies communities are familiar with and already comfortable using is an important first step to encourage adoption.
If new payment solutions are to see widespread uptick and success in these markets, understanding of local market behaviours will be crucial. It comes down to learning the unique challenges faced by the local community, as well as their attitudes towards cashless payments. Only then can you explore the tools accessible to them to create payment solutions that stick.
Let’s keep it simple to make real change
The launch of Visa’s Tap to Phone solution and the comeback of the QR code show what can happen when you keep innovation simple. These technologies are transforming payment experiences for consumers and business alike around the world. And it’s all powered by the humble smartphone – a device mostly all of us carry in our pocket.
By using the existing technologies around us, we can expect to see increased penetration of new payment solutions. It might have taken the pandemic for some consumers and small businesses to make the leap to contactless payments, but we can expect to see this shift in behaviour take hold, even as we revert back to normal. We’re only seeing the start of the contactless revolution. The payment solutions that are accessible to all will have the power to scale with ease and will see the biggest success. That’s where the real innovation lies.
German payments fintech Wirecard, which collapsed following a fraud scandal earlier this year, will see a significant portion of its remaining assets purchased by Madrid-based Banco Santander.
Wirecard’s insolvency administrator Michael Jaffe said on Monday that Santander “will acquire the technology platform of the payment service provider in Europe as well as all highly specialised technological assets”. The deal marks the conclusion for the dissolution of Wirecard “despite unfavourable conditions”, Jaffe added.
In a separate statement, Santander said that it would acquire technological assets from Wirecard’s merchant payments business as part of plans to accelerate the bank’s growth in Europe. A source familiar with the deal told Germany’s Süddeutsche Zeitung that Santander had agreed to pay around €100 million for these assets.
Around 500 Wirecard employees who manage the technology acquired by Santander will join the bank’s global merchant services team, but remain in their current locations, according to the Santander statement. No Wirecard companies were involved in the acquisition and Santander will not assume any legal liability relating to the company or its past actions.
Wirecard was a rising star in Europe’s fintech scene until June this year, when it emerged that €1.9 billion of customer deposits could not be found in the company’s accounts. The resulting fraud scandal led to the arrest of former Wirecard CEO Markus Braun and a warrant being issued for the arrest of COO Jan Marsalek. The company filed for insolvency in August.
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The scandal was an embarrassment for German financial regulator BaFn, and Jan Marsalek remains at large despite an ongoing Interpol search.
Investor processes are still underway for the sale of Wirecard’s other subsidiaries in Asia, Turkey and South Africa, Jaffe said. The sale of assets from subsidiaries in North America, Brazil and Romania has already been included, with results expected in the coming weeks.
Simon De Broise, Senior Associate at Collyer Bristow, examines the likely impact of the acquisition on the two companies and the financial sector as a whole.
The UK Competition and Markets Authority recently cleared the global card network Visa’s acquisition of Plaid, a US-based fintech, whose primary business is to act as an ‘aggregator’ in the payments sector. The deal, first announced in January of this year, is another interesting tie-up between a fintech and one of the established card networks, and the jury is out on whether this move will help or hinder the open banking movement. The acquisition comes at a somewhat difficult time for Visa, as we recently learned that it is being investigated by the European Commission after complaints of anti-competitive behaviour from e-money providers.
Plaid’s aggregator business provides third-party apps and financial institutions with secure access to consumers’ bank accounts, either by means of the aggregator entering into Application Programming Interface (or API) agreements with the consumer’s bank or by managing the consumer’s banking login details directly (a method that banks are now clamping down on for obvious security reasons).
The benefits of this deal for Plaid are plain to see. The aggregator market is competitive and the issuing banks (i.e. those ultimately sending payments from consumers’ accounts) are in a strong position to decide how and when, and with whom, they do business. For instance, the ‘scraping’ of consumers’ online banking details by aggregators for use with other institutions is increasingly considered by banks to be unnecessarily risky from a data security point of view. This means aggregators entering into an API agreement, which are notoriously difficult for aggregators to negotiate, and so the tie up with Visa is likely to put Plaid in a much stronger negotiating position when it comes to doing business with the large retail banks.
The aggregator market is competitive and the issuing banks (i.e. those ultimately sending payments from consumers’ accounts) are in a strong position to decide how and when, and with whom, they do business.
How the deal benefits Visa is more difficult to see. This is certainly not the first time that Visa has made a relatively large investment in a fintech company – it took a stake in the hugely successful Klarna in 2017 - but, in the scheme of Visa’s existing customer base and market share, the purchase of Plaid seems unlikely to have a big impact on the business. One view is that Visa is positioning itself for the greater adoption of ‘open banking’ (the idea that consumers and SMEs allow financial institutions access to some, or all, of their banking data, which in turn provides them with more advantageous terms on certain products and services). As noted above, this would certainly boost Plaid’s power in the market, in particular when dealing with retail banks, and some suggest that this could lead to a more standardised approach to agreeing APIs, thereby making it easier for other participants also and facilitating the development of open banking more generally.
Another view is that the acquisition has little to do with facilitating open banking for all, but rather that Visa is attempting to control the development of open banking in a way that suits its strategic goal of becoming the ‘network of networks’. The argument goes that the purchase of Plaid simply provides Visa with a further avenue through which to channel its existing business - which is to earn revenue from payment transactions. Precisely how it might do this is not yet clear, but it is quite possible that Visa could introduce a revenue raising measure that is something similar to the interchange fees that are currently levied on card payments.
The European Commission’s investigation into Visa may or may not impact on its strategy for Plaid, but, in any event, how Visa develops it aggregator business will be watched closely in the payments sector. Banks, whilst still in a relatively strong position to dictate business terms, will be conscious that the game has changed somewhat given the scale that Visa can now apply to Plaid’s business operations. Others in the sector, fellow aggregators in particular, will hope that the direction of travel will eventually provide them easier access to banking data and, with it, further opportunities in the open banking market.
Sweden-based payment and shopping service Klarna has completed its latest equity funding round, raising $650 million and achieving a valuation of $10.65 billion – cementing it as the highest-valued private fintech company in Europe.
The funding round was led by Silver Lake Partners, Singapore’s sovereign wealth fund GIC, and funds managed by HMI Capital and BlackRock. Other current investors include Dragoneer, Bestseller, Sequoia Capital and Commonwealth Bank of Australia.
Klarna has announced its intention to use the funding to invest in its shopping service and expand its global presence, singling out the US as an opportunity for growth. The company already has more than 9 million customers in the US, and 90 million worldwide.
Founded in 2005, Klarna offers an app-based service allowing users to shop online and pay in interest-free instalments while Klarna pays the seller. It competes with other high-profile fintechs including Revolut and Checkout.
Klarna co-founder and CEO Sebastian Siemiatkowski said in the deal announcement that the company was at “a true inflection point in both retail and finance.”
“The shift to online retail is now truly supercharged and there is a very tangible change in the behaviour of consumers who are now actively seeking services which offer convenience, flexibility and control in how they pay and an overall superior shopping experience,” he said.
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Silver Lake heads Egon Durban and Jonathan Durham hailed Klarna’s business model in a joint statement. “Klarna is one of the most disruptive and promising fintech companies in the world, redefining the eCommerce experience for millions of consumers and global retailers, just as eCommerce growth is accelerating worldwide and rapidly shifting to mobile,” they said.
Klarna’s last funding round was completed in August 2019, raising $460 million and earning the company a $5.5 billion valuation. The company has surged in strength during 2020, as Siemiatkowski claimed in August that the value of transactions processed through its platform increased by 44% through the first six months of the year.
Citigroup Inc. has asked a federal court to order Brigade Capital Management LP to return a sum of $176 million that the New York-based bank wired to its accounts in a clerical error.
On Wednesday, loan operations staff at Citigroup mistakenly transferred $900 million to creditors of struggling cosmetics company Revlon Inc., a figure 100 times the size of the interest payments the bank had intended to make.
Citigroup stated that it had intended to send just $1.5 million to Brigade to cover interest on its loan of $174.7 million to Revlon, but instead sent $176.2 million.
After discovering its mistake, the bank “promptly asked the recipients to return its money,” according to Citigroup’s filing to the Southern District of New York Court. Some returned the erroneous payments, while others – including Brigade – did not immediately return the money, “despite crystal-clear evidence that the payments were made in error.”
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Citigroup also noted in the suit that the money transferred was its own, not Revlon’s, and therefore should not be considered a repayment of the company’s outstanding loan.
Brigade did not immediately respond to a request for comment by the BBC, and Citigroup declined to comment further.
The special purpose acquisition company also listed shared upon completion of the transaction, the resulting company will continue to operate as Paya. It will be listed using its new symbol PAYA on NASDAQ. The combined company, Paya, now has an implied enterprise value of roughly $1.3 billion as a result of the transaction.
Paya CEO Jeff Hack tweeted that the company is excited about the new partnership and hopes it would accelerate their journey of becoming a public company. He also thanked the company’s existing majority equity holder, GTCR for their continued support and investment.
He added that Paya has an impressive track record of “creating differentiated value” for its software integration partners along with their end customers. Hack also expressed his vision for the future of Paya as a publicly traded company, saying that they will continue investing in product innovation, while also focusing on providing their software partners with excellent support. He added that they company will continue to work towards having access to the required capital for more strategic acquisitions.
Paya management team to continue handling growth strategy
The current management team of Paya, led by CEO Jeff Hack, will continue to be in charge of handling and executing growth strategy of the combined company. GTCR, a leading private equity firm, will continue to be the largest stockholder of the company.
GTCR is no new name in the fintech industry. In fact, it is a long-time investor in the industry known for its successful support of fast-growing finance and payments public companies such as Syniverse, VeriFone, and Transaction Network Services.
The current management team of Paya, led by CEO Jeff Hack, will continue to be in charge of handling and executing growth strategy of the combined company.
Commenting on the merger, Managing Director of GTCR, Collin Roche said that the agreement between Fin Tech III and Paya shows the effectiveness of their Leaders Strategy™ approach and its ability to transform various businesses that belong to industries that GTCR knows as well as the payments industry.
They also expressed their excitement to provide continued support to Paya in "this next chapter of growth," adding that the management team has made calculated investments in technology and talent to build a unique, effective, and scalable integrated payments platform in attractive end markets.
Paya shows a hopeful future in trading
Meanwhile, Paya is no newcomer either. It already has more than 100,000 customers and processes a total of more than $30 billion. It can even deliver vertically-tailored payments solutions to its business customers through Paya Connect, an ACH platform and proprietary card. Paya partners with well-known software providers to deliver these solutions to their business customers, many of which are in markets like healthcare, education, non-profit and faith-based, B2B goods and services, and more.
One of Paya's major appeals is that it boasts a seasoned management team with years of industry experience. The team, led by CEO Jeff Hack, has a combined experience of more than 100 years in the payments industry and they have worked with major companies such as PayPal, JPMorgan Chase, Vantiv, and First Data.
Additonally, Paya also has an attractive financial profile. Its impressive KPIs have set industry standards, and includes an average ticket of more than $200. Besides, the company has a proven track record of high cash flow generation supported by a strong operating leverage and historical growth.
Looking at these impressive highlights, Paya shows a promising future in trading as a public traded company.
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Implications of the transaction
Apart from the implied enterprise value of approximately $1.3 billion for the combined company, the transaction has several other implications. Fin Tech III’s cash in trust will find the cash component of the consideration, along with a private placement from a number of organizations.
The balance of the consideration will include shares of common stock in the combined company. Suppose stock price targets – as specified in the definitive merger agreement – are met. In that case, it is likely that current equity holders in Paya will receive an earnout of additional shares of common stock. By rolling over a large amount of equity into the combined company, the equity holders, along with the management team and GTCR, will continue to be the largest stock holders.
The merger is expected to be completed in the fourth quarter of this year. Approvals from FinTech III stockholder as well as regulatory bodies are still pending as of now.
This transaction is likely to have a significant impact in the fintech trading market. While trading, it is important for investors to use only trusted and reliable trading platforms so they have access to reliable knowledge and resources.
Sources:
https://www.finextra.com/pressarticle/83575/paya-acquired-by-fintech-iii
https://www.businesswire.com/news/home/20200803005351/en/Paya-FinTech-III-Announce-Merger-Agreement
At the beginning of the pandemic, touch-free payments gained international traction across the world in response to changing consumer behaviour at the checkout. Previously, consumers were happy to punch in a PIN, but they are now familiar with more convenient and safer touch-free methods, such as contactless payment cards – and they’re not likely to let them go.
Across Europe, high-street stores have rapidly shifted to contactless payments, often refusing to accept cash. Meanwhile in the USA, contactless payments have rocketed since the pandemic after a slow initial adoption of the service, given that US banks only adopted contactless cards in 2019. That’s compared to 2007 in the UK. According to Visa, overall contactless usage in the USA has grown 150% year-on-year as of May 2020.
Even mega-retailer, Walmart, has recently introduced contactless options for in-store shopping and delivery to protect its customers during the pandemic - showing there is a growing demand for a touch-free and convenient way to pay across the world. This has raised awareness of touch-free payments among consumers looking to reduce contact-based interactions and time spent at the checkout during the pandemic.
The rise of mobile payments
Mobile payments are also growing, again showing the desire for touch-free authentication among consumers. According to Forbes, the US mobile payment market – currently only sixth in the world – has increased 41% and is worth more than $98 billion.
To respond to the growth of touch-free payments among small vendors, PayPal has launched a new QR code-based payment app that allows market stall holders or businesses without a PoS machine to accept payment through a code. This means even the smallest of merchants, from small stores and farmers’ markets to craft sales, can now go cash-free and use touch-free payments for everything.
Meanwhile, China has long been using QR code-based apps, such as WeChat Pay from tech giant TenCent and AliPay from Alibaba. The apps are so widely used that street vendors display QR codes for payments and together the two FinTech giants control about 90% of China's digital payments market.
Card remains the number one preference
At the same time, payment cards are still consumers preferred way to pay. Of course, we only need to look to Apple and Google, who recently have launched physical payment cards despite running mobile payment apps for further proof that payment cards are far from dead.
According to Forbes, the US mobile payment market – currently only sixth in the world – has increased 41% and is worth more than $98 billion.
So why aren’t cards on their way out, given the growth of mobile payments?
We know that consumers still look to payment cards for security and a sense of familiarity while shopping. According to IDEX Biometrics’ research carried out in the UK, only 3% of consumers choose to use mobile payments, while nearly two-thirds (65%) state that carrying their debit card provides a sense of security. And when it comes to touch-free payments, only biometric payment cards can provide the most secure level of validation with an easy digital experience for shoppers.
Despite the popularity of WeChat as a payment app, China’s biggest card provider China UnionPay has recognised that its customers aren’t ready to give up on physical payment cards either. China UnionPay has recently certified the first biometric fingerprint card technology in the country as they look to the use of biometric technology in cards to provide an extra layer of security, with added convenience and hygiene during a payment transaction.
Secure and touch-free card payments for all
A fingerprint biometric card allows the user to authenticate their ID by touching their finger to the card’s sensor while holding it over the contactless card machine. Therefore, the shopper only has to hold their own card over the PoS system, making the entire transaction process free of public PIN pads or checkout counters. Not only does touch-free payment technology provide consumers with the convenience of contactless or mobile payments, but far greater security, as the card is personally tied to the owner. Furthermore, biometric fingerprint payment cards provide end-to-end encryption – securing the user’s card and data.
The process of paying with touch-free biometric payment cards is no different to how consumers currently use contactless payment cards. What’s more, biometrics are widely used in society and already firmly incorporated into our everyday lives. Thanks to unlocking our phones and authenticating payment apps, we are increasingly using our fingerprint to verify our identity. Now that consumers are familiar with the technology, it is only a matter of time until biometric identification in payment cards will become essential to help consumers navigate the shopping and transaction process safely, speedily and securely.
As our economy gradually reopens and consumers find their ‘new normal’, financial services have a responsibility to protect consumers during the transaction process to encourage greater security and hygiene at any point of sales. In stores, on transport systems – even eventually in stadiums – a fingerprint biometric payment card will provide touch-free payment authentication for all.
Though the threat of collapse has been looming over Virgin Atlantic for months, the airline is now looking to finalise a £1.2 billion rescue package from a trio of credit card payment processing companies, according to reports.
Due to the COVID-19 pandemic and its debilitating impact on air travel, Virgin Atlantic has been seeking more than £500 million in debt and equity funding for several months.
The company has already secured the support of both American Express and the Lloyds Bank-owned Cardnet and continues to negotiate with First Data. In return for its backing, First Data has reportedly demanded that it be allowed to hold onto all future bookings revenue as “protection” should Virgin Atlantic collapse.
As part of the deal, Virgin CEO Sir Richard Branson will contribute £200 million in funds from Virgin Group, which was raised through the sale of a £396 million stake in space tourism company Virgin Galactic during May. US hedge fund Davidson Kempner Capital Management will inject a further £200 million against Virgin’s assets, and a further £400 million will be raised through the deferral of fees.
Speaking on the sought-after deal earlier this month, a Virgin spokesperson referred to the arrangement as a “comprehensive, solvent recapitalisation of the airline”.
Virgin Atlantic employs Should the deal be agreed upon, thousands of jobs in the UK and overseas may be saved.
According to Sky, the final outline of the agreement will be announced by Virgin next week.
Chris Brooks, CFO at Modulr, offers Finance Monthly their perspective on how businesses can turn payments to their advantage in fraught times.
As the Chief Financial Officer at Modulr and someone with over 15 years’ experience in the finance industry, I’ve witnessed a great deal of change in the way businesses manage their payments. But to date, no period has been as transformative as the one we’re entering right now.
For decades, small businesses have been let down by their payment processes. That’s because the majority rely on outdated, manual and inefficient payment services from traditional banks with legacy IT systems. The problem is compounded by the inefficiency of banks when disbursing loans, which are often critical to getting small businesses off the ground. In fact, some small business owners claim to have been left on the verge of collapse after the amount of time taken to process their bounce-back loans.
Sometimes it takes a crisis to shake businesses out of apathy. COVID-19 has shone a light on payment inefficiencies and highlighted the urgency of digitalisation.
Fortunately, fintechs are flourishing across the UK and providing new technologies that could transform the payment space. Here are three areas where payments innovation could help businesses become more resilient, future-proof and competitive.
Sometimes it takes a crisis to shake businesses out of apathy.
1. Maintaining security and business continuity
When COVID-19 led to sudden and widespread remote working, it starkly exposed the hidden inefficiencies in existing processes. Companies that were stuck in the old, manual way of managing payments suffered major disruption. While those that were ahead of the digitalisation curve managed to maintain business continuity.
In the accountancy space, many practices had already embraced cloud computing and payments automation. They were able to make the transition to remote working seamlessly – accessing client workflows from home and managing payments through centralised portals like Sage Salary and Supplier Payments, just as they would in the office.
But we’ve also heard from accountants who, prior to the crisis, had still been in the habit of driving to their clients’ offices and picking up folders of paperwork. Many more were doing things digitally – thanks in part to Making Tax Digital - but not in a completely centralised way, which required the ad-hoc sharing of files across insecure methods like email or third-party file transfer systems.
These workarounds are highly problematic in a time of crisis. Fraudsters will actively seek to exploit new vulnerabilities. According to UK Finance, Authorised Push Payment (APP) fraud cost UK businesses £138.7m in 2019. Only £33.8m was reimbursed. And since COVID-19, we’ve seen the emergence of entirely new scams and techniques.
Fortunately, new payment technologies such as Confirmation of Payee (CoP) are being introduced to help businesses safeguard funds. With CoP, payment service providers (PSPs) will be able to check if the name of the individual or organisation entered by the payer matches the identifying information of the account paid. This can prevent consumers and businesses from being tricked into pushing funds to a fraudster’s account.
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2. Reducing operational costs
As businesses seek to recover from the impact of COVID-19 and navigate this tough economic environment, finding ways to maximise efficiency and reduce operational costs will be critical. This is especially true for businesses that have furloughed employees and are forced to work with leaner teams.
Manual payment processes are a heavy burden for finance teams in today’s fast-paced, challenging environment. They waste time, incur errors and result in significant administrative costs. That’s why fintechs are developing sophisticated solutions that allow businesses to automate all aspects of the payments workflow.
A good example is payment splitting. This is when a business receives an incoming payment, divides it based on a calculated percentage, and sends two payments out to end beneficiaries. When done manually, it’s a time-consuming process. But automation offers a powerful solution, allowing payments to be split automatically based on customisable rules.
Imagine a property management business that’s collecting rent from tenants. Rent collections are typically complex and unwieldy, as payments are sent to the estate agent’s bank account and then manually reconciled and split before sending funds to the landlord. But with automated payment splitting, rules are set to automate the amount collected and sent on – drastically cutting down admin time and reducing operational costs.
That’s just one example of the power of automation. It can have a significant impact on all aspects of payments – receivables, payables, collections and disbursement. Not only does this reduce operational costs, it can help businesses to maintain payments continuity when employees are forced to work away from the office.
3. Improving cashflow management
Cashflow is the lifeblood of any business, and right now it’s even more vital for survival.
Faster Payments is a relatively new scheme compared to traditional methods like Bacs, but it’s already having an immense impact on UK commerce and business uptake is likely to accelerate. Initially designed to speed up the payment process for retailers, Faster Payments are meant to clear in less than 2 hours, though this is often far lower; at Modulr we’ve reduced it to seconds. This is a major improvement on Bacs payments, which can take up to three days to clear, meaning funds are held in limbo for that time period.
Cashflow is the lifeblood of any business, and right now it’s even more vital for survival.
The impact of using Faster Payments can be far-reaching. By allowing just-in-time payments and the ability for a business to hold onto cash right down to the very second, Faster Payments enables greater control, visibility and forecasting of cashflow throughout the year. Finance teams can more accurately predict what cash they will have and when, and plan to pay invoices at strategic times. This will be increasingly critical as businesses strive to recover from the impact of COVID-19.
To summarise; technology is going to continue disrupting all areas of business. And the same goes for the payments industry. New solutions being developed by fintechs can help companies to improve cashflow management, significantly reduce operational costs and protect their money.
With such a challenging and uncertain economic environment in the months ahead, there’s never been a bigger incentive for change. Companies are faced with a critical choice – to keep relying on slow, outdated payment methods, or overhaul everything and find better ways of moving and accepting money. By choosing the latter, businesses can boost their resilience and weather future storms. And those that move first might that find payments become their competitive advantage.
Last week, news broke that EY auditors refused to sign off on Wirecard’s accounts for 2019, citing a missing sum of €1.9 billion that documents purported to be held in two bank accounts in the Philippines. CEO Markus Braun claimed that the company was the victim of “the victim in a substantial case of fraud,” and COO Jan Marsalek was suspended, later to be terminated. Braun then resigned from the company on Friday.
Braun turned himself over to Munich police on Monday evening after a warrant for his arrest was issued. He is suspected of recording false transactions to artificially inflate Wirecard’s sales, increasing its value in the eyes of customers and investors. Philippine authorities are also investigating the whereabouts of Marsalek as part of a broader probe into the company.
On Thursday, the company said in a statement that it would apply to the Munich district court to open insolvency proceedings as a result of its “impending insolvency and over-indebtedness.”
The company’s shares were suspended from the Frankfurt Stock Exchange before the announcement was released.
Wirecard was long regarded as a star in the German fintech scene – a DAX 30 company which was once valued at €24 billion. That value has plummeted through the floor as the week of revelations continued, though it saw a brief 27% uptick on Tuesday following the news of Braun’s arrest.
Trading on Thursday saw Wirecard’s value drop by a further 76% once news of its insolvency broke.
