In financial services, particularly within payments, security has been a double-edged sword. It is a number one priority to ensure compliance, build robust services and maintain trust among customers. But it has also been a blocker, an excuse to drag one’s feet when it comes to innovation. Sanat Rao, Chief Business Officer & Global Head at Infosys Finacle, writes
When Covid-19 became a global crisis and unexpectedly caused businesses to turn on a sixpence and rapidly think about new ways to enable customers to make payments, it became clear security wasn’t as much of a bottleneck as we thought.
So, were we hiding behind security the whole time? In some ways, banks were already being encouraged or even required by legislation such as PSD2 to innovate with regards to their payments offerings. And GDPR took things a step further to ensure banks were taking precautions to protect their customers’ data. But the need for real-time payments still called into question whether legacy infrastructure, that many banks are saddled with, could be efficient while still being secure.
In the post PSD2 and GDPR era, financial service institutions have moved to offer new services for an increasingly digitally focused customer base. However, security was a niggling concern that customers were often reminded of. With customer trust in banking institutions not where it needs to be, it is of course correct that banks do focus on shoring up their systems to be secure and watertight. But what if it were possible to have your cake and eat it – i.e. speed up innovation while paying due diligence to security?
The Covid-19 crisis has shown that it is possible. Take something as simple as contactless payments. Emergency measures were put into place by the payments industry during the Covid-19 outbreak to enable contactless payments of up to £45. According to UK Finance, the move was made to ‘balance security, convenience and consumer demand’. And although the move was already in consideration before the virus hit, the industry made it loud and clear that when the demand is there, moves can be made to meet that demand.
By increasing the limit, the industry has helped more people to embrace the future of payments while maintaining the very issue of security that still plays heavy in the minds of businesses and consumers.
Elsewhere in retail, we’ll see bigger implementations of stores exemplified by the likes of Amazon Go – where shoppers can simply walk out of a store without paying at a checkout. Here, the debate switches from the long-discussed security debate, to one where we talk about the capability of the technology and the readiness of individual stores to roll out these radically redesigned shop floors.
Democratising instant payments
Increased non-cash payments will also shake things up for SMEs. We’re going to see new business models coming out of the pandemic that will reflect the growing number of digital transactions and support the small businesses who need the most support.
For instance, small firms don’t have the capacity to collect payments instantly when a payment is made to them either through a retail transaction or from a supplier. Instant payments will be required for businesses of all sizes, not just the big ones and to make this happen, SMEs need access to payment initiation services. These types of payment hubs, which are already accessible to large corporates, make use of data digitalisation of non-cash payments. And having the ability to receive funds quickly through payment initiation services will be a vital lifeline for small businesses going forward.
Blockchain presents opportunities
One of the potential big winners in this current climate is blockchain because it sits at the confluence of security, convenience and cost. We’re already seeing pilots of blockchain being used for remittances and trade transactions and over the coming months, that will accelerate. It has the right ingredients. It’s eliminating physical touch, it uses automation in both the initiation and settlement of transactions, and it is secure for all parties in the blockchain infrastructure. The fact that banks can roll this out cost effectively too is a huge boost for the technology.
We’re already seeing blockchain used in domestic and international payments, and trade finance. We’ll see it being used more in higher value business to business payments in the near future. Its wider use will very much depend on whether banks decide to progress from smaller scale trials and pilots to full scale production. The point is this, however. Exceptional needs and extenuating circumstances enable rapid innovation whereby the discussion centres on the possibilities, not just the limitations linked to security.
Expecting industry disruption
The Covid crisis has also woken people up to the fact that the frontrunners within payments and banking won’t be the ones doing analogue better, it will be a race for digital innovation. And although many column inches go to the sprightly fintech startups, the established banks with the access to capital and added impetus to compete with their younger counterparts, have clout too.
The current climate has taught us that when there’s a real need to innovate, the industry can and does innovate. And as we’re in a climate that is unlike any we’ve ever seen, there’s no reason to expect new solutions that are also unprecedented. Covid-19 has established, or at least brought attention to, a litany of needs that have to be met. There’s a lot at stake so the winds of change will come as result of seeing how the industry can solve these problems. The appetite for these innovative solutions is growing and we’re seeing new ways to address the concerns that have stymied us for years.