Simply put, consumers have become accustomed to being able to buy anything instantly whenever they want – from booking taxis and grocery deliveries to flights and haircuts. For businesses in general and treasurers specifically, this has huge implications for how you should think about (and design for) customer journeys and payments, and the features and capabilities you need to foster in order to thrive:

• Ubiquity: the digital revolution was yesterday – and requires a strategy for a digital world, not just a “digital strategy”. Consumers expect improvements in one part of their lives to be repeated everywhere and obscurity awaits those who move too slowly. Success therefore means being synced to consumers’ ‘always on’ lives.
• Invisibility: some payment models have too much friction – for instance, many still need to create an account to “continue shopping” or checkout. Great buyer experiences separate the essential from the optional and simplify (or better, remove) interruptions caused by payments, allowing shoppers to focus on and enjoy the buying experience. In-App payments are a great example of the ubiquity and invisibility described here.
• Value my time: there is a market for those who are price sensitive, and which flexes in size, based on the economic conditions of the day. But when you compete on price, by definition, you’re not competing on loyalty. Build systems to save users time. “Digital seconds” are longer than offline seconds and taking the time to build fun experiences creates a different – but very potent – form of loyalty.
• Know me, help me: Artificial Intelligence (AI) and predictive technologies already help successful channel owners differentiate their propositions and show users they a) know you and b) know what you like. This is evolving into an alternative version of loyalty, where purchases become “people like you” prompts based on personal needs and preferences, without having to ask.

In a nutshell, payments are increasingly becoming “contextual” and in many cases are moving to the background. Customers expect simple, safe, speedy, smart, and frictionless payments, and if the industry continues on its current trajectory, payments should (and will eventually become) something they don’t really give much thought to.

Regulators are driving innovation and competition while at the same time focusing on protecting customers, improving financial inclusion, and ensuring the security and resilience of payments systems. Initiatives like the UK’s Open Banking and Open Finance work, driven by the CMA and the European Union’s Second Payment Services Directive (PSD2), are designed to harmonise consumer protection rights and create a more integrated European payments ecosystem.

"It’s crucial you ensure payment partners invest in open infrastructure that complies with the latest standards and frameworks."

They have also accelerated the growth of API-driven services, galvanised co-opetition among fintechs, banks and businesses (think e-commerce giants like Amazon and Ant Group) and bolstered Open Banking adoption. More than 5 million people in the UK now use Open Banking-based services or platforms to move and manage their money, with half a million more being added every six months. That trajectory of growth is exponential: over 3.5 million payments using Open Banking were made in January 2022 alone, compared with 5 million in all of 2020.

Regulators and industry are also starting to recognise the urgency of improving speed, cost, transparency, and access to cross border payments. The G20, working with central banks and regulators around that world, has come up with a Roadmap for Enhancing Cross-border Payments (G20 Roadmap). In the UK, the Bank of England (BoE) is consulting on innovative services that may be developed following the introduction of the renewed Real-Time Gross Settlement (RTGS) system. There are also several pilots to link up Instant Payment systems globally (EBA Swift Clearing House) as well as several competitive and collaborative industry initiatives using digital currencies as a basis to send and settle cross-border payments.

All of this is to say that it’s crucial you ensure payment partners invest in open infrastructure that complies with the latest standards and frameworks including ISO 20022 and RTS, and aligns to new central infrastructure requirements which are transforming the payments landscape in the UK, Europe, and globally: TARGET2, SEPA, and Pay.UK’s New Payments Architecture (NPA).

Given the direction of travel, how do we expect the future of payments to evolve?

Contextual payments, meet the Metaverse: consider the prospect of a fully digital shopping experience. But you aren’t sat on your laptop choosing items from a website. Instead, using a virtual reality headset, you’re cruising through aisles alongside your very own (personalised) shopping assistant, trying things on at your leisure. And – yes – you get to skip the queue at checkout. Or what about a digital concert you attend with several of your friends physically sat in different cities? You can buy band merch, order food that simultaneously (and most importantly, physically) gets delivered, and perhaps even ‘meet’ the band backstage. The Metaverse, virtual reality and other hybrid immersive environments will unlock new social and commercial experiences that many haven’t yet fully grasped and the implications for the payments industry seem obvious: the acceleration of payments through vastly more interconnected services and platforms.

Cash is on the decline and may be replaced by Central Bank Digital Currencies (CBDC): the use of cash as a form of payment is declining rapidly as digital payments see exponential growth – Britons now tap their cards, smartphones, and smartwatches 415 times a second on average. Against that backdrop, we’ve seen discussions about the role of CBDCs – digital currency issued by a central bank alongside cash and bank deposits – intensify. Where they are in use, they’re typically designed help achieve unique domestic objectives. In China, CBDCs offer the opportunity to expand access to a wider set of financial services and improve competition. In the Bahamas, it negates the need to transport cash to dozens of islands. In Sweden, the Riksbanken, the country’s central bank, is motivated by a belief that the answer to a decline in notes and coins cannot be a state exit from the cash market. The Bank of England is engaging with a wide group of stakeholders on whether or not to issue a retail sterling CBDC.

A well-designed CBDC could have the potential to enhance financial stability and inclusion, support a resilient payment infrastructure, and enable financial authorities to better understand aggregate behaviour. But, whether the future of money lies in CBDCs or non-CBDCs that deliver similar benefits remains to be seen. Stablecoins, for example, are a form of digital currency (often blockchain-based) that can be issued by private companies and pegged to one or a basket of central bank-issued currencies. What is clear is that the role of money, how best to manage it, and the benefits it should deliver are all up for debate and continuously evolve. Whatever money (and payments) evolves into next should be motivated by not just the needs of financial institutions, Fintechs, and regulators, but all users of money – civil society groups, merchants, charities, businesses, and of course, consumers.

To learn more about how the latest financial and technology innovations could affect your treasury, visit the Treasury Tomorrow campaign page, speak with your NatWest representative, or contact us here.