People often forget what it means to work within an ecosystem, especially in this age of social media algorithms that reward definitive statements and black and white thinking. Two conflicting events happened in my world last week. In fact, they happened on the same day.
Part of the UK’s 2023 Autumn Statement, the Future of Payments Review was published on November 22. On the same day, I had breakfast at Mastercard’s Innovation Lab in London to learn about, well, how Mastercard is innovating payments.
Commissioned by HM Treasury and led by former Nationwide CEO Joe Garner, the independent payments review provided several recommendations on the next steps for the UK to deliver a progressive retail payments ecosystem.
The primary recommendation is that the government develops a National Payments Vision and Strategy. The goal is to simplify the current landscape with a unified strategy to drive efficiency, modernisation and growth.
The four key areas of focus for the report were: open banking, fraud, digital customer experiences, and alignment of regulatory change initiatives.
Within open banking, a section on ‘Providing payments choice to retailers and merchants’ caused many in the industry to predict the beginning of the end of card scheme dominance in the UK.
“While the user experience, consumer protections and pace of innovation is thriving within the cards ecosystem, there is significant dissatisfaction amongst merchants across the UK at perceived high acceptance costs on card transactions. And while the merchant acceptance fees in the UK do not appear materially out of line with international comparisons, the UK stands out as the only country in Europe that doesn’t have a digital alternative to the card schemes.
“To ensure competition and greater merchant choice, the [Payment Systems Regulator] must continue the review into interchange pricing and the government must accelerate work to solve the consumer protection, user interface and commercial model gaps that are currently hindering open banking adoption.”
According to Charles Damen, chief product officer at Token.io, “…calling for a focus on open banking as the primary solution for providing a viable digital alternative to card schemes, the recommendations set forth in the UK’s Future of Payments Review will help the country capture a world leading position in retail payments”.
Not everyone in the fintech space was celebrating. Rafal Andzejevski, founder and CEO at PayAlly, says undermining Visa and Mastercard in the UK would create a vacuum for big tech and companies utilising emerging technology to dominate the payments landscape and destabilise a healthy ecosystem.
He warns the UK could face a payments landscape like China, where big tech firms monopolise the market, exploit consumer data, and exert significant influence.
All this was being discussed within the wider UK payments ecosystem while I was sitting with a bacon roll in a London office building, watching a video of a woman paying for petrol for her Mercedes-Benz.
Mastercard announced their partnership with the German car manufacturer to introduce embedded in-car payments at the point of sale earlier this month. To do this, Mercedes-Benz has integrated the Mastercard Secure Card on File for Commerce Platforms technology for online payments into its vehicles. Customers can use a fingerprint sensor in their car to make secure digital payments at more than 3600 service stations in Germany.
In addition to luxury car offerings, Mastercard also showcased several fintech start-ups who work with the card network. Those included Currensea, a UK-based direct debit travel card, and Sibstar, a debit card and app designed to help families who are supporting a loved one with dementia.
I asked the start-ups why they were so wedded to offering a specific ‘card’ when a lot of what they offer could be embedded in bank offerings via open banking. Most of the start-up founders weren’t ‘fintech nerds’ deep in the minutiae of payments infrastructure, industry initiatives and open banking adoption. They were just ordinary people who saw a problem — a problem that just so happened to fall into the ‘payments bucket’ — and went about solving it. And despite the growth of Apple and Google Pay and a billion people in China who are on WeChat and Alipay, for ordinary people in 2023, making a payment involves a card.
I’m not taking a side for or against cards or alternative digital payments. Less than 20 years ago, I would regularly visit an ATM to draw out money so I could go out and buy rounds at a pub or pick up a few groceries on the way home from work. Today, if someone hands me physical cash, I groan inwardly and think: ‘How do I get rid of this note?’
The way normal consumers exchange money for goods and services happens every day. It’s the most frequent touch point most people have with financial services and why payments remain the gateway drug to fintech.
Payments are evolving constantly, hence why Mastercard put their payments scheme in a car. But one thing I do know is true is the pace of change is rarely dictated by the regulator, or a merchant, or even big tech — it is dictated by the consumer.
Years ago, mobile phone manufacturers put cameras in their devices for people to take pictures of their signature for documents. It was the consumer that created ‘the selfie’ (in a mobile phone camera sense ;-) ).
My guess is the lifespan of cards as the centre of consumer payments will be determined by how long the people want to hold them in their wallets — digital and physical — and not how annoyed merchants get or how many strategic goals a government puts forth.
You can connect with Liz on LinkedIn, or follow her on Bluesky @lizlum.bsky.social.
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