The Future of Payments Review was published yesterday and has much to commend it. In a relatively short space of time-just four months-the review canvassed expert views across the sector widely.
There is little within the report to take issue with. One thing does jump out but is pretty par for the course these days: consumer choice is largely ignored as a concept. There is an assumption that consumers should just accept that cash is bad and digital is good.
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It is made clear up front in the report that the question of access to cash is not covered because “we did not want to duplicate the work already underway on access to cash.”
The report assumes that all should just accept that open banking is good and to be encouraged as if any counter considerations are an anathema.
It ignores the simple fact that millions of consumers of a certain age will not touch open banking with a bargepole.
What the report does not cover
Likewise, the review largely ignores cryptoassets, large corporate payments, Buy Now Pay Later and international payments on the grounds that these topics are covered elsewhere. Fair enough, but any review of payments cannot really fail to take these topics into account.
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By GlobalDataOne or two over-excited industry observers who have been round the block many times, should perhaps know better than to build up their hopes for radical change any time soon.
The report author, Joe Garner, has certainly been around the block and is one of the industry’s good guys. The 108 pages gets off to a good start when he notes: “If capital and liquidity are the heart and lungs of the financial ecosystem, payments are the central nervous system. A world class payments ecosystem is essential – not just to the economy – but to the lives of every member of our society.”
The fintech sector, in particular, is going to welcome any independent report that encourages collaboration with the banks. A lot of the fintech sector does however remain in deep financial trouble with the ending of easy access to capital and no signs of profitability in sight. Any additional collaboration had better have the protection of consumers at the top of the agenda.
This government’s days are numbered
As for observers placing any optimism on the UK government’s apparent interest in the future of payments, some caution is necessary. This is not a government in which to place much long-term faith. This is the same government that said it would act on concerns over the growth of BNPL and has proceeded to do precisely, well very little.
The government faces a near certain landslide defeat in the next year or so. In 2024, the governing party will be distracted by the necessity of trying to ensure it can form a credible opposition when it is in all likelihood, hammered at the polls. Having backed that party at the last election and been appalled by much of its performance, there will be no sympathy from this column when it is defeated.
The payments sector would be well advised to ensure that it has a good working relationship with the current opposition, so it can hit the ground running when it comes to power.
As for the idea that the UK will be able to bypass the dominant card networks-there is a definite need for a calm down. We have been here before.
Some 99% of all UK debit and credit card payments run on Mastercard and Visa. The fintech payments such as BNPL and P2P mostly run on the Visa/Mastercard rails. The same with most fintech wallet payments.
Again, we come back to security, risk, fraud, chargebacks and regulation.
Visa and Mastercard: share price gains 18% and 22% YTD
Visa and Mastercard are going away any time soon. They are dominant for many reasons and will remain so. The Mastercard share price reacted calmly yesterday to the release of the report. In fact, the share price rose. Mastercard’s share price is ahead by 18% for the year to date.
Visa’s share price also rose. Visa is ahead by 22% for the year to date. The market was correct to react as it did. Remember, about 10 years ago as digital neobanks launched, the forecast from a widely quoted ‘futurist’ and author, that HSBC would not exist within a decade? That was a nonsense then and some of us said so. Wishing away the dominance of the card networks any time soon, is on a similar level. They may be weakened but only over time.
Any attack on the card networks will be enormous fun for the lobbyists. They are not to be under-estimated. As the doyen of payments analysts in Australia, Grant Halverson, CEO of McLean Roche observes in a note: “Let the lobbying begin.”
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