2021 trends: What’s next for payments?
The ever-dynamic payments space gained further momentum in 2020. Nish Dharmaratne, Global Head of Product, provides an insider view on some of the key payments trends to watch in 2021.
The way consumers make payments and businesses receive them is changing rapidly.
In 2021, expect to see more take-up of smartphone wallets as corporates try to keep the customer in their value chain for longer, predicts Nish Dharmaratne, Global Head of Product, at Westpac Institutional Bank. Use of QR codes is also on the rise for an increasing number of payments, particularly for utility payments, because they are more convenient than entering credit card and other details. Corporates will also put more effort into improving the customer experience of payments, and banks will support them with more seamless end-to-end payment services, says Nish.
At the same time, the coronavirus pandemic has accelerated moves away from cash and over-55s have become rapid adopters of smart phone payments
In this Q+A, Nish Dharmaratne unpacks some of the latest trends and takes us behind the scenes to explore what to expect in payments in the coming year.
What are the big payments trends for 2021?
We will see more use of technologies such as QR codes and more use of the instant payment system, the New Payments Platform (NPP). But right now, the next big thing expected in Australia is digital wallets – apps that store users’ credit or debit card information or hold cash, allowing shoppers to pay with their smartphones.
Wallets are important if you want to keep the customer entirely within your value chain. For example, the Asian taxi company Grab has its own wallet. You put $50 into the wallet and you use it for taxis, and they give you special discounts or rebates. And, with whatever is left in that wallet, you can then walk into a food court and buy lunch at merchants that accepts GrabPay.
We have seen adopters of Alipay and GooglePay wallets, but there’s been nothing developed specifically for the Australian market considering the end to end value chain. I believe this is a key area to watch, because if you think about all of the food delivery companies – Menulog, Uber for example – they're going to expand and might have their own wallets in the future.
Behind the scenes, there’s also going to be in depth focus on the interoperability of the different payment rails – the underlying infrastructure that supports payments in Australia in multiple ways, including low value clearing and high value clearing systems.
We currently have multiple biller arrangements; such as Bill Pay options, low value credit payments, card payments and more recently with the NPP; a 24x7 payment option; then we have standard bulk payment options for companies through direct entry or direct debit services. All that is expected to be quite clearly moving towards consolidation – and this will drive down costs for clients and banks because they won’t have to maintain so many different infrastructure systems. In the end, a more convergent single payment option for the consumer and corporate alike that brings efficiency and optimal cost to operate.
There will also be more attention on the user experience or CX, not only by corporates servicing customers, but also by banks. And we want to be able to provide that solution in an end-to-end way, to help corporate clients provide a better experience for their customers. Banks will need to uplift the CX for end consumers of the corporates and combine both retail and wholesale experience into a single value chain.
What’s driving these trends?
A lot of the trends we see are in the end-consumer space. The end-consumer is willing to adopt new payment systems that make payments faster and more transparent.
In the last two to three years, we’ve seen the extreme development of 24x7 access, convenience and low-cost solutions, whether it’s a faster payment like an electronic payment, a wallet payment like a Google or Apple Wallet, or a complete instant API-centric solutions like Afterpay.
And that's impacting corporates and other institutions to adopt a different approach to the way in which they take payments. How do they make payments more integrated with their own ecosystem?
They can’t just ignore them. If you are a supplier of a product, for instance, you need to make popular payment methods available on your website – such as accepting PayPal or Apple Pay as readily as you would have accepted a cheque or a card payment – otherwise you are going to be left behind.
It's the same for banks. If they don’t help their customers enable the payment rails, they will have unhappy customers.
Why are QR codes on the rise?
Outside of Australia, markets have rapidly adopted the use of QR codes for payments.
QR codes allow shoppers to make payments with their smartphones, by scanning a QR code, the square-shaped pixelated barcodes that people have been using to scan into restaurants during the COVID-19 pandemic.
There are major benefits in having QR-based technology embedded into payments. It's very swift, accurate, has the ability to interconnect with many channels. It is enabling the devices that are at the front end – whether it's a mobile, laptop, iPad or whatever – to define the payment requirements very quickly and translate that to another mode of communication, whether it's an API communication, an instant message, or whether it's something that can be connected easily from one app to another.
The Australian payments market is about halfway there in terms of adopting QR codes. What we need to work towards is to establish some minimum standards amongst the payers and the recipients of the payment for what would be the structured approach to QR codes, because there are currently no national QR code standards. If we don’t have that, every provider is going to use their own methods of developing a QR solution and we will lose consistency.
But I think QR codes will gain in popularity in Australia. More recent trends on COVID tracking has made this a ’familiar’ feature for many Australians already.
As financial service providers, we are heading in that direction. If you think about a large utility company, for example, they still use a slip or a barcode that contains their biller details. I think if you use QR codes efficiently, you can technically formulate the QR code to be that information provider for the banks.
Who will use QR codes?
The biggest use case is for large biller organisations, utility or insurance providers and other basic service providers for households who need to collect and receive payments for services very quickly.
Logging into a website, choosing a credit card and inputting payment details is considered just too much effort nowadays. So that's why QR codes look set to be picked up by companies as a receivable solution.
Banks need to invest into QR technology primarily with that front-end in mind. If we don't think about how our customers want to use QR codes and we just generate our own payment QR code, that might not help.
Where do buy-now, pay-later services like Afterpay fit in the market?
Afterpay-like solutions have been rapidly adopted by the Australian market. Australia has a fairly young population and a growing medium-to-low-income earner group, although it’s not a large group. Together, these two groups are the sweet spot for Afterpay-type solutions.
It's really the student who's doing a casual job, juggling studies, wants to buy that luxury perfume and thinks, “Hey, I don't mind paying slowly and steadily as opposed to trying to consume that in my monthly budget”.
A couple of months ago Westpac announced Afterpay as the first partner on our new digital banking platform. It will allow Afterpay to provide Westpac transaction and savings accounts and other cashflow management tools to its 3.3 million customers in Australia from the second quarter of 2021.
What’s next for the New Payments Platform?
The next biggest change expected with the NPP is the Mandated Payment Service capability, which will provide a much more state-of-the-art technology and easier-to-manage direct debit service. Payments will be instant, and not batch-based like today’s direct debits.
If a customer schedules a gym membership payment every Monday morning, it will be paid on Monday morning and without fail it will go through. The customer’s account is debited instantly and, most importantly, the gym can be 100 per cent sure the money is in. For the corporate customer, it's the best receivable tool because money is guaranteed, as long as the account holder has available funds.
Corporates are expected to discover significant benefits of such a service. Mandated payment services will use APIs embedded into the banks own infrastructure, inside our technology ecosystem – this way we can provide alerts, confirmations and other value-added services. Noting the key benefit here is a fast and efficient receivable solution for the corporate that reaps the value of their sales.
The banking industry has worked tirelessly for the last few years and made significant investments to set up the new generation New Payments Platform. We’ve made it very easy for consumers to register for this service. For example, for Westpac consumers, there’s a very seamless process of getting registered for the PayID service.
Did the events of 2020 fast-track the end for cash and cheque use?
Cash and cheques have been declining and that trend sped up during the COVID-19 crisis. The use of ATMs fell sharply in early 2020. In April 2020 for instance, there were a little over 21 million withdrawals from cash machines across Australia, fewer than half the 47 million from the April before. Though there has been an increase towards the end of 2020 it is still down on comparable periods in prior years, according to the Reserve Bank of Australia.
Before the pandemic, Australia’s older demographics had been slow to use smartphones for payments, but what I have noted is that the over-55s have now become rapid adopters in the last six months.
We are also actively working with some customers to help manage more digital payments and reduce the cash usage.
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