Skip to main content

A Catalyst For Alternative Payment Methods.

The UK e-commerce market is Europe’s largest and is set to reach £90 bn before 2020 (up from £60 bn in 2015). But while e-commerce grows, the preferred consumer payment mechanisms are changing.

The Payment Services Directive 2 (PSD2) will come into force in the UK (and the wider EU) within two years and will have a profound effect on retail and commercial banking. While new payment categories like PISP (Payment Initiation Service Provider) and AISP (Account Information Service Provider) will transform how consumers interact with their banks and third parties, they also hold the potential to transform e-commerce.

A catalyst for alternative payment methods

Today, credit and debit cards in particular are the preferred consumer payment method in the UK, with card spending comprising 63% of all e-commerce payments.

However, according to WorldPay, alternative payment methods will see their overall share of transactions grow from 37% to 50% by 2019. The implementation of PSD2 will act as a catalyst and will further fuel the use of alternative payment methods for e-commerce transactions.

It’s not broken, but it can go much faster

As it stands, there is nothing fundamentally wrong with current payment methods and in all likelihood, debit and credit cards will continue to represent a significant share of e-commerce transactions. However, the card model continues to be expensive (despite the recently introduced interchange caps) and settlements happens at best D+1 (i.e. the day after the transaction). 

But in the faster e-commerce model of the PSD2 world, consumers will authorise trusted third parties to perform direct transfers from their current accounts that leverage a more efficient (in terms of cost and speed) payment infrastructure via the UK Instant Faster Payment scheme.

All this is good news for customers, of course. When authorising PISPs to make payments, they will no longer have to manually enter card details, transforming a multi-click checkout process into one click. It should also lead to significant declines in cart abandonment and higher sale conversation rates for merchants. However, merchants may need to incentivise the consumer through loyalty programs to start using PISP payments instead of card-based solutions.

Good news for merchants, too

For merchants, faster e-commerce will bypass expensive card platforms, enabling instant settlements. Merchants will be able to see transactions in their accounts within seconds, resulting in improved working capital, as the days sales outstanding (DSO) drop from multiple days to same day.

Though merchants clearly benefit from the new system in terms of cost savings, the intangible advantages of card payments (namely, the consumer fraud protection) will not be removed entirely. Liability will be broadly shared between PSPs acting on the payer's instructions and those receiving payments on behalf of payees. Each PSP will be liable for any issues related to their part of the transaction while merchants’ liabilities are reduced.

What about banks and cards?

Post-PSD2, issuing banks are not necessarily relegated to becoming the “dumb pipes” of the payments world. While some interchange revenue will be lost, innovative financial institutions can stay relevant (and cross-sell) with value-added offerings, using AISP to perform Personal Finance Management services.

The downside of the faster e-commerce model is the risk that card schemes and merchant acquirers stand to be hit hard by declining card volumes. However, card companies are already being pushed to make strategic choices due to IFR (Interchange Fee Regulation) and are reviewing their future business models. For example, Master Card is in exclusive talks to take over VocaLink, the UK Faster Payment processor.

Faster e-commerce – a not-too-distant future

Within the next few years the European payments space will undergo considerable changes as PSD2 improves access to customer accounts for TPPs (third party providers). While some banks may look to implement the bare minimum of the PSD2 requirements, there are sizable rewards and opportunities for financial institutions willing to invest in upgrading their payment capabilities. Faster e-commerce is not a futuristic prediction – it will become reality in the very near future.


Popular posts from this blog

Requirement & Process Of Merchant Account.

Merchants often get stuck in the lengthy requirement and process of merchant account application submission and approval. Merchant account is a service that enables any private entity, corporate business or non-profit organization to receive payments through credit cards or any other electronic payment mode. What makes this process of establishing a merchant account a bit lengthy for the first time applicants that are owner of the existing business is the lack of knowledge about the exact requirement of documentations while submitting the application to get approval.

Before specifying the requirements of a merchant account, let’s have look at how merchant account get the funding from the proof of transaction: The merchant’s bank, where the merchant have the account for acceptance of the electronic transactions, gives merchant an extended line that is virtual terminal/authorize gateway to accept card or wire transactions. Now, whenever the merchant accepts an electronic transaction th…

Merchant Account In UK & Europe.

Collecting payments through cards has grown as one of the essential part of the business. As today people prefer to pay through their cards that are, purchasing product or services through their account directly.
For this the businesses who are practicing the traditional way of business are rapidly changing their working or the start-up businesses who want to have a credit card payment accepting merchant account, needs to deal with a lot of paper work for the approval of a merchant account that is specially dedicated to collect payments through cards.

Here we are going to discuss about the merchant account requirements in UK, Ireland and other 26 European countries. For a merchant account to be initiated for collecting card payments the businesses needs to have the following documents to file applications:

Proof of Citizen Ship: A copy of passport or EU card, as the proof that the applicant is a resident of European country.
Physical presence of business: Proof that the business or ap…