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Taking a Global and UK-Centric Look at Payments

In the UK, the past 18 months have been turbulent, to say the least. Rising inflation, higher interest rates, and supply chain issues continue to impact commercial transactions and consumer spending. To top it all off, rumors of a recession in September didn’t help to soothe people domestically or internationally (although the UK has just about narrowly avoided having to suffer through one).

As globalization makes it increasingly hard for any one country not to feel an impact from its neighbor’s economic situation, all of these factors contribute to spending, growth, and the way we handle payments across the UK, Europe, and the Middle East; areas where WeavePay’s clientele live and work. 

As payments became a huge topic of interest pre-pandemic in the UK (with the heavy influence from East Asia’s holistic in-app payments experience via QR codes (WeChat) and the need for contactless solutions to solve ongoing health control challenges), the way we talk, handle and work with payments has evolved rapidly.

Throughout this series of blogs, we will look at different areas of the world, how they are faring in the payments race in 2023, and what we should expect in 2024.

First stop – a global outlook on payments and the UK’s part to play in this. The UK - one of the early adopters of fintech - mastered practices and technology, and even mimicked a cultural hub (Silicon Roundabout in Old Street) from its predecessor at Silicon Valley in California, only to become one of the advanced global leaders in technology.

From a payments standpoint, the UK continues to be a huge advocate for new solutions. With one of the biggest growth economies based on fintech, the small island continues to work closely with global economies, leading the discussion in tech (see current UK Prime Minister Rishi Sunak’s AI talk with tech tycoon Elon Musk) and contributing to the acceleration of products that can serve the world, financially, in 2024.

So, let’s delve in.

The Role of Payments in Today's Fintech Landscape

Payments play a huge part in the fintech industry's success. Whether it's electronic money institutions (EMIs), banking-as-a-service, embedded finance players, Buy-Now, Pay-Later (BNPL), or physical point of service (PoS) providers, the industry has fared well thanks to the rise in the popular subsector. 

Today, fintech in the UK comprises over 1,600 firms, a number that is projected to double by 2030, and contributed an estimated $13.4 billion (£11 billion) and over 76,000 jobs to the UK economy.

So, what does the current payments landscape look like?

From a global vantage, payments revenues grew 11 percent in 2022 - a double-digit rate for the second consecutive year - reaching more than $2.2 trillion, an all-time high according to McKinsey’s 2023 Global Payments Report.

In the UK, the industry body, UK Finance, and the European Payments Council stated that payments initiated through Faster Payments (including other remote banking) totaled just over 3.6 billion, with 42% of all payments made by businesses done through Faster Payments and other remote banking.

Other notable payment trends taking place:

  • In many markets, about half of 2022’s revenue growth came from rising interest rates, interrupting a long-standing trend in which fees were the main source of growth.
  • Commercial organizations, government and not-for-profit organizations made almost 6.2 billion payments during 2022, a 12% increase compared with 2021. Payments to individuals accounted for 44% of all payments made by businesses, with the remainder being payments to other businesses.
  • According to Finch Capital, and from an investment and revenue-building perspective, crypto and blockchain beat payments and banking in terms of volume and number of deals, whilst lending came out as number one in terms of deal volume; both sub-sectors knocked payments and banking from its (very comfortable) top spot in the fintech-race. This could be for a number of reasons, including the fast acceleration in payments over the last few years, resulting in slight stagnation in its growth over the past year, allowing for other sub-sectors to take the top spots.
  • Over one in nine Brits now use open banking services as open banking payments reach record highs. Furthermore, 9.7m payments were made in June 2023, an increase of 88% on the same month in 2022. The Open Banking Implementation Entity (OBIE) has seen further growth since the cut-off point for their report (June 2023), with 10.8m payments made in August 2023.

UK Finance also made a series of projections showing that the reality of becoming a cashless society will happen sooner than we envisaged.

  • In 2032, 65% of all payments in the UK are forecasted to derive from card payments.
  • Cash use is expected to halve, resulting in less than 7% of payments being made using cash.
  • Use of remote banking is expected to continue to increase and will likely reach 93% of adults in the UK by 2032.
  • Debit cards are expected to reach 27.3 billion payments in 2032.

Behind the scenes of the UK payments sector

After decades of dealing with legacy systems, subpar customer experiences and a lagging banking system, the UK took action to position itself at the forefront of security and legislation in Europe and the world. 

One of the motivations to innovate derived from the handling of the 2007/8 Financial Crisis. As a result, the government and banking world stepped up and quickly realized that if they did not put their customers at the forefront of everything they were building and doing instead of the institutions themselves, someone else would. To remain competitive and address the plethora of financial needs, new proactive measures would need to be implemented.

The next evolution of PSD2 – PSD3

PSD2 launched in January 2016 and was given until January 2018 to implement the legislation. Its mission – is to modernize the way customers can interact and use their previously ring-fenced bank data.

On June 28th, 2023, the European Commission (EC) published a set of new legislative proposals, notably for a Third Payment Services Directive (PSD3) and a Payment Services Regulation (PSR). This is the next evolution of PSD2.

It foresees changes to the foundational framework of the European payments market and is likely to have a material impact on the players subject to it, both from a legal and operational perspective. Proposals include merging the payment and the e-money frameworks into one, even if some key e-money specificities are preserved, and modifying the Settlement Finality Directive (SFD) to enable non-banks to access payment systems.

So, in layman's terms, what does this mean for fintechs and commercial and consumer payments?

In short, PSD3 supports the rise and usage of EMIs, allowing for more competition within the market, opening up choices for businesses and consumers, and empowering UK-based EMIs to contribute to the economy through its global network of funds. EMIs are preferable to traditional bank accounts in many ways for the modern consumer and business – they allow customers to open up accounts quickly, make frequent cross-border and local transactions, hold multiple currencies, and swiftly issue virtual and physical cards to multiple holders.

Smart Data initiatives out in practice

People want services that fit into their lifestyle seamlessly, no matter the task.

Open Banking is an excellent example of Smart Data out in practice, and PSD2 is the regulation that allowed projects like Open Banking to take place. Not limited to banking, smart data has the ability to allow a person’s data to be shared with third parties to increase the individual’s experience.

A recent example, Apple soft launched a new iPhone Wallet app integration in the UK powered by Open Banking, showing that big tech companies are paying attention to how they too can improve their customer’s lives and profit off of the revolutionary regulation and showcase how smart data can actively impact society.

Security 

As the usage of products and services around payments quickly rose, the sophistication of scams also evolved.

With regulations such as Strong Customer Authentication (SCA) that came into force in 2019, security around payments continued to be a constant topic of discussion.

With recent fraudulent actions from hostile actors increasing, organizations such as Innovate Finance have called on the government to act on targeting fraudsters, with estimates that 77% of authorized push payment (APP) fraud originates online.

How the discourse around payments impacted society

Overall, it is clear that there have been huge strides in the way of payments because of legislative measures, changes in attitudes towards financial services from an industry and outside perspective, and the types of services now available to the masses. 

The fact that part of the evolution of the payments was spurred on by a health crisis in 2020 proves how deeply embedded payments are in the way we survive. Additionally, the way we all interact with our phones and social media has changed dramatically since the commercialization of smartphones, enabling us to create virtual environments that involve the need to transfer and store money, plus make online payments.

Moreover, as advocates for financial education increased, a wider group of consumers and businesses started to understand how payments work and what they are entitled to. Plus, the demand for global payment options as more people live, work, and travel abroad has created a much savvier consumer who is more willing to speak up when something does not suit their expectations, thus forcing the finance industry to act.

Since the days when cash and cheques held in prominence and remained the main choice for making payments as recently as a decade ago (side note –  the first debit card in the UK was issued by Barclays in 1987 and yet still, changing attitudes towards cashless payments only happened in recent years), the world could have never imagined the stronghold that payments would have on the discourse around financial freedom, financial inclusivity, globalization and the impact it could have on global economies. 

The UK has led the charge in many ways over the past decade, however, it is yet to be seen how other countries will fare over the coming years in terms of transaction volume, investment, employment, and revenue generation from the payments sector. India, China, and Africa have all made their mark with on-the-ground adoption of mobile banking and payments apps over the last two decades, and more recently, European countries such as Estonia and Lithuania and the Middle East are eagerly stepping up their game becoming real contenders in this race to the top within the payments space. 

About WeavePay

Based in the UK, WeavePay is the leading payments partner for commercial clients and high-net-worth individuals globally.

Offering access to over 100 currencies, we facilitate diverse financial transactions.

Our clients also have access to virtual and physical debit cards, featuring high spending and withdrawal limits.

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