The future of payments – Cards, cashless and beyond
Alongside measures designed to support growing businesses and workers, the Chancellor’s 2023 Autumn Statement saw the publication of the Future of Payments Review.
Chaired by former HSBC Chief Executive, Joe Garner, the review comes as many retailers are struggling with the shift to digital and card payment exclusively.
The past few years have seen many larger retailers prefer card payments or refuse cash payments outright – and recovery of cash has been slow.
As a result, consumers are also moving towards cashless spending – both through the expectation of needing to use a card, and the convenience of card payments.
A cashless solution?
Only 1.5 per cent of the UK population use cash as their main form of payment, according to a UK Finance study in 2023. In contrast, almost one-third of people use cash once per month or less.
What these figures reveal is a general trend towards cashless spending. But is this right for small businesses?
Many independent business owners struggle to operate a card-only payment system because many card providers charge a small percentage of the total payment as a transaction fee.
For most providers, this is between one and four per cent, which can have a huge impact on profitability for a business with low-profit margins and small sales volumes. Very small businesses may also operate without a buffer fund to cover these additional costs.
Alternatively, operators have to pass this cost onto the customer, which many are not willing to do as the cost of living remains high and consumers seek good value.
An alternative vision
The Future of Payments Review has made 10 recommendations to the Government to improve the payment landscape for consumers and business operators. It seeks to provide retailers with a wider range of options for accepting customer payments.
Primarily, it recommended the creation of a National Payments Vision and Strategy, which prioritises customer experience, retailers and security.
Open banking, which enables consumers to share certain financial details with retailers in order to make a direct bank-to-bank payment, has been central to the review.
The benefit to consumers is clear, with a straightforward payment option that rivals card payments in convenience. Retailers, too, may be able to reduce card payment costs and streamline their finances.
However, the current climate has made the adoption of open banking challenging.
Traditional banks currently have a virtual monopoly on card payments – which the review has found the current system to be too reliant upon – and not enough is being done to incentivise open banking alternatives.
This monopoly makes it hard for retailers to actively choose which payment methods to accept based on their associated costs because consumers are most comfortable with the ‘journey’ of card payments.
The idea is to create a ‘customer journey’ for open banking, making it as familiar and viable a choice for consumers as a credit or debit card.
This will give retailers a larger choice of payment methods to accept, meaning they can take payments without additional costs or losing business from consumers who do not use particular payment methods.
Safeguarding your operation
We understand that you want to provide your customers with the best possible experience, which may mean offering a variety of payment options.
You will also want to review which payment options provide the most benefit and the least cost to your business as more payment options become available.
As Government policy evolves, retailers will likely face uncertainty as well as reaping the benefits of innovation.
