Episode Six: Ushering in a New Era of Open and Programmable Payment Services

Multiple trends have arisen following the pandemic’s acceleration of digitisation. Contactless limits have been expanded, Buy Now Pay Later (BNPL) has seen a huge influx of customers, regulatory standards have been adjusted and generally, there has been huge amounts of innovation in paytech. 

One company that has discussed these trends is Episode Six. Episode Six operates globally with an expanding presence in Europe, and is intimately familiar with the needs and trends among regional businesses. Its CEO, John Mitchell, has over 10 years of experience working in the financial sector, having previously been the CEO of Rev Worldwide.

Here Mitchell gives his views on which new payment services are going to shape the future of the paytech industry:

With pandemic-related concerns accelerating the conversion to cashless transactions,  digital transformation has become a mission-critical initiative for European financial institutions (FIs).

In the wake of pandemic-conditioned reliance on mobile payment apps and e-commerce platforms by consumers, digital payment transactions in Europe are set to skyrocket by 28.3% this year, topping $1.17trillion, according to data presented by online Italian trading publisher Finaria.

With so much digital payment activity being driven by transformed and enduring consumer behaviour, it follows that payment modernisation has become a matter of existential significance for FIs.

Institutions that fail to adapt to this rapidly evolving payments landscape will not be able to service the new generation of digital-native retail and business customers. Digital neglecters risk losing out on billions of Euros worth of market share, thus accelerating their descent into obsoletion.

European Central Bank (ECB) Vice President Luis de Guindos told CNBC last November that “bank profitability is expected to remain weak” in the near term. The ECB believes that pre-pandemic profitability levels will not return before 2022 at the earliest.

This represents a systemic challenge for the EU, as Member States emerge from lockdowns at slower rates than the US and Asia. As such, payments transformation may not only help banks remain in business, it can also keep the Euro economy solvent.

Trends fueling the payments revolution

Increasingly popular trends that are redefining the European payments landscape include buy now, pay later (BNPL), the adoption of mobile and embedded payments, and regulatory standardisation.

As a result of economic disruptions that took place last year, BNPL services enjoyed much attention from both merchants and consumers. In Europe, the BNPL payment option was offered by 20% of retailers last year, according to a report by Research and Markets, and BNPL service providers across the globe experienced high growth rates and revenue capture, as they significantly expanded their offerings.

Another driver of payments transformation in Europe is the mass-adoption of mobile and embedded payments. This trend has been ascendant since the launch of the first iPhone in 2007, which catalysed modern and customisable user experiences.

The traction of mobile payment apps in Europe has actually accelerated two European countries to the forefront as world leaders in digital wallet adoption. 42% and 24% of the population of Norway and the UK, respectively, use digital wallets, according to a report by Mordor Intelligence.

But with its strong cash culture, some countries – and particularly Germany – have been slower to adopt mobile payments, according to consultant e-Marketer. Last year, in the midst of pandemic concerns, the European Banking Authority (EBA) even encouraged people to adopt cashless forms of payment, leading many countries to increase their contactless limits.

As the EBA’s guidance demonstrates, national regulatory intervention has helped pave the global payment rails of the future.

A pivotal precedent was set by the UK’s Open Banking Initiative (OBI), a British regulatory body that has provided standardised API plugins and data models so firms there can conform to the EU’s Payment Systems Directive (PSD2).

Regulatory intervention by the European Commission has also led to a regional push for faster payments. Last September the Commission adopted a retail payments strategy for the EU, which aims to create an “efficient and integrated market for payment services” in the union.

The Commission’s strategy is focused on “creating the conditions that make it possible to develop instant payments and EU-wide payment solutions that are cost effective and accessible to individuals and businesses across Europe.”

Standardisation will lead to more innovation in payments. As an example outside of Europe, Singapore has pioneered the regulatory standards for QR code-enabled payments. In 2018, Singapore rolled out the Singapore Quick Response Code (SGQR), the world’s first unified payment QR code that combines multiple payment QR codes into a single SGQR label. Data by Statista and Juniper Research finds that in the next four years national QR code payment schemes will account for 22% of all QR code payments, up from 8% in 2020.

The US and Europe are catching on as well. According to a survey by Mobileiron, spanning the US, UK, Germany, Netherlands, France and Spain, 67% of respondents stated that QR codes make life easier in a touchless world. 58% of participants also said they favoured the greater use of QR codes.

Moving to a new framework contingent on willingness to adapt

With payment innovation being buoyed and shaped by digitally progressive regulatory governance in Europe, it’s likely that more businesses will offer their own customised payment systems. Emerging banking-as-a-service (BaaS) technologies are the nimble, cloud-native API solutions that will power this trend.

Globally, API integrations have become much more than just a trend, ushering in a new era of fully open and programmable banking and payment services.

However, this ecosystem-wide transformation is contingent on businesses adapting to the future. Legacy financial services firms and others in the payment supply chain must ensure that they have adopted the right, future-proofed tech stack that enables the type of agility, scalability, and interoperability needed to embrace the brave new world of payments.