Vocalink, a Mastercard company, global payments partner to banks, corporates and governments, has published a set of payments innovation ideas that would provide a foundation for a more productive and efficient UK economy.
Just days after the Chancellor of the Exchequer reiterated in the Budget the need to ‘build an economy fit for the future’ to deal with the economic challenge of Brexit, Vocalink has set out a number of ideas on how payments innovation can reduce financial exclusion, empower small businesses and reduce the impact and incidence of online fraud.
These ideas, Vocalink believes, should be factored into HM Government’s development of its strategy to provide the UK with the best possible platform to make the most of leaving the EU.
Addressing financial exclusion
Whilst the UK’s payments system works well for the majority of UK citizens, there is a growing minority for whom this is not the case. Research by the University of Hertfordshire suggests that there are now over 5 million people in the so-called ‘gig economy’ - leaving them living on irregular and unpredictable incomes from multiple or part time employments or a mixture of earnings and variable welfare payments.
Vocalink believes that government at all levels should lead by example and become an early adopter of Request to Pay (RTP) technology, currently being developed by the payments industry, which would give individuals on unpredictable incomes greater control over when and in what proportion they pay their bills.
By both encouraging billers to adopt this system for more vulnerable customers and using it itself to allow the more flexible collection of council tax or tax repayments, government can play a role in reducing the number of people that remove themselves from mainstream bank accounts because of the risk and cost of failed payments.
The number of SMEs in the UK economy is increasing rapidly; there are currently 5.4 million, making up 99% of all businesses in the UK. Many face the dual challenges of ensuring their continued liquidity, in part because of slow, late or delayed invoice payments; and also a lack of affordable finance for the smallest businesses which hampers their expansion and their contribution to the UK economy.
Whilst HM Government introduced a credit-data sharing scheme in 2016 to improve the information available to lenders, there are still barriers for small businesses who wish to access credit, with the Bank of England announcing a £200 million decrease in loans to smaller businesses in July 2017. Many of the UK’s small businesses would also benefit significantly from more accurate evaluation of their credit worthiness, leading to greater availability of affordable finance.
Similarly as many SMEs experience liquidity challenges at some point, the ability to more closely manage their outgoing payments to fit with often unpredictable incoming payments using RTP should be encouraged by HM Government, and should be an option for smaller businesses to have greater control over payment of business taxes to government at all levels.
In terms of incoming payments, the answer lies in part in the combination of greater use of the UK’s existing immediate payment capabilities, Request to Pay and e-invoicing which could in theory cut the time taken to pay invoices from months and weeks, to hours and minutes.
Gregor Dobbie, UK Managing Director, Vocalink, a Mastercard company said:
‘Our central role in the UK’s economy affords us the opportunity to identify where the UK’s already world leading domestic payments system can provide a platform to enable an economy that is fit for the future.
We already have a great platform from which to start and in fact, some of the innovation covered in our paper is already progressing thanks to the hard work and vision of the payments community, regulators and others. Some of the other ideas are conceptual yet achievable, if there is demand to do so from Government and the payments ecosystem.
Innovation in the movement of money is a critical facet of many public policy issues from the operation of the welfare state to the digital economy. It can contribute to better outcomes for individuals, businesses and the country as a whole. In essence, it can also help to address many outstanding policy challenges from financial exclusion to access to affordable finance that HM Government has been wrestling with for a number of years.
Whilst HM Government identifies how to ensure the UK’s economy is able to make the most of what lies beyond membership of the EU, we would urge it to recognise the vital, if unseen role that payments systems play every day in enabling our economy; and therefore how the capacity for further innovation can support our future productivity and economic growth’.