By Conor Colleary, Group Vice President of Financial Services, Oracle
Time is arguably the most precious commodity businesses and individuals have. The always-on lifestyle that consumers now enjoy, and have become accustomed to, has increased significantly since the lifting of restrictions in the UK. Thankfully, life is returning to a sense of normality across the country and with it, UK consumers want to maximise their time doing things they love. With this increased activity has come an exponential rise in frictionless payments and the demand for fast and convenient banking services.
In March, UK Finance announced contactless payments in the UK rose by more than 30% since the introduction of a £100 payment limit. This illustrates their continued popularity as they allow customers to make higher value purchases and have greater choice, freedom, and flexibility about how they pay for things day-to-day. Additionally, if buy now, pay later (BNPL) trends are accurate, by next year the market share of these services is expected to double, already growing at a rate of 39%. In fact, late last year, around Black Friday and Cyber Monday, it was reported more than 17 million UK consumers turned to BNPL services to indulge in commodities immediately and take advantage of the seasonal deals.
These frictionless experiences are pushing the retail and financial innovation to new heights. However, with this easy access to money and credit it is important to be mindful and cautious as there are a number of associated dangers for both businesses and consumers alike.
Faster payments must be balanced with front and back office integration
There was a time when it took three days to transfer funds between bank accounts, now, payments are near-instant with Faster Payments recently announcing transfers of up to £1 million are now possible. For this to be successful, however, it is vital that both the front and back office payment processes are integrated completely. A disconnect at any stage of the process could cause serious issues for both the consumer and the business.
While BNPL and faster payments may offer some consumers flexibility that can be helpful during hard financial times, it also plays into a consumers impulses resulting in numerous downsides. On one hand, if a consumer pays for an item and the money isn’t successfully taken from their account, they may continue to spend in the understanding they have sufficient finances. Then, inadvertently, they may go into an unanticipated overdraft. If this is an overdraft that has not been pre-arranged with their bank, this can lead to significant financial penalties and interest payments.
This is also dangerous territory for businesses. Failing to have a clear picture of what is entering into the business in terms of capital can lead to misguided business decisions or misquoted financial records. Both factors can result in detrimental outcomes for the company. Business leaders may make unsound decisions that could cripple the long-term growth and future of the business. Likewise, financial regulators can implement financial penalties due to mismanagement and these penalties may have a knock-on effect on the company’s employees and customers, with a rise in prices and a cut in staff bonuses required to counteract the fines received.
Furthermore, if businesses and consumers are unaware of the terms when using services like BNPL, they could be at risk of harm. While BNPL products are not currently regulated by the UK Financial Conduct Authority (FCA), they have been able to use its investigatory powers under the Consumer Rights Act 2015 (CRA) to assess the fairness and transparency of the terms of BNPL firms. For example, if a consumer cancels the contract for purchases funded by a BNPL loan, originally they would need to continue to pay instalments until the retailer confirmed the goods had been returned and had refunded the BNPL firm. This would mean consumers would be stuck paying instalments they shouldn’t have or incurring late fees after returning the goods. The FCA believe these loans should have been terminated as soon as consumers cancel the purchase. As a result of the investigation, the four BNPL firms agreed to change this term to make it fairer for the consumer.
With BNPL tools on the rise, these issues are exacerbated. When payments are staggered across a period of time, financial controllers within companies have their work cut out to ensure they have an accurate picture of accrued and actual cash they hold as a business. Mistakes at this stage can lead to cashflow issues and potentially the business not being able to pay its debts, as the money they expect is yet to enter into its books.
Cloud implementation and automation provides a solution
Fortunately, there is a solution. To make a successful transition to this anytime environment, finance teams and organisations have to upgrade the backend of their payments and core systems as well as educate their customers. They can do this by implementing the latest payment technologies and innovations, such as artificial intelligence (AI), machine learning (ML), automation and digital assistance; all of which are optimally delivered through the Cloud. In doing so, companies can meet customer demands feel assured that they’re accurately taking and tracking income in real-time.
Technology like artificial intelligence in finance is a powerful ally for controllers when it comes to staying on top of budgets, risk management, analysing real-time activities and providing identifying early signs of issues. For instance, AI/ML and automation give financial controllers greater usability and efficiency, while reducing the chances of human error as core processes are automated and smart digital assistants can assist users on the next steps.
Likewise, AI/ML and automation solutions can store and digest massive datasets to deliver real-time insights and optimise processes across payables, receivables and supplier management. Whether customers pay with debit cards, credit cards, Apple Pay or even BNPL, these technologies can enable financial controllers almost instantaneously to stay on top of the ever-growing complexity of finance. Financial controllers are now taking charge to centralise data and gain real-time visibility into these processes.
And for financial institutions, transitioning to the cloud can ensure these complex applications, which require high compute performance and low latency, are able to operate seamlessly and can easily be scaled alongside any company growth that may take place.
By implementing the latest payment technologies into the business, and moving away from legacy infrastructure, financial teams can centralise payments across a global network. They can also reduce the costs of running this global network by streamlining processes such as validation, aggregation, formatting and secure transmission of payments to other financial institutions and payment services. By reducing the IT spend, businesses can shift this budget from maintenance and upkeep to innovation in finance. Moving to the cloud also helps to free up the IT and finance teams from administrative, manual tasks and focus on areas of real business value.
It’s clear real time payments and anytime banking enabled consumers and companies to make their bill payments, online shopping and cross-border transactions instantly, cheaply and at scale. Technology has allowed financial services to deliver the services their customers want – consumers get access to what is important to them when they want it. At the same time, businesses can deliver their goods and services with confidence and clarity. All of this in real-time giving all stakeholders more of the most precious commodity, time!