Why Payments Innovation Needs to Be Prioritised in the UK
![Why Payments Innovation Needs to Be Prioritised in the UK Why Payments Innovation Needs to Be Prioritised in the UK](https://financialit.net/sites/default/files/richard-1753_2.jpg)
- Rich Bayer, UK Country Manager at Clearpay
- 04.09.2024 11:45 am #PaymentsInnovation #UK
Innovation in payments is critical to keep pace with evolving consumer and business behaviours, and demands. The financial services industry must continue to develop forward-looking solutions to address immediate challenges and push the boundaries of what is possible.
New research from UK Finance has highlighted how the UK’s spending habits are evolving. One interesting development is that consumers are spending smaller amounts more frequently. In 2023, we made 48.1 billion payments, up from 45.7 billion the year before.
New disruptive solutions are providing consumers and businesses with ever more intuitive and practical tools to help them manage how they pay more efficiently. It’s no doubt that the rate of new product launches in the UK across the financial services landscape is impressive.
These rapid advancements - from progress on Open Banking to the sharp rise of digital wallet use - are reshaping the industry.
Innovation to better serve consumers
Payments are becoming more than just a means to an end. Once just a transactional necessity, they are now a dynamic tool that creates positive outcomes for those who use them.
Last year the number of transactions associated with a single purchase increased, as Buy Now, Pay Later (BNPL) products - which typically split the cost of an item over three or four short-term instalments - grew as a popular budgeting tool (UK Finance).
As well as flexibility, consumers now seek payment tools, like BNPL, that are convenient, efficient, secure, easy to use and transparent.
The industry must therefore rise to the challenge of building solutions that respond to these demands, but also cater to diverse lifestyles and demographics.
Increasing accessibility, choice and transparency in how people pay is a powerful driver of economic empowerment and financial inclusion for all - the ingredients of a more equitable and inclusive economy.
Payments innovation drives sales for small businesses
It’s not only consumers who benefit from innovation. Transactions and checkouts can often be a point of friction for small businesses, with significant resources dedicated to payments processing.
Adopting pioneering payments products and integrated solutions drive productivity for businesses by cutting costs and saving resources, but they also help to attract new customers, in particular younger consumers who want to shop via their mobile phones.
Creating a seamless customer shopping journey means money can travel down the supply chain more efficiently – helping small businesses who depend on prompt transactions for effective cash flow. Transparent and flexible payment methods for consumers can, in turn, build brand trust and loyalty.
Payments innovation also makes business sense, creating real benefits for small business owners, while re-energising our high streets, and contributing to economic growth. For instance, in 2023, Clearpay contributed nearly £1 billion in additional sales to its UK merchants and helped them collectively save approximately £100 million through lower fraud rates, improved order processing, inventory management, and lower marketing costs, default rates and returns.
Regulation must keep up
Product innovation cannot, however, happen in isolation. Where there is development for the benefit of consumers and businesses, appropriate regulation must follow.
The UK can learn from Australia and New Zealand, where payments and credit policy are progressing at pace. In these markets, there has been a positive movement towards proportionate regulation that enables innovation to thrive while keeping pace with shifting consumer behaviour – something we should look to replicate in the UK.
Collaboration between industry, regulators, and the Government will create an environment that both fosters innovation and secures optimal customer outcomes – firmly placing the UK at the forefront of delivering tomorrow’s payments.
The fintech sector has introduced numerous payments tools that assist retailers to be more efficient and to offer their customers seamless shopping journeys. As consumer spending habits continue to evolve, it’s crucial that this innovation continues to help drive the success of the UK retail economy in an increasingly competitive environment.