The ecommerce market in the UK is the largest of all the European markets. It is set to reach £90 billion by 2020; up from £60 billion last year. While the ecommerce market is growing, the way in which consumers pay for things is also changing.
The Payment Services Directive 2 (PSD2) is set to come into force in the UK in two years’ time, and it is going to make a significant difference to retail and commercial banking. New payment categories are being introduced, including the AISP (Account Information Service Provider) and the PISP (Payment Initiation Service Provider). These new categories will change the way in which consumers interact with third parties and with banks.
Credit and debit cards account for 63 per cent of all ecommerce UK payments in the UK, but WorldPay expects that by 2019 alternative payment methods will account for half of all transactions, and that PSD2 will act as a catalyst for those transactions.
The way that we pay for things right now is not fundamentally flawed and credit and debit cards are always likely to account for a significant number of UK payments. However, the card payment model is quite expensive and UK payments can take a full day to process.
The PSD2 system will allow consumers to authorise trusted third parties to perform direct transfers from their own bank accounts, using the UK’s Instant Faster Payment service. This is faster, more affordable for merchants, and generally convenient for all parties. Consumers can authorise a PISP to make a payment, and then enjoy smooth one-click checkouts – reducing cart abandonment rates for merchants in the process.
Getting consumers to try PSD2 may be a long and difficult process, but offering loyalty programs for PISP payments could motivate people to make the move to using the system. Instant payments could speed up order authorisation and processing, and there are some potential cost savings that could be passed on to consumers as well.
However, liability could be an issue. Card payments have some useful benefits associated with them, including consumer fraud protection. With PSPs acting on a payer’s instructions and receiving payments for a payee, things become rather more complex. Each PSP will have liability for issues related to the payments that it has handled.
Card companies are being encouraged to review their business models and to look at ways of improving their own processes, but it will take a long time for any changes to be implemented in the mainstream market.