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NOT SO FAST: WHAT’S BLOCKING THE FUTURE OF INVISIBLE PAYMENTS?

INVISIBLE PAYMENTS

Matt Jackson, Head of Partner Development (EMEA) at PPRO

 

Invisible payments have already had a massive impact on the physical and online retail experience, and could have the potential to eradicate cash and payment cards from the payment journey. Amazon Go even went as far as removing Point of Sale (POS) systems from its payment processes to provide consumers with, what they consider to be, an enhanced in-store experience.

Consumers have demanded frictionless checkout experiences. Whether they are getting a sandwich at the neighbourhood cafe or buying trousers they saw on Instagram, consumers expect to complete purchases almost with the wave of a magic wand. Online stores are making strides to make checkout experiences as frictionless as possible – which makes sense, considering that UK e-commerce sites suffer from cart abandonment rates of 76% – implementing one-click checkouts using PayPal and other alternative payment methods such as Apple Pay.

While the impact of invisible payments is expected to be significant – predictions are they will account for $78 billion in annual transactions by 2022 – there are some indications that the road there is going to be bumpy for the UK. Not all consumers have been enthusiastic about invisible payments. In addition to customer demand for invisible payments, the diversity of products, prices, and consumer payment preferences both locally and internationally make it quite complicated on the back-end.

 

For invisible payments to gain mass consumer adoption, there are several cultural and logistical barriers that retailers and the payment industry must consider first.

  1. Consumers wantto authenticate big-ticket purchases

Implementing invisible payments for high-value transactions will be a significant barrier. There are many, many successful use cases for low-value invisible transactions; Uber was adopted so widely and so rapidly thanks, in large part, to the user’s payment experience. All these ridesharing companies mostly handle relatively low-value transactions, with consumers welcoming the convenience of this frictionless payment process.

But what happens when the transaction is over £100?

Buying something for £100 or more without authentication is an uncomfortable thought for many consumers. It can be argued that customers expect – indeed want – a level of friction when making certain purchases. Businesses with big-ticket items will still need to provide consumers with an option to use more traditional payment journeys for the foreseeable future.

 

  1. Cash-dependent and underbanked shoppers 

Despite a seemingly ubiquitous shift to digital payment methods, cash is not disappearing anytime soon. Consumers in many booming e-commerce markets still have a strong preference for or reliance upon cash-based payment methods; Mexico, Brazil, and Japan are a few examples. In the UK, some demographics prefer to use and rely on cash, particularly the elderly and underbanked. It is estimated that despite the introduction of new technology and different payment methods, cash will still account for nearly 10% of UK transactions in 2028.

Retailers can’t afford to miss out on sales from such a large number of consumers, so they need to take care to introduce invisible payments gradually and, where possible, give consumers options. If they don’t, they run the risk of losing business to the competition.

 

  1. Regulatory requirements 

Recent regulations have correlated with consumers becoming increasingly aware of the need to protect their data and monitor for fraud. Strong Customer Authentication (SCA), enforced under the second Payment Services Directive (PSD2), states that a customer must verify their identity before payment information can be exchanged between a financial institution and a third-party provider (TPP). Put in place to prevent fraudulent transactions, it simply means that SCA requires consumers to authenticate payments by entering a PIN or using biometric data like a thumbprint. While transaction value will likely influence the level of authentication required under SCA, the need for authentication is an inherent barrier to a frictionless or invisible payment. It remains to be seen how invisible payments and SCA will coexist.

 

  1. A proliferation of locally preferred payment methods

As commerce goes global, payment preferences – using cards, e-wallets, cash, etcetera – are becoming more and more local. That can be a surprise for people in the UK and US; PPRO’s recent research[1] highlights that 91% of UK consumers use debit and credit card payments. But there are over 450 significant local payment methods (LPMs) across the globe, accounting for over 75% of global e-commerce transactions.

In the UK, PayPal is the most widely used method for invisible payments. However, the Dutch opt for iDEAL as their payment method of choice, which is less suited to invisible payments. In Latin American markets, cash-based payment methods like Boleto Bancário in Brazil and OXXO in Mexico take up a significant share of e-commerce. Those are certainly not invisible either, as the customer has to visit a brick-and-mortar store to pay. If customers are forced to use a payment method they don’t trust, over 65%2 are likely to go to another retailer that accepts their preferred payment method. For UK-based retailers who want to do business across borders, it’s important to recognise that the key to increasing conversion is accepting your customer’s preferred payment method.

Unsuccessful implementation of invisible payments – where locally preferred payment methods are overlooked – could lead to the loss of loyal customers to a competitor. But with so many LPMs, it’s extremely difficult to establish a single unifying, invisible payment journey to achieve global adoption.

 

So, what does the future hold for invisible payments?

There is no doubt: invisible payments will continue to revolutionise the customer experience for casual or everyday purchases. However, it’s my opinion that we won’t see invisible payment journeys across the board for quite a while; consumer trust, cash-dependent shoppers, regulatory requirements, and the explosion of local payment methods are significant hurdles that have to be jumped in order for that to happen.

However, it’s our goal at PPRO to help payment service providers and retailers create the best customer experiences possible, gain brand loyalty and increase conversion in every market. Invisible payments surely have their part to play in that, so here’s what I recommend for getting on the road to success: Get to know your customer. Learn how they like to pay for each purchase they make. Offer the right payment methods. Don’t force adoption of invisible payments, but incentivise it through exclusive discounts or bonus loyalty points. This all boils down to providing the customer with options because, ultimately, we live in a society that expects choice.

Retailers that provide customers with their preferred way to pay – visible or invisible – will be the ones who prosper in today’s competitive marketplace.

Finance

2021 FINTECH PREDICTIONS

2020 has been a year like no other. The way we live, work, socialise and more has completely changed as we found ourselves in a new world.  Of course the fintech industry was no exception and had a challenging year that resulted in great successes and accelerated growth. Certain elements such as mobile payments have been implemented far quicker than anticipated at the start of the year fast tracking past projections by in some cases years.

So what can we expect in 2021? With better virus management, treatments and vaccine programmes rolling out worldwide we can start to cautiously anticipate a slow return to normal but what does this mean for fintech? Björn Goß, CEO and Founder of Europe’s leading mobile wallet Stocard,  looks at what we could see in the next year from the industry

 

A change in how we pay 

The pandemic has accelerated the digital services industry as people were forced to integrate COVID-19 friendly payments.  We have thus seen an increasing amount of solutions offered by fintechs such as for trading or peer-to-peer payments. This openness for digital solutions has allowed fintechs to pass the initial phase of growth.

We fully anticipate that now people have seen the benefits of digital payments and services that there is no looking back. In 2021 investment in mobile and contactless services won’t just be limited to major players but also for smaller businesses who are expected to facilitate digital payments by consumers.

In addition we are also already starting to see indications that the upper limits of payments will increase from £40 to £100 in the UK making contactless even more appealing for organisations and consumers alike. We can also expect more focus on value added services such as mobile loyalty cards integrated into a smooth payment experience.

 

The rise of the super app 

As more of the services we use to lead our lives move over to our phones we anticipate more of the so called ‘super apps’, like we’ve seen in Asia.  Consumers search for simplicity and typically favour one app that has an intuitive and easy to use interface that allows them to do everything they need in one place. We expect that these super apps will have an accelerated growth in 2021 following the pandemic as users seek to streamline their digital services and use trusted, simplified apps.

We therefore expect a merging of shopping, payment and financial services in one wallet app. The advantage here is that the consumer can choose which elements are the most important to them based on their individual needs. It can therefore provide the user with an attractive proposition as they know they can access all key services in one place.

 

More regulation, more choice 

In 2021, Payment Service Directive 2 (PSD2) will come into play ending the decades long lock in effects of banks that has dominated the industry and allowing fintechs access to customers’ bank accounts. For years financial institutions have sought ways to work around the PSD2 regulation and lock in consumers and provide them no choice.

This mandatory change will enable consumers better access to fintech services that are more convenient and effective for individual needs. This will drive the next wave of growth and 2021 will see consumers have the power back in their hands when it comes to financial services.

As more providers enter the market to offer financial services we expect lots more debate and discussion around regulation in 2021. For example there has been talk of legislation where banks are incentivised to increase the wealth of their customers and get sanctions imposed when they sell products that are not in the best interest of the customer; through this, providers would need to focus more on offering and selling relevant, beneficial products instead of the ones that bring them the highest margin.

 

Is buy now, pay later here to stay? 

Over the last year we saw a rise in buy now, pay later (BNPL) services as consumers turned to online shopping. Recent research found a 168% increase in buy now pay later apps this year.  Many consumers saw this option of purchasing as less of a risk and will have enjoyed the convenience of it during lockdowns.

That being said: the high growth statistics are only an acceleration of this trend caused by the covid-19 pandemic, and despite its recent popularity the overall share of wallet of BNPL remains very low.

In 2021 we will see whether the shift towards this new way of payment is a short term trend or a long term change. BNPL options both instore and online will become increasingly accessible for consumers due to all the investment made by retailers and payment providers. However, at the same time there has been much discussion around regulation for these services which may slow down the growth they are currently experiencing.

 

Europe’s hidden success stories 

2021 will be a growth year for European fintech companies. Having already had a strong year the continent will build on this as it continues to innovate in the sector. Maybe surprisingly, big and really successful companies are already substantially coming from outside of the big hubs of London, Paris and Berlin.  What we can expect is greater offerings from outside of these big hubs from less expected places across Europe.

So as you can see 2021 is set to be an exciting time for fintech. More regulation leading to greater choice, a permanent change in consumer behaviour driving digital services and new hubs of innovation all combine to make fintech a very exciting industry over the next year.

 

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A GUIDE TO HMO PROPERTY INVESTMENT

Many experienced property investors are turning their attention to HMOs and achieving much higher rental yields as a result. Find out what a HMO is, why they are so popular and how to finance these properties.

 

What is an HMO?

A property is considered to be a house in multiple occupation (HMO) if at least 3 tenants live there forming more than 1 ‘household’ and share facilities with other tenants.

HMOs can have a range of tenants such as students, professionals or for social housing.

 

Why are HMOs such a popular investment?

There’s no doubt that HMO properties are very popular with landlords, the main reason for this is the fact that the rental yield is much higher than with a standard single household type let.

HMOs are let on a ‘per room’ basis i.e. the rent generally covers the use of 1 lockable bedroom and use of the shared facilities such as the kitchen and bathroom. This is in contrast to a single let whereby the rent covers the whole property.

As an HMO has scope for multiple tenants, if a tenant was to move out or to stop paying rent for any reason, there will likely be other tenants still making payments. For a landlord, this can help cash flow, especially if the property is mortgaged.

This isn’t the case with a single let, meaning there can be a greater risk of rental voids. As the demand for affordable housing grows, so does the popularity of HMO style investments to landlords.

 

Are there any drawbacks of HMO property investment?

Like most property investments, there can of course be drawbacks when investing in an HMO.

The main factor when considering investing in HMOs is the interest rate of the mortgage. As this is a more specialised area of investment you may need a special HMO mortgage product, this almost certainly means the interest rate will be higher than with a standard buy to let. As HMO rental income is higher compared to a buy to let, there is still a good profit to be made even if you are paying a higher interest rate.

As there are multiple tenants this can mean multiple tenancy agreements and a greater turnaround of people moving in and out. As such HMOs can be more time consuming to manage compared to a single let.

You must also consider the start-up costs when buying a property to let as an HMO. As each room is let individually, you must consider the fire regulations and things such as waste disposal and planning regulations.

 

What finance is available for HMO properties?

As HMO’s have become more popular the number of lenders offering HMO mortgages has increased, this means a greater choice of products. Interest rates and deposit requirements vary depending on both the property type and the applicant’s profile.

A seasoned landlord generally needs to put down a deposit of 25% whereas a first-time buyer would be expected to pay a 35% deposit. A low-value property or a property with a large number of bedrooms may require a larger deposit, even if you are an experienced landlord.

As with any mortgage, there are other factors to be taken into account such as credit history and personal earned income.

 

What should I look for in a potential property?

When considering properties, there are important factors that need to be taken into account to make sure your property investment is successful.

The location should be researched to make sure there is a good demand for HMO properties in the area, if it’s near a university, hospital or near a large town or city you would expect demand to be high, it is worth speaking to a local letting agent to confirm this.

If the area is already flooded with HMO properties the local authority may impose an Article 4 Restriction. This restriction means you cannot simply convert a property to an HMO, you must apply to the local authority for approval.

Another thing to look for is the size of the rooms, depending on the number of tenants you have, the bedrooms and shared areas have to be a certain minimum size. It is easier to buy a property that is already set up and running as an HMO although you may pay a premium for this.

 

What are the key considerations before moving forward?

HMO’s can certainly be a good investment but you should weigh up the pros and cons compared to other types of lets.

You should also compare buying the property in your personal name compared to buying through a limited company. A good accountant will be able to provide advice on the tax implications involved in each route.

Due to the work involved in running the property, it may be worth using a local letting agent to manage the property for you, they will look after the property and deal with tenants, although you will have to pay for the service.

When looking for a suitable mortgage it is worth speaking with a specialist HMO mortgage broker who fully understands the market. Again, there may be a fee to pay for the service but this will often save you money in the long run.

 

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