2. An interview with Terence Trench
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We interviewed Terence Trench, Director of Mobile Payments within Corporate Banking
at Barclays for his views on payment innovations at work in the UK.
There appears to be an endless stream of new
payment companies and newly developed
technologies – what is your take on what is going on?
The payments space is certainly seeing lots of new
activity. It reminds me of the heady days of the mid
to late 90s when eCommerce came to the fore. At
that time, we saw the traditional bricks and mortar
merchants try to dismiss and then to compete with
their online disruptors who used the internet and
payment cards to make geography irrelevant, and in
doing so the internet Payment Service Provider (PSP)
industry was born.
A range of start-ups began to develop alternative
payment methods based on the then emerging
art of cryptography, driving toward the creation
of digital alternatives to hard cash.
It was the time that we saw the EMV (Europay,
MasterCard and Visa) chip card introduced to
supersede the magnetic stripe card.
The parallels with today are quite strong. The
customers of traditional financial institutions such
as banks and brokers are becoming the target
audience of new FinTech ventures. Also emerging
is the technology of blockchain and distributed
ledgers, made famous by Blockchain’s claim to be an
alternative to not just cash – as was tried in the 90s –
but also to national currencies. Furthermore, ApplePay
and its Android equivalents have potentially started a
longer term move to dematerialise the now chip card.
But there is hopefully one big difference between
then and now. The turn of the millennium brought an
end to the easy money of the dot com and telecoms
investment bubbles, and this quickly separated the
winners from their contenders and the ‘way too early’.
Today, in contrast, the innovation we can clearly see
around us was born in the lean times of a protracted
recession. This, along with a now tech-savvy and
‘connected’ population, could mean a much longer
period of disruptive innovation and more intense
competition from ‘me too’ offerings. Will this mean
that the sheer number of innovations will spread the
early adopters so thin that none can build the critical
mass needed to genuinely change things or does it
increase the chance of genuinely radical change?
I can’t wait to find out.
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You have mentioned chip cards, Apple Pay and
eCommerce. Where do you do see the next
big area for payment innovation in the next two,
five or even ten years?
To be frank, I don’t think real payment innovation
can be measured in anything less than decades.
To explain: the date of the first modern credit card
is widely attributed to the launch of Diners Club in
1950. That makes payment cards at least 65 years
old and, despite the amazing growth of credit and
debit card issuance since then, the almost universal
acceptance of cards by merchants the world over
(including now with contactless cards addressing
the last bastion of cash – the sub-£10 transaction
such as a pint at your local pub), cash is fighting fit,
especially outside of areas of high population density
where the economics become more challenging.
To reinforce that point, I ask colleagues and clients
this question: why was the credit card invented before
the debit card? Most don’t volunteer an answer, and
few get it right. It was not because the banks of the
time wanted to issue more consumer credit. The
credit period was in fact a consequence of the fact
that it could take 30 days for the bank to learn of the
transaction as they waited for a piece of signed paper
to turn up before charging the payer’s account. And if
you think that is crazy, you may be surprised to hear
that in 2016, millions of paper cheques are couriered
across the UK every day for the very same reason.
So, if I had to hazard a guess at what will be the
‘next big thing’ in payments, I believe we will see a
significant change in cheque handling as cheque
imaging is introduced in the UK. While Barclays are
piloting this with our retail customers I suspect the
biggest benefit will be to those businesses whose
customers prefer to pay them with cheques.
Another innovation that I am particularly excited
by is the first genuine alternative to cheques.
Surely there are already lots of suitable
alternatives to cheques?
It’s true that many cheque payments have already
been replaced by electronic methods over recent
years, the most obvious being salary payments via
Bacs Direct Credit, which was introduced back in
1968. The growth of Faster Payments, introduced
in 2008, is also a growing alternative for irregular
payments. But have you ever wondered why
businesses still issue cheques?
It’s not because they are resistant to change. You
may even be surprised to learn that the increased
requirements to secure card and account information
are reinforcing the merits of a cheque. There are
two key advantages to a cheque that after 65 years of
payment innovation have not been matched – until now.
The single largest advantage is that paying someone
with a cheque does not require handling any
sensitive payment information about the payee, and
this avoids many indirect costs to a business such
as properly trained staff and secure systems. The
second advantage is a crossed cheque must be paid
into an account of the same name to be honoured.
It’s 2016 and I don’t know of any other major
payment method that validates the payee rather than
– or in addition to – the payee’s account number.
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This may change with the adoption of alternative
account identifiers, such as email address and,
increasingly, a mobile phone number. The UK is
particularly strong in this field as evidenced by over
three million users of Pingit, the award-winning
mobile payments app from Barclays, and more than
three million users of Paym – a service supported by
17 banks and building societies including Barclays
and built into the Pingit app.
The principle is simple: an account holder wishing to
receive money registers their phone number as an
alternative account identifier and, as a result, they no
longer have to give out their account details – which
can be misused – in order to receive money instantly
and electronically – via the Faster Payments System in
the case of Paym. Within the Pingit app for example,
the sender of the funds will be able to confirm before
paying that the account holder’s name registered by
the bank holding that account is the payee they expect.
While Pingit and Paym are predominantly marketed
to individuals and small businesses, I am excited to
be working with businesses issuing large numbers of
cheques on a new innovation: displacing their cheque
volumes with disbursements via Pingit and Paym.
Pingit and Paym are based on phone numbers; what
about the actual handset – what role does it have?
The smartphone is amazing, but those of us who
remember the struggle with analogue phone
networks and the arguments over phones versus
PDAs (that is before the iPhone and 3G settled the
argument), will note that it has actually taken at
least 16 years to get here.
To me, ‘here’ means the smartphone can now start
to challenge the physical card, allowing chip and
PIN type transactions. While these transactions can
take place at the point of sale, I think the experience
needs to improve if it is to be a real contender.
However, I am truly excited by the potential to
offer a chip and PIN-like secure payment when
you are not at the point of sale, for eCommerce,
possibly displacing the 3D Secure authentication
experience that is currently its closest equivalent.
Again, I note that this concept was addressed in the
now superseded EMV Chip Electronic Commerce
specification agreed around 1999.
But exciting as this phone-based innovation is, it is
simply moving a card transaction from a chip on a
card to a chip on a phone and is not fundamentally
changing how an originally paper payment system
works. The smartphone however can also help pure
digital ‘push’ payments to grow.
5. What is a push payment and how does the phone
help with its adoption?
To best explain a push payment, let me first describe
a pull payment. A pull payment is the type of
payment method we are most familiar with – it’s
the credit and debit card, the cheque and the Direct
Debit. The principle is simple: a bank hands their
customer their account details and in turn they
hand it to a business that uses this information to
pull money from that customer’s account. It works
fantastically well and we trust it, but it doesn’t take a
genius to ask if there isn’t another way. Frankly, there
wasn’t a practical alternative 65 years ago and, by
and large, most of today’s mass consumer payment
systems were originally designed around paper and
wet signatures. That is no longer the case.
With today’s technology, we can now look at pure
digital systems that push money instead of pulling it.
In this scenario, the account holder pushes money
to individuals and businesses without the need to
expose their account details. They remain in control
of when the payment takes place and the amount.
Here again the UK is very well placed to pursue this
with its Faster Payments Service but, despite being
free and available to almost all banked individuals,
it hasn’t in my opinion delivered the full promise of
a push system. This is because the recipient rather
than the payer now has to expose their account
details and businesses are at the mercy of their
customer faithfully entering the correct referencing.
This is where the connected smartphone comes
to the fore. Instead of dematerialising a chip card
(ironically originally designed to support off-line
transactions) the phone can allow a business to
launch and populate a compatible bank payment
app, such as Pingit. This can be done via a button
on the businesses’ app or website, a link in an email
or SMS, or by scanning a QR code. In doing so, the
customer is directly connected to their bank and
presented with a simple screen displaying who they
will pay and the amount.
As a result, the payer remains in complete control,
they and the business do not expose any account
data which can be misused and, critically, the
business gets all of the transaction data it needs. In
the case of Pingit, both the data and cleared funds
move in real-time. Equally important, as the payer is
connecting directly to their bank, the fraud risk rests
with the bank as they are the party best placed to
authenticate their customer.
For me, this represents a really exciting innovation
as it engineers out many of the issues and costs
associated securing a pull payment such as Payment
Card Industry Data Security Standards (PCI DSS)
and tokenisation.
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6. Where else do you see major innovation?
The last two decades have seen a dramatic
change in consumer payments away from paper
to the digital when paying shops, restaurants,
hotels, airlines and, most dramatically evidenced
by the removal of cash from London buses. This
will undoubtedly continue as consumer-facing
businesses take advantage of their customers’
phones and in turn demand faster, easier, safer
payment methods to complement their offerings just
as the original online merchant did twenty years ago.
The last four decades have also seen the larger and
more sophisticated corporations benefit from SWIFT,
payment within EDI (Electronic Data Interchange),
and closer technical integration with their banking
partners. Smaller and newer organisations – having
fewer legacy systems – have been able to adopt the
latest innovations such as cloud-based systems,
integrating them more smoothly with their banking,
billing and payment systems.
However, I am absolutely convinced there is a major
untapped sector that has missed out on much of
the innovation in payment and technology more
generally. It is the mature, medium to large sized
businesses that are burdened with once successful
systems, reliant on predominantly semi-manual
payments via banking portals or older systems, and
trapped by both a lack of IT expertise and limited
IT budgets. This is an area ripe for innovation.
But you haven’t mentioned blockchain?
Indeed, blockchain and distributed ledger
technology have great promise, maybe not for
consumer payments in the foreseeable future, but
for payments with or between large corporations,
financial institutions and governments.
However, as you may have detected, I think it
takes decades for an innovation to take hold in the
payments space. I believe this is because building
scale is so critical to make the economics work, and
to get scale you have to have interoperability, and
to have interoperability, you have to compromise –
and therein lies the problem. Innovation is born
of mavericks seeking change – not compromise.
This article was originally featured in the Marketforce
Cards & Payments Innovation Summit conference
brochure, May 2016.
Barclays is a trading name of Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential
Regulation Authority (Financial Services Register No. 122702). Registered in England. Registered number is 1026167 with registered office at 1 Churchill Place, London E14 5HP. Item Ref: BM410143. May 2016.
Terence joined the Global Cash
Management team in Barclays
Corporate Banking in 2013 to help
commercialise the award-winning
mobile payments app, Pingit,
for use with large organisations
to collect payments or to pay out money to
individuals and small businesses.
Over his 20 year career in the payments sector,
he has worked on emerging innovations such as
eCommerce, chip cards, payment authentication
and various forms of mobile payments. He
has worked with start-ups as well as with
large companies such as Barclays and Visa
International in the US, the UK and France, and
gained his experience working with clients and
partners in regions such as the Americas, Africa,
Asia and Europe.
About Terence Trench
