michael chambers presentation at payment strategies 2015 conference

3 JUNE 2014 TWITTER: @BACS_CEO

REGULATION, RISING TRANSACTIONS VOLUMES, AND

THE CHALLENGES OF OUR MULTI-CHANNEL UNIVERSE

MICHAEL CHAMBERS, CHIEF EXECUTIVE OFFICER

© 2015 Bacs Payment Schemes Limited

2 Regulation, rising transactions volumes, and the challenges of our multi-channel universe

PAYMENTS LANDSCAPE


Backdrop of rapid change:

• Legislative and regulatory changes

• Technological advances

• Drive for innovation – positive change

• Primary payment substitution for new payments of known / regular commitments

RISING TRANSACTIONS VOLUMES

VOLUMES


Steady rise in Direct Debit volumes

• Increased by 4% in 2014 over 2013

• Growth despite bundling of bills

• Growth areas: mobile phone; online purchasing account funding

• Single day processing record broken already in 2015 – forecasts show another record likely to be set shortly

Bacs Direct Credit holding its own

• Rise of 2.5% in non-benefit payments compared with 2013

• 1 bn benefit payments

DVLA AND DIRECT DEBIT


• Launched Oct 1 2014

• By end of April 2015, 5.9m people signed up

• Just under 1m sign ups in April alone

• 18.4m Direct Debit payments processed Oct - April.

• Largest single day volume processed reached 3.9m payments in April

• Significant growth expected over the next 5 months

REGULATION


REGULATION AND THE VALUE CHAIN

REGULATORY IMPACT ON BACS


PSR objectives:

• To ensure that payment systems are operated and developed in a way that considers and promotes the interests of all the businesses and consumers that use them

• To promote effective competition in the markets for payment systems and services - between operators, PSPs and infrastructure providers

• To promote the development of and innovation in payment systems, in particular the infrastructure used to operate those systems



Bank of England regulatory oversight:

• The Financial Services Act (2012) established an independent Financial Policy Committee (FPC), a new prudential regulator as a subsidiary of the Bank, and created new responsibilities for the supervision of financial market infrastructure providers.

• The Financial Policy Committee (FPC) is charged with taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system.

• The Committee has a secondary objective to support the economic policy of the Government.



CPMI IOSCO:

• To cooperate in developing, implementing and promoting adherence to internationally recognised and consistent standards of regulation, oversight and enforcement in order to protect investors, maintain fair, efficient and transparent markets, and seek to address systemic risks

• To enhance investor protection and promote investor confidence in the integrity of securities markets, through strengthened information exchange and cooperation in enforcement against misconduct and in supervision of markets and market intermediaries

• To exchange information at both global and regional levels on their respective experiences in order to assist the development of markets, strengthen market infrastructure and implement appropriate regulation



FCA aims for CASS

• Increase awareness of, and confidence in, the service

CMA retail banking market review

• Impediments to customers’ ability to effectively shop around, choose and switch products or suppliers, resulting in weak incentives for banks to compete for customers on the basis of price, quality and/or innovation.

• Concentration giving rise to market power of some banks leading to worse outcomes for customers.

• Barriers to entry and expansion leading to worse outcomes for customers.

MULTI CHANNEL UNIVERSE

PAYMENTS – THEN AND NOW


Pre – 1950

• Cash

• Cheques

1950 – to date

• Direct Debit

• Debit cards

• Credit cards

• Online payments

• Prepaid cards

• Faster Payments

• Contactless

• Mobile wallets

BILLS


1970:

• First bill paid by Direct Debit – energy; fewer regular bills

2014:

• Average household had eight Direct Debits

• 79% of individuals have at least one Direct Debit

• 85% of people have a positive attitude towards Direct Debit

• Direct Debit is used to pay 71% of household bills

• 45% of people would prefer to pay all of their bills by Direct Debit

TECHNOLOGY IN SOCIETY


• 85% of 16-34s have a smartphone*

• Smartphone ownership in 55+ age group is 52% – up from 9% in 2012*

• 1.2 million Apple apps, 1.3 million Android apps

• 22 million GB households with internet access (84%)**

* Halifax Insurance Digital Home Index Survey 2015

** ONS 2014

INNOVATION IN ACTION - NEW WAYS TO USE DIRECT DEBIT


Embracing technology with Direct Debit app

Adding more flexibility to Direct Debit payments

Collecting micro-donations electronically for charity

FLEXIBLE DIRECT DEBIT


• Sign up in normal way

• Text message before collection, with option to skip – Pause Direct Debit

• Also option to change amount

• Trial under way by Bacs approved bureau and a major charity

FLEXIBLE DIRECT DEBIT - MARKET OPPORTUNITIES


Irregular or discretionary payments

• Mobile phone top ups

• Gym membership

• Pre-payment meters

• Home media packages

PENNIES – THE ELECTRONIC RATTLE TIN


• Pennies - digital charity box bringing dropping coins into charity tin into 21st century

• Using Direct Debit, customer can round up bill; extra pennies go to charity of service users’ choice

• Small donations – ie less than £1 – collected directly from customer’s account by biller and credited to Pennies

• Customer would have chance of opting in and out = control over charitable donation

• More than 3bn Direct Debits collected every year - potential valuable source of income for charity sector

3 JUNE 2014 TWITTER: @BACS_CEO

REGULATION, RISING TRANSACTIONS VOLUMES, AND

THE CHALLENGES OF OUR MULTI-CHANNEL UNIVERSE

MICHAEL CHAMBERS, CHIEF EXECUTIVE OFFICER

michael chambers presentation at payment strategies 2015 conference

Technology

rising transactions

channel universe regulation

ceo regulation

direct debit volumes

payment systems

new payments

direct debit payments

payments landscape