Challenges of Electronic Payments

In the last week there have been a number of payment related stories. What links them all is that they demonstrate that electronic payments face a range of challenges that have a direct impact on customers. The role of the regulator is evident in all of them whether requiring action or ‘guiding’ providers to take action.

Data: Amex sent customers marketing emails even though they had opted out of receiving them according to the UK’s Information Commissioner’s Office. As a resulted he fined Amex £90,000.

Fees: European payment service providers pay 0.20 eurocent per instant payment transaction but sometimes are charged at €1 per transaction. ECB board member Fabio Panetta said ‘This must change. For instant payments to become the new normal, they must be cheap and easy to use. We would also like to see providers make instant payments available on all commonly used electronic channels and offer much-desired functionalities such as Request-to-Pay.’

Protection: UK electronic money institutions (EMIs) are regulated by the Financial Conduct Authority (FCA). The FCA has written to the EMIs requiring them to write to their customers by the end of June informing them how their money is safeguarded, (as opposed to traditional bank accounts which are covered by the Financial Services Compensation Scheme).

The EMIs are unhappy about this requirement since they have to keep 100% of their customers’ money in a secure safeguarded account and, unlike the banks, can’t lend it out. In addition, few of their customers are likely to be holding £85,000 or more, the amount above which their balances would not be protected in the case of a corporate failure.

Crime: Crime related to online accounts has risen sharply during the pandemic, in particular authorised push payment (APP) fraud which reached nearly half a billion pounds in 2020. The UK’s Lending Standards Board overseas a voluntary code which many of the biggest banks and building society have signed up to. Between May 2019 and July 2020 banks decided that 77% of fraud victims were partially or fully to blame for their losses and in only 11% of cases were the victims blameless. As a result, in 60% of cases customers were at fault and so liable for their losses.

Resilience: Santander recently suffered a Saturday when its telephone, online, mobile, branch, card and cash machine services experienced technical issues such that some customers could not make payments. Banks are required to pay compensation in some circumstances.

Perhaps it is the case for electronic payments that needs to be made as much as the case for cash.