More efficient instant payment systems can support boom in London business

Bayes Business School academic believes immediate payment methods, already operating in Germany, represent competition for companies like PayPal.

Ensuring faster and more efficient payment systems is crucial if banks are to best support new and larger businesses in London.

The growth in recent years of the international currency transfer industry has attempted to improve processes which are often laborious, expensive, and offer poor conversion rates.

For the big banks, the conversion to instant payment is also time-consuming and expensive. Deutsche Bank, one of the world’s leading investment banks, based in Frankfurt, has been offering instant payment since 2018, although such a service is not commonplace at European credit institutions, many of whom use an optional payment method.

In the UK, systems exist for consumers to send and receive money quickly through banks – albeit these are often burdened with security risks – although the process is not as smooth for bigger firms. Professor Charles Baden-Fuller, Centenary Professor of Strategy at Bayes Business School, believes a more efficient bank payment system would ensure greater growth and opportunities for business in the capital.

“Speedier, more efficient, bank payment systems are very important for the bigger small and medium enterprises (SMEs) and large firms. Improving the effectiveness of these systems in the UK has had a significant effect across the economy, and this efficiency is a key contributor as to why small digital enterprises want to set up business in London.”

Currently, systems such as PayPal and Payoneer work effectively for consumers and small businesses as payments appear in accounts much quicker than from older form methods, such as cheques. However, they are less appealing because of factors including additional charges which are added to transactions.

And Professor Baden-Fuller believes these instant payment methods represent competition for companies like PayPal, despite the drawbacks.

“The UK has long had an instant payment system for consumers, that allows an individual or small business to send money through the UK banking system with credit provided to the recipient the same day. This allows many transactions to be speeded up, and life to be much more efficient when compared to cheques and old-fashioned payment systems.

“In most cases, instant banking payment systems do not involve charges for the recipient or the sender, and so represents much better value than credit cards or PayPal. They are preferred for moving large sums. However, in almost all cases, the sender must do more work and faces some small risks. The sender must ascertain the recipient’s bank details and be certain to enter them correctly into the system which takes time, although the UK now has strong checking mechanisms that really help check the recipient is correctly entered.

“PayPal and credit cards are much simpler and even faster to use for the payer and are very attractive to the consumer or business for small transactions where time is scarce. But credit cards and PayPal force the recipient to accept lower margins on account of their charges.”

All quotes can be attributed to Professor Charles Baden-Fuller, Centenary Professor of Strategy at Bayes Business School.


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