Exclusive: ‘Winds of change’ – Gavin McLean, Lloyds Bank in “The Paytech Magazine”
Lloyds Bank is developing its own Cloud-native payments platform to drive greater payments efficiency while keeping a weather eye on innovations yet to be unleashed, Head of Product – Payments, Gavin McLean, explains
The COVID-19 pandemic continues to test the world’s resolve in pretty much all aspects of life. That is particularly the case for businesses. Lockdowns and forced closures have had a shattering impact for many, with the consequential effect of shrinking global GDPs.
But one area that’s proven remarkably resilient against this severest of challenges is payments. Being able to make and receive payments is, of course, the very lifeblood of successful commerce and, according to a Lloyds Bank Commercial Banking report, the UK payments sector had to adapt and innovate as hitherto slow-burn trends skyrocketed when social distancing measures came into force.
The use of cash, for example, declining four per cent a year pre-pandemic, shrank by 50 per cent within days of the UK’s lockdown in March.
LINK, which operates much of the UK’s ATM network, found 75 per cent of respondents to its own survey were using cash less than before the pandemic, no doubt encouraged by the rapid raising of the contactless payment limit to £45. And, to further add to the weight of evidence, retailers, such as large supermarkets, have seen card use rise 78 per cent year-on-year, according to Lloyds Banks’ figures.
As the old Chinese proverb goes, ‘when the winds of change blow some people build walls while others build windmills’. Firmly in the windmill camp is Gavin McLean, head of product – payments, at Lloyds Bank Commercial Banking, part of Lloyds Banking Group, which is involved in one in every three payments in the UK. He’s helped the bank put its considerable weight behind improving or accelerating the use of technologies to help the payments process for both its business customers and individual consumers.
Some pandemic responses have been incremental, such as increasing values for cheque imaging via its app. But Lloyds has also encouraged payment by URL, where a web link is made available by email, WhatsApp, SMS or QR code. And, as ecommerce becomes ever-more important to replace face-to-face transactions, it’s continuing to invest in application programming interfaces (APIs), which offer both speed and new levels of automation.
The Lloyds Bank Payables API, for instance, allows machine-to-machine instructions for the initiation of faster payments, as the clients’ system instructs the bank’s systems via an API, significantly reducing the need for human intervention. The ability to make multiple payments in seconds has so far been used for car finance, salary advances to employees and the rapid return of funds on the sale of investments, with many other uses under consideration.
McLean acknowledges that the trend towards digital in the payments sector has been supercharged by the pandemic.
“At Lloyds we are now partnering with a fintech provider to give us payment by QR code and we’re seeing really strong demand, particularly from our leisure, hospitality and retail clients, who, of course, want to offer quick, secure but, ultimately, socially-distanced payments,” he says.
“These are unprecedented times, but we’re excited to be working with our fintech partners to extend the range of products and support our customers.”
Unlike many emerging nations, which pretty much seamlessly jumped from cash to digital, the UK’s, and much of Europe’s, payment architecture is layered up with legacy solutions, like cash, cheques and chip and PIN, which took several decades to develop and bed in. They continue to co-exist alongside peer-to-peer, pay-by-social and a plethora of other methods. This has, quite reasonably, raised questions over whether the current retail payments architecture, both inter-bank and intra-bank, is fit for purpose.
That question is being addressed by Pay.UK, which manages many of the payments systems, such as Faster Payments, on which British banks – and therefore their customers – depend. Pay.UK is working towards the implementation of a New Payments Architecture (NPA), which has a single, robust and resilient clearing and settlement core for all payment types, and which will incorporate the universal ISO 20022 messaging standard fields being adopted by all the world’s banks using SWIFT by 2022.
McLean sees regulatory changes as catalysts for innovation at the bank.
“Some of our best product innovations have actually been built on the platform of regulatory change,” he says. “If you look ahead to some of the changes that are happening in the UK, in Europe and across the world in the ISO 20022 messaging format, that can be seen as a great opportunity to allow more data to travel with transactions, which helps businesses to identify and reconcile them more easily.
“Not only that, but, because we’re using structured data, we can use that to identify the good actors from the bad actors much better than was possible in the past. So, I think the industry has got to – and we certainly do at Lloyds Banks – view the innovation as a real opportunity for the benefit of our customers.”
In a move that puts it ahead of the curve, Lloyds has recently announced that it will be the first to go live with SWIFT’s new gpi Instant service, which is being initially rolled out in the UK. It connects SWIFT gpi, the high-speed crossborder rails, with real-time domestic infrastructure – in Lloyds Bank’s case, with the UK’s Faster Payments scheme – enabling faster speeds, clarity on fees and predictability on when an end beneficiary’s account will be credited, 24/7.
Simultaneously, Lloyds Bank is developing its own Cloud-native payments-as-a-service platform with payments technology provider Form3.
In announcing the deal, Lloyds Bank highlighted its potential to greatly improve the simplicity and efficiency of the group’s payment processes, creating ‘the basis for Lloyds Bank’s response to the industry NPA initiative while also providing support for enhanced data and new overlay services.
“The competition in payments is healthy – it’s very much keeping SWIFT on its toes – and that is good for end users because that leads to improved speed, improved visibility, and improved reliability of the payments that we all rely on.”
McLean says he is convinced that using Cloud-based technology will also help Lloyds Bank to achieve one of its primary aims of bringing enhanced efficiency – and therefore cost savings – for both the bank and its customers.
“We see the services that Form3 is developing and bringing to the market as being of real appeal and, yes, I think in our own technology environment around payments, we see partnering with a fintech like Form3, and its use of Cloud technology, as a way of reducing the total cost of ownership for delivering our payment services,” he says.
“I think that generally applies to any business. Cloud is going to play quite a big part in the digital transformation, not just of banks, fintechs and payment service providers but also of businesses more generally.”
The seemingly unlimited processing power offered by Cloud-based technologies will also be transformative, forecasts McLean, helping to make permanent many of the changes forced by the pandemic.
Giving examples, he says: “Along with other technologies like the rollout of 5G, it certainly opens up a world of possibilities for business banking customers.
“When it comes to crossborder payments, we also have to deal with things like time zones and the interoperability of the messaging formats we’re using. That’s probably one that’s going to need more technology combinations to come together to solve.
“Where I think the Cloud is going to play a big part, is in making permanent some of the very rapid and very dramatic changes that we saw to consumer behaviour and payment habits as a result of the COVID pandemic. For example, enabling safe and secure remote and digital payments, so that people can pre-order, and click and collect, and pay-at-table – methods that have become very popular, which means the changes from COVID remain permanent.
“I think all of the enabling technologies are going to have a big part to play in making sure that we have payment systems and networks that can cope with the demand that is going to bring,” adds McLean.
While we hope that, by then, COVID-19 itself will no longer be a spectre, it looks as though the wind of change it blew through payments in 2020 scattered the seeds of innovation that will still be influencing all our lives.