Strategy&: Top 4 trends for the credit card industry

02 January 2015

The payments industry has gained prominence in the past years and to continue on this path of success, credit card companies should adjust to four arising trends that are expected to reshape the industry, says consulting firm Strategy&. Companies that are able adapt through innovation, increased rewarding systems and mobile wallet offerings, are expected to gain the most success in the coming years.

Strategy consulting firm Strategy& recently released its ‘2015 Payments Industry Trends’ as part of its ‘Industry Perspectives’. In this perspective, the firm identifies opportunities and challenges that lie ahead of the payments industry in 2015. This industry, also known as the credit card industry, includes organisations that store, process, and transmit cardholder data.

Strategy& states that in the coming year the prominence and usage of credit cards will continue to grow as payments firms will reach millions of new customers in emerging regions. In order to thrive, payments firms should “be responsive to customer preferences, prepared to develop valuable new features, and sufficiently nimble to anticipate and counteract competitive.” The firm has identified four key trends that could reshape the payments industry in the coming years, trends credit card facilitators should adjust to.

Strategy& - Creditcards

Branding battles
More and more e-commerce sites, such as iTunes, Amazon and Uber, are storing consumer credit card information. This speeds up purchases as the consumer does not need to re-enter his data with every visit. For credit card providers that have their cards listed as a primary card at the most popular e-commerce sites this stored data provides a competitive edge. According to Strategy&, it would be wise for credit card issuers to create aggressive incentives for merchants to promote their card as a primary choice through cross promotion deals.

Innovation in underwriting
Innovation in credit card scoring will provide opportunities for card issuers as the traditional credit card scoring forms an imperfect measure of borrower risk as it can keep many consumers out of the marketplace. People with high student loan debt, for instance, might not be eligible for a credit card even though they might be a worthwhile risk for a creditor. Strategy& highlights examples of innovative credit scoring for instance using rental records, cell phone payments, and behaviour on social media sites. Crowdfunding is also predicted to make great gains in the coming year, with crowdfunding technology providers increasing their transaction volume.


Rewards 2.0
A third opportunity for companies in the payments industry, as seen by the researchers, arises from the use of consumer data to create sophisticated merchant-funded rewards programs. In an era of ‘big data’, these rewards programs are becoming more and more pervasive as they integrate the consumer’s path to purchase and as such become more relevant to the individual consumers. As a result, sales per customer are expected to increase.

Mobile wallets
The adoption of mobile wallets will allow for an easier and more comfortable shopping process as they will speed up the checkout process and make a consumer’s life easier. For credit card companies to gain significant traction in the marketplace, the researchers emphasis the need for more collaboration on open technology platforms.

Mobile Wallet

These four challenges should be addressed by the payments industry for the industry to continue its growth process. In conclusion the researchers say: “As the payments sector deals with these potentially disruptive changes, the issue of protecting individual data will only grow in importance. For this reason, the industry must work together to earn the confidence of the consumer. But those companies that innovate best around branding, rewards, underwriting, and mobile usage are bound to realise the greatest profit and market share gains.”


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Late payment culture cripples productivity of SMEs

29 March 2019

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.