New Zealand’s shifting payments environment

The changes we were seeing in payments in 2019 have largely been accelerated in response to the pandemic and the need for greater digital connectedness across communities, both nationally and internationally.

“There are many unanswered questions… including whether consumers in different regions around the world will revert to in-person purchasing after the pandemic.”

Our intention with the scan is to identify the global trends and influences likely to impact the New Zealand payments ecosystem over the next decade.

What we see with the latest scan is not so much a shift in those trends identified in 2019 but an acceleration. But there have been some notable shifts in emphasis.

Firstly, the pandemic has reshaped consumer and organisational behaviour. We expect, in most cases, these changes will be enduring. Payments will need to adjust to these behaviours now considered the ‘new normal’.

Secondly, cybersecurity is also now a considerable point of emphasis given the pandemic has exposed cyber vulnerabilities and, in some cases, a lack of preparedness. Cyber criminals are increasingly becoming more sophisticated and capable of launching attacks on a scale that was previously unimaginable.

Finally, central bank digital currencies have moved into mainstream discussions about the future of money because they are seen to have the potential to improve both financial stability and financial inclusion.

The findings in this scan reinforce the view New Zealand’s key pieces of work continue to head in the right direction. Our API Centre continues to be well-positioned to respond to the New Zealand government’s latest announcement that a new legislative framework for a Consumer Data Right - that closely mirrors Australia’s regime - will be introduced in New Zealand.

Our Payments Direction plan, which sets out a future view of the payments ecosystem through to 2030 and identifies the capability building blocks required to deliver on that future, has had broad industry engagement. A key piece of feedback was the need to better define what real time payments could look like in a New Zealand context.

Meanwhile, Kiwis are continuing to make good progress with core clearing systems work. Projects like supporting Payments NZ participants through the transition to ISO 20022 and SBI365 ensure the nation’s payments system remains interoperable, innovative, safe, open and efficient.

Payments NZ has also worked with participants to ensure a smooth transition as they stop accepting and issuing cheques.

With the 2021 Scan, Payments NZ has re-confirmed the six themes from 2019 that are material to the payments ecosystem of the future remain accurate and on point.

They are that:

1. Payments are continuous and increasingly international in orientation;
2. payments are faster, more mobile, more informative, less visible, and increasingly better linked across the value chain;
3. payments infrastructure refreshes and renewals are widespread;
4. financial services and payments regulation is expanding and aiming to produce more inclusive and resilient systems;
5. payments security and authentication is a key concern; and
6. payments associations face increased expectations.

When we look deeper into the findings, the structural changes identified as accelerating include:

• The move towards online everything. Nearly all sectors of the economy, from retail to professional services to health and education, were suddenly online to a greater or lesser degree.
• The need for deeply engaging digital experiences. The depth of digital experience is important in a world where in-store browsing is no longer perceived as being without risk and the widespread availability of broadband internet is commonplace.
• The push towards automation. Automated processes facilitate quick delivery of products to consumers, especially where payments are integrated as part of the purchase process.
• The ability to work remotely. Platforms like Zoom and Microsoft Teams have established it is possible to manage a fully distributed workforce in many sectors, although some business processes have yet to be fully integrated into the remote working environment.
• An emphasis on closing the digital divide. The pandemic has sharpened the focus on access to high-speed broadband and on the exclusion that occurs when certain members of a community do not have access to either devices or the enabling infrastructure.

While COVID-related recessions around the world have, in general, been less severe than first predicted, there is a growing sentiment that structural changes of the type identified last year are more likely than not to become entrenched.

As 2021 unfolds, the rollout of vaccines around the world has begun to offer hope we may be able to return to our pre-pandemic lives, at least in part. But there are many unanswered questions which still need to be addressed, including whether consumers in different regions around the world will revert to in-person purchasing after the pandemic.

There are broader questions too for the economy including whether we are moving to a hybrid future of work where employees split their time between the traditional office, working from home and co-working hubs in satellite locations. And how will global mobility be impacted in a world where borders are not fully open?

Some questions are more profound such as whether COVID-19 has changed the role of the state in most economies for the longer term. Others, such as how will bigtech be regulated and to what extent will an open data ecosystem for finance be realised, are more familiar while no less uncertain.

In the two years since our last scan, the lines dividing our physical and digital lives have become increasingly blurred. In many respects the distinction between the physical and digital has now dissolved to the point where those worlds are one and the same.

The progressive merging of the physical and the digital was well underway before COVID-19 but has accelerated markedly since the pandemic took hold.

Steve Wiggins is Chief Executive of Payments NZ

Payments NZ is an industry body formed in 2010 to ensure New Zealand’s $NZ6 trillion of annual payments are simple and secure. The body has the support of the Reserve Bank. It governs New Zealand’s core payment systems and works with the industry to lead the future direction of payments in New Zealand.