Category Archives: Trending

Being At The Table – A CPO’s Tale Of Woe

This article was originally published on LinkedIn. You can find it here.

Some days ago while having a business lunch the topic of “being at the table” arose. It was our client’s fervent hope that as a newly appointed CPO, (a move that presumably underlined the importance of procurement) he one day would sit as a peer at the EXCOM table contributing to the strategy, growth and performance of the business. Well, thinks I, what a wonderful place to consider the notion of being at the table, while being at a luncheon table myself. It got me to thinking of the roles and responsibilities of those at and around the table.

The Options

Of course there are those whose knowledge, experience, and position, earn them a right to 1) be at the table and direct the actions of others, but there are also others at work in this community. There are those who 2) serve the table and whose unique knowledge and skills answer the call for action from those seated. Then, there is 3) the chef whose specialised skills provide the provender for consideration, and lastly there is that which is 4) to be eaten (a role that I vaguely felt myself as having held a few times).

I further reflected on how many times I heard this same refrain from many CPOs whose pre-dominant career objective was to be recognised for contributing to the business at the highest level and ultimately report as a board level peer.   Moreover, I thought back on the many organisations I have come across where the “vital” role of procurement was often tucked way neatly in the CFO shop or Business Services shop where the chance of ever getting a seat at the executive table was remote at best. Given the fact that procurement is now recognised as a key stakeholder in organisational performance, what is holding it back from somehow being fully accepted into the community of senior leaders? While no answer is fully sufficient in a short blog, a couple of themes have emerged over the years in our work with organisations going through their own procurement transformation.

While business knowledge and acumen are the principle differentiators between those around the EXCOM table and those not, there is something more fundamental that is separating the procurement leader from the full approbation of their business colleagues. To put it back in the frame of my table metaphor,

you don’t belong seated if you still sound like a waiter”.

And that is the essential point.

The Prerequisites

Two major things must occur that help propel procurement organisations to the senior level of strategy. Firstly, procurement must lose the connection to purchase orders. I hear some of you shouting “Heresy!”, but what I mean is that the procurement leader has an extraordinary difficulty of representing him/herself as a strategic player when the next topic of conversation is; “What is your order placement efficiency?“ Every effort should be made not to own any portion of the operative procurement cycle.

Secondly and most importantly, is the fact that procurement organisations often make a vital error by creating a separate strategy for themselves that does not altogether align with the strategy of the business. What is more, is that the strategy is often unclear how it contributes to the business in a way that satisfies more than just the finance manager. We often find that procurement leaders speak a different language from that of other senior business leaders. While they speak of category strategies, the business is interested in how real projects bring value to their organisations. While they speak of vendor management and control the business is seeking out how external innovations can help fuel business growth.

The Solution

We advocate two distinct approaches to these dilemmas.

Firstly, develop a strategy that links to the business and directly connects benefits generated to your internal clients. We call these the pillars of successful strategic procurement and the steps are broadly as follows:

  1. Create a procurement strategy directly linked to the company’s goals
  2. Embed the annual procurement cycle into the company business cycle
  3. Drive “Lighthouse” projects directly supporting internal business clients
  4. Pull value through by having the ability to directly influence team actions
  5. Ensure that reporting is visible to your customer and ideally conducted by an organisation other than procurement

Secondly, develop an improved process of understanding the needed innovations required by your ultimate customer and significantly improve the way innovations are sought, collected, evaluated and ultimately adopted from the supplier base. We call this call the Trading Relationship Management process, and Procurement has a natural home at the heart of it.

While there is no guarantee that armed with these dual capabilities, there will be instant recognition of procurement as a future EXCOM member. However what is certain, is that Procurement will begin to demonstrate that it is not just generating business wide savings but can show where and how that value is generated and most importantly how such benefits accrue directly to internal stakeholders. Likewise other business leaders will also recognize procurement’s role as the conduit to supplier enabled innovation. Taken together, these elevate the strategic language of the function.

I explored these ideas with my lunch guest who understood and recognized how important it was for his team to strategically transform, but like so many such discussions it had to be cut short due to pressing issues at the client’s facility (I think he had to go check how many requisitions had been placed that day).

Temporary Worker Costs: Top Tips For Boosting Value For Money

This is a guest post from Jamie Eaton – Head of Marketing & Insight at Comensura.

It might come as a surprise to some, but the cost of temporary workers goes beyond their salary or hourly rate. From ensuring that you have acceptable pay rates and costs in place to standardising expenses, there are a number of steps that organisations can take to ensure they’re getting value for money and they’re not presented with any hidden surprises each month.

By implementing the following measures on pay rates and costs, organisations can minimise costs incurred by a temporary workforce:

Ensure transparency

Recruitment agencies inform you on the pay rate for each temporary worker, and it’s important that you make this information visible to managers within your organisation. Look at the pay rates for temporary workers across the organisation and ensure they are consistent with those of workers performing similar tasks, and align them with that of permanent workers. This will help reduce any anomalies that might exist, and standardise pay rates to prevent workers demanding a raise based on how others are paid.

Benchmark against local employers

Probe into the pay of temporary roles in the area. Local sources such as recruitment agencies, competitors or the Jobcentre Plus may give you access to how much people are typically paid in the types of temporary jobs that you provide. This will give you a better idea of suitable pay rates and prevent you from paying over the odds.

Align with your employer brand and strategy

Your organisation may look for specific traits in candidates to fill certain roles, which you should abide by when procuring temporary staff. Vacancies are then more likely to be filled by a type of worker that has previously performed well in a similar role. Ensure that you’re offering a pay rate that will attract this kind of person.

Implement authorisation processes for inflation

It’s inevitable that you’ll need to uplift pay rates from time to time, particularly as a response to changes in the job market. The most efficient way of doing this is by using an approval process that consults all the relevant people and ensures that the rise is reasonable.

Standardise expenses

Temporary worker expenses such as travelling costs and accommodation can sometimes be forgotten about, even though it collectively amounts to a considerable cost. Determine what constitutes acceptable expenses for your organisation and apply it as a standard rate for every temporary worker.

There are many benefits to reap from the use of temporary workers, such as flexibility and the ability to cover permanent worker absences. But without maintaining the overall costs, you risk it being a drain of resources. By putting processes into place that determine acceptable pay rates and costs, you can ensure that you’re getting value for money when procuring temporary staff and that you’re carrying out the process cost-effectively.

Talking S&OP with Patrick Vialle of Parmalat

Based on a recommendation I got from Julie Egonidis of The Faculty off the back of its recent procurement roundtable series. I caught up with Patrick Vialle of Parmalat Australia to discuss an interesting S&OP (supply and operations planning) project the company has been working on.

Patrick has had a truly international supply chain career, having worked in France, Italy, New Caledonia and now in Australia where he’s employed as the National Demand & Supply Planning Manager for the dairy producer.

For those of you that are unfamiliar with the term, S&OP, put simply, it involves understanding the demand profile for your organisation’s end product and closely linking supply chain (and other functional) activity to mirror this demand.

It’s not just for FMCG

I was keen to get an understanding of how Parmalat was able to connect the dots between its market place demand and the supply and production of its own products. I thought, naively, that due to short shelf lives; S&OP was something that was unique (or at least more common) to the food and FMCG industry. But after chatting to Patrick I began to understand that S&OP is a solid business practice whatever industry you’re in. As Patrick points out, it’s all about being responsive rather that reactive.

Patrick explained how the theory of S&OP can be used by firms that don’t even produce a physical product. If Google, for example, is able to understand the demands that its network is likely to come under over the coming weeks and months, the company can start to make arrangements for the required storage and data processing capacity (their supply) to match these demands, hence avoiding an oversupply or worse, a crash.

Cross Functional by Nature

Speaking of his own experience at Parmalat. Patrick discussed the need for S&OP to be addressed from an organisation-wide perspective. “S&OP is, by definition, a cross functional process” he said. It might make sense that procurement or supply chain lead the project because they have close relationships with the supply base, but stakeholders from every area of the business need to be involved if the project is to be a success.

Patrick explained how the Parmalat team responsible for delivering the project was comprised of a mixture of professionals from Sales, Finance, Marketing, Engineering and Procurement. He also said the team was made up of ‘believers’ (those who were sold on the benefits of S&OP) as well as staff that needed some convincing of the project’s merit. This led to strong debate within the team and gave the group vital preparation for the sort of resistance they would face in the implementation phase.

Patrick went on to discuss that Parmalat rolled out the program initially to one category as a sort of pilot project; this process took about six months to get operational. Once the initial program was returning positive results, the firm looked to roll S&OP out across the business.

It doesn’t have to be Lean

I also questioned Patrick on the ‘lean’ aspect of S&OP projects. I feared that closely linking supply and demand could leave organisations exposed should something untoward or unplanned happen. Patrick explained that S&OP doesn’t need to be lean; you can plan for risks and have buffer stock just like before. “It’s all about being responsive to the different scenarios your business might face and having a plan to manage the impact of each of those situations,” he said.

The Benefits

Parmalat’s program has reaped huge benefits for the organisation. Numerous customer surveys have shown that customer service has improved drastically across the business. Supply is now faster and more reliable. Parmalat has not only become a better supplier, but the firm has become a better customer to its suppliers as they are now able to provide a clearer picture of what they will require and when they will need it.

The S&OP program has improved forecasting accuracy at Parmalat by a remarkable 60 per cent. This has been hugely beneficial in terms of reducing waste and optimising resourcing solutions.

Patrick’s story is another example of the truly innovative procurement work that is being discussed during The Faculty’s Roundtable sessions. If you are based in Asia or Australia and would like to get involved in their upcoming discussions, contact Max Goonan at The Faculty.

Construction & Transport Industry Facing Effects Of On-Demand Economy

The construction and transport industries are beginning to feel the effects of an on-demand economy.

According to popular jobsite Indeed.com, employer demand is now outpacing jobseeker interest in the construction and transport sectors.

While job growth in the construction industry has increased 10 per cent in the last quarter, jobseeker interest in these positions has remained stable since the beginning of 2015.  Similarly, Transport has seen a 13 per cent increase in job availability compared to last quarter, while jobseeker interest in these roles has fallen  2 per cent in August from its peak in March.

The figures suggest these industries are amongst the first to feel the impact of an economy that is increasingly reliant on contractors and temporary hires, with an increasing number of tradesmen and drivers branching out to start their own businesses or work on a contract or freelance basis. This trend is more evident for electricians – job searches for electrician including the term self-employed has grown 61 per cent since Q4 2014.

Gerard Murnaghan – VP EMEA, Indeed, commenting on the market, said: “The tightening labour market in the UK coupled with the prevalence of self-employment is likely to accelerate this trend in the run up to and following the introduction of the new minimum wage, which will come into force in April 2016.  SMEs and micro firms are major contributors to growth in both of these sectors and the backbone of the UK economy. The wage increase may discourage them from taking on additional, junior staff.

This is a particular concern in the construction sector, which is grappling to attract young talent in an industry which does not generally appeal to the new labour force. For an industry that is reliant on boosting its ranks with new trainees, it is also noteworthy that two thirds of construction apprentices are currently trained by micro firms – a talent stream the industry cannot afford to lose.” 

U.K. Industry Employment Trend Highlights – August, 2015

Top Growth in Job Openings (compared to previous quarter)

Transportation   +13 per cent
Media   +11 per cent
Construction   +10 per cent 

Lowest Growth/Decline in Job Openings (compared to previous quarter)

Education – 10 per cent
Human Resources   -8 per cent
Healthcare   -2 per cent

Paul Dobing of NSW Procurement – Moving The Profession Into A Complex Future

Paul Dobing NSW

One of the highlights of last week’s CIPS Australasia conference was, without doubt, Paul Dobing. The Executive Director of NSW Procurement at the Office of Finance & Services is a familiar figure to those of us involved with The Faculty Roundtable Program, of which he’s a very active member.

Paul’s bursting with energy, and strides up and down the stage rather than standing behind the podium to deliver his insights. He has recently been motivated and inspired (and tanned) by a trip to the Garma Festival in far north-east Arnhem Land and is passionate about Indigenous constitutional recognition.

Paul’s on stage to talk about the future of the profession. He takes the audience through a list of CSIRO’s “Global Megatrends”, including planetary pushback, the pivot to Asia, longer life expectancy and digital immersion. Each of these topics could generate enough material for a conference in themselves, but Paul is making the point that to create competitive advantage for your procurement organisation, these are the sorts of longer-term “horizon themes” you’ll need to be engaged with to support your push into the future. CPOs need to think about what these Megatrends mean for procurement, how we can redesign our models for the future and importantly, what capabilities we’ll need to meet these challenges. Paul points out that just about every audience member is in the midst of some kind of change/transformation program, and asks how we can operate in an increasingly “VUCA” world (volatile, uncertain, complex and ambiguous).

On his own journey to bring his procurement function into the future, Paul has:

  • created a consulting advisory practice for the wider sector
  • created a data and analytics team.
  • introduced a research capability for longer-term thinking, and

None of these reflect “traditional’ procurement functions, but Paul believes they’ll be integral to providing ongoing support to the public sector into the future.

Emerging models:

Rather they viewing change with suspicion, Paul’s enthusiastic about emerging organisations that are disrupting traditional business practises. CPOs, he says for example should be embracing the sharing/collaborative economy and seizing upon the opportunities it creates in this space he has recently been working with Tu Share and Sendle CEO James Chin Moody to identify new models of service a delivery supporting government. We should keep ourselves informed of future trends, work out how we can start to engage with them and make sure we’re well-positioned in that conversation to drive competitive advantage. His advice:

  • Think ahead to the next wave of disruption.
  • Think about how procurement can tap into disruptive models of supply.
  • Build the capability required to embrace change.
  • Shift the risk-averse, rules-based culture traditionally found in procurement teams to a flexible, interpretive culture that can engage with new opportunities.

Hiring the next generation of procurement professionals:

Hiring is increasingly about the values and behaviour rather than technical skills. Members of Generation Procurement, as we like to call Gen-Y here on Procurious, and going to be:

  • Purpose driven
  • Values aligned
  • Diverse
  • Connected
  • Agile
  • Disruptive, and
  • Adaptive

What are you doing to move your procurement function into the complex future?

The Secret To Unbelievable Engagement

Office Lens 20150922-123648

Earlier this week at eWorld Procurement & Supply we were lucky enough to sit in (and participate) in Christopher Barrat’s thought-provoking workshop on communication tactics.

Christopher benefits from real life experience in the procurement world, having been a procurement director for a major blue chip organisation. For the last 12 years he has spoken and worked with companies all over the world to help them with commercial communication skills.

At eWorld Christopher explained the key role that networking and collaboration play when working to undo entrenched behaviour.

Christopher’s steps to success:

Gathered in groups of 8-10 we were told to think of someone, (preferably at work but it can be from home life too) with whom we were having a challenging time.

If we didn’t feel comfortable being open about who this person actually way, we could have given them a pseudonym. 

Now we had to think of some specific circumstances where we interacted with this person – we were told to be quite detailed – i.e where/when/what exactly happened on this occasion. This didn’t necessarily have to be a big or dramatic event, just something that was meaningful and challenging to us.

Having thought about this, we then had to consult a diagram that had been placed on our tables. The diagram in question is shown below:

PAC Diagram

Looking at the aforementioned PAC diagram, we were told to think about the position we were going to adopt (as well as the position our antagonist took).

In order to help us gather our thoughts, PAC can be broken down into these respective behaviours/attitudes:

P: This is our ingrained voice of authority, absorbed conditioning, learning and attitudes from when were young. We were conditioned by our real parents, teachers, older people, next door neighbours, aunts and uncles. Our Parent is made up of a huge number of hidden and overt recorded playbacks.

A: Our ‘Adult’ is our ability to think and determine action for ourselves, based on received data. The adult in us begins to form at around ten months old, and is the means by which we keep our Parent and Child under control. If we are to change our Parent or Child we must do so through our adult state.

C: Our internal reaction and feelings to external events from the ‘Child’. This is the seeing, hearing, feeling, and emotional body of data within each of us. When anger or despair dominates reasons, the Child is in control.

Note the adult position – Christopher suggested that if we both ended up on this then maybe we should think again…

Armed with our positions we laid out the PAC circles on the floor, and in our groups discussed each of our difficult interactions. The next step was to physically stand on the relevant descriptor and talk through the sorts of things you would say (and do) from that position, as well as how the other person would be responding.

Finally, we moved ourselves to the Adult position. If we had adopted this stance at the time of our difficult exchange, what would be going through our minds? And how would we have talked and interacted with the other person knowing what we now know?

Office Lens 20150922-123342

Next time you are trying to deal with a difficult colleague, why not go through the steps outlined above? Try and control things, so ultimately you’ll both be able to see eye-to-eye.

Five Reasons Why Procurement Savings Don’t Stick

How to make your savings stick

The latest research from The Faculty, which is now available for download exclusively through the Procurious community feed, has highlighted that more than 50 per cent of savings negotiated by Australian procurement teams do not make their way to company’s financial bottom line.

This raises a very simple question. Why can’t we get our savings to stick?

Below, I’ve outlined the five reasons that, according the research team at The Faculty, are causing organisations to miss out on millions of dollars of negotiated but unbanked savings.

  1. Organisations lack enterprise wide alignment and ownership with procurement targets. Without a commonly accepted benefits realisation program implemented across the organisation, procurement teams will always struggle to get buy-in and adherence to the savings they have negotiated. Eva Wimmers the CPO at Deutsche Telekom AG highlighted that at her organisation, business unit leaders and CPOs have joint benefits realisation targets,. These are agreed up-front and managed together through what she described as the “tandem principle.”
  1. Silo-style environment that stifles cross-functional collaboration. Procurement teams cannot be seen as the sole custodian of a benefits realisation program. Procurement teams need to open communication lines between all business functions. Similarly, leaders from all functions should be willing and able to highlight the benefits of instilling a cost conscious culture to their team. As a 2014 Ernst and Young report stated: “The procurement team should not be the ‘sole owners’ of savings. Instead the focus of the team should be on facilitating and driving initiatives. They should also be accountable for the governance function through recording, measuring and reporting savings.”
  1. Maverick spend and non-compliance undermines procurement gains. Maverick spend is the enemy of benefits realisation. The hard work done by a procurement function is immediately undone if staff members are spending outside of contracted or agreed rates. According to The Faculty, there are three key drivers that cause staff to spend outside of contracted rates. 1. An overly complex or manual procurement system 2. A lack of input in the process of selecting the contracted supplier 3. An ignorance of the benefits that can be realised from leveraging contracted rates and service levels.
  1. Unclear definitions measurements and validation create confusion around negotiated savings. As Andrew Bartolini commented in his 2014 CPO Rising report, savings are an inherently complex metric to understand. Today it seems there is greater disparity amongst the definitions used by procurement teams and the broader business. Until organisations can agree and work towards a clearly defined set of savings definitions and measurements, there will always be leakage between negotiated savings and what actually hits the bottom line.
  1. Immature cost conscious cultures limit CPO-level efforts to expand the value that procurement can contribute to an organisation. Implementing change across an organisation in no mean feat. The results of the “Making it Stick” research suggest that cost savings are still the primary benefit valued by procurement and its stakeholders. This demonstrates that the function’s core role is to ultimately control the commercial purse strings of the organisation. Before CPOs can broaden their function’s value offering to include strategic initiatives, an organisation-wide cost-conscious culture simply must be in place.

How Can Agility Unlock Success In Procurement?

When it comes to procurement – don’t underestimate the value of agility.

As a startup we’re always banging on about agility… we believe that by their very nature startup companies need to be nimble, be willing to adapt to changing market conditions, and fail fast (if something isn’t working). That’s why Procurious was particularly enamoured by The Hackett Group’s opening address at eWorld Procurement & Supply in London this week. Indeed, agility (and what does it mean for procurement specifically) was one of the sticking points in Chris Sawchuk’s keynote…

Agility equals relevance

Chris noted fairly early on that perhaps the greatest challenge facing procurement today is staying relevant in the face of other business functions. It is imperative that procurement finds new ways to create value, not to mention justify its existence as departments across the board vie for slices of the budget. Hackett made this recommendation as far back as 2013, demonstrating that by breaking down traditional borders, procurement could become an enabler of internal business functions thanks to its intelligence around suppliers and markets.

So far, so good (you’d think) But fast-forward to 2015 and it seems that procurement has stalled somewhat – with the function uncertain what it should be doing to innovate (and thus adding value). What then needs to happen?

The problem stems from the fact that sometimes procurement’s idea of innovation comes from a very different place to what the business believes needs to happen. Procurement needs to be on the same page as its stakeholders and be seen as trusted advisor

To do this effectively procurement can’t sit still, it needs to be constantly looking at the market, identifying issues that could lead to business concerns and being perceived as having a sincere interest in helping stakeholders achieve their business goals. How will procurement achieve this? Through being more customer centric and ultimately (yep, you’ve guessed it) – more agile.

Chris Sawchuk

Customer centricity is king

To this end we need to take a view of what procurement organisations can do differently. You don’t need to look far to see that professional organisations are starting to spend more time aligning with their internal stakeholders – services like Uber are already doing this (meeting and exceeding SLAs etc.), and this practice in itself is generating more value.

As a function procurement needs to make the customer central to everything it does. But in order to do this successfully and improve the customer experience, procurement needs to put a structured approach in-place.

Hackett suggest that procurement needs to (over time) build a more holistic approach which incorporates things like channel management, governance, service design, and relationship management.

The first step to making this happen is to begin mapping out the influence and importance of key stakeholders. What criteria do we look at to determine who we measure? They are not all equal, for instance, suppliers can fall into several different camps – there’s strategic, then your preferred etc. Can you identify which of your suppliers represent risk, who are innovating? Likewise, can the same thinking be applied to the customer side? These are all important factors that procurement departments will need to take into account when deciding upon their implementation.

You’ll also fairly quickly come to the realisation that you don’t have the necessary resources to treat everybody the same (or survey thousands). Hackett note that crucially, a one size fits all approach won’t work.

Executives aren’t likely to respond to a survey. How then do we engage with them? The answer is a multi faceted approach. If you’re going to carry out a survey there has to be something in it for them, give something back. Why not provide them with the results?

To round things off Hackett left us all with five quick steps to help getting started (presented below). Hopefully you’ll be able to recognise the value in such an exercise, and in-turn begin to be more agile in your approach going forwards.

  • Define a customer-centric mission
  • Identify key stakeholders
  • Schedule/plan check-in meetings
  • Assess the broader organisation’s view
  • Take steps to ‘market’ procurement’s new mission

If you want to hear more from Chris, you’ll be pleased to learn that he appeared at our very own Big Ideas Summit in April of this year.

Watch the whole thing – here.

WHY And HOW Procurement Must Change

‘Innovation’ – the action or process of innovating.
“Innovation is crucial to the continuing success of any organisation” – it’s a new method, idea, product, etc.
We’re here at eWorld Procurement & Supply in London and Alex Saric – Global Vice President, Marketing, Ariba, wants to talk about innovation…

While ‘The Innovation Imperative’ sounds like an episode title from The Big Bang Theory, today we were told about a different sort of evolution. Alex wanted to drive home the message that in order to truly transform the function into a strategic value driver, procurement leaders need to innovate.

And while it’s all well and good that we toot our own horn, when we’re talking about innovation it is critical that everybody thinks about procurement, and in-turn goes about their job differently.

Why now? The screws are tightening… Today there’s increasing pressure on companies thanks to increased competition. Just look at new players like Uber who have introduced wildly new business models. But, as Alex notes, whenever there is a great challenge, there’s also great opportunities. As such there is a need to embrace these changes, but to do so, procurement needs to rethink its entire approach.

Crucially procurement (as a function) is in a prime position to take advantage, it needs to strike while the iron’s hot as no-one else has really stepped up to the challenge (yet).

What can procurement learn from Uber?

In order to successfully innovate we need to recognise that procurement is becoming embedded in other parts of our organisations – and in doing so, it is also playing a more strategic role.

Here Alex pinpoints four areas where we can add value:

  • Product innovation
  • Market expansion
  • Working capital management
  • CSR/Regulatory compliance

With all these in mind, what do we need to enable procurement innovation?

People: people need to want to develop. Here we are provided with the example of people not willing to use social media at work, while they are more than happy at home (in personal time). It’s this shift in attitudes that needs to be addressed and adjusted in order to progress.

Automation: the automation of processes will enable you to free your capacity to concentrate on other things.

Connections: in order to drive innovation you are going to be talking to a lot of suppliers (but you need to be talking to the WORLD). Expand your connections by whatever means necessary.

Business networks: Business networks are simplifying business collaboration and delivering benefits across all network participants. In this example procurement isn’t the only function that wins, benefits will be felt across the entire organisation when you open up the communication channels.

Wrapping up a very packed session, Alex reminded us that innovators are already starting to reap the rewards. For instance, Staples has reduced its processing costs and Cisco is making savings across its services. Along with the aforementioned Uber and Amazon, innovation is starting to drive key changes across the world’s stage… The question is what are you doing to follow suit? Isn’t it about time you caught the innovation bug too?

Predictions For The Next Decade Of Payment Innovation

Industry experts predict how we will pay (and be paid) in 2025.

A UK payment infrastructure provider has published a collaborative whitepaper – titled Moving Money 2025 – which has gathered the leading voices in the payments industry together to predict how payments could change by 2025. 

Contributors who gave their views to this report included Nationwide, Toynbee Hall, Tooley Street Research, Consult Hyperion, Financial Fraud Action UK and the UK Cards Association

The results have clearly demonstrated that, whilst we are a nation that is still getting to grips with a whole host of new ways to pay, the appetite for innovation is accelerating.  

Greater security demanded – but flexibility over identity authentication is expected

However we end up paying for things in 2025, security is the number one concern for consumers – 65 per cent identified this as their number one priority when it comes to financial transactions. Contributing experts to the paper agreed, predicting that by 2025 there will be multiple ways of authenticating identity before payment can be made. In fact, as smartphone security increases, physical payment cards are expected to become obsolete since account details will be stored on the device itself. We’ve already seen a glimpse of the impact that biometrics-initiated mobile payments could have in the future and VocaLink’s research has found 1 in 4 UK consumers would consider using biometric technology to access banking or payment services.

Advanced biometric authentication and dominance of real time payments expected to become the norm in ten years.

However, by 2025, some experts believe biometrics will be the principle method to authenticate our identities, with the usage of facial recognition in particular significantly reducing fraud and time/hassle constraints in making payments.

Real-time payments will offer certainty

Over the next ten years we will likely see an increase in adoption of immediate payments, via the Faster Payments system, as well as new innovations which build on this existing infrastructure. Larger transactions will become available on an immediate basis, particularly as the value limit on transactions rises past the current level of £100,000. This has obvious benefits for SMEs who will make and receive payment quicker, providing greater cashflow certainty and enhancing growth potential. Paying staff salaries will also be increasingly easy, as a payment can be made at the end of a week to reflect the exact hours worked with the employee receiving their salary immediately.

Empowering payers to make informed purchases in a way that suits them  

Flexibility in how we pay is already an acute need for many today. The employment market is changing with a growing number of workers reliant on multiple income flows, rather than having one steady and periodic source of income. One prediction regarding this issue is that by 2025 incomes could become even more erratic so should be met with technology that offers the necessary agility to accommodate these customers.

Similarly, another contributor to the Moving Money whitepaper believes that one of the most successful future innovations will be to make it easier to quickly ‘undo’ payments made in error to the wrong person or organisation.  This is a problem nearly 1 in 4 people in the UK, (rising to 1 in 3 for those under 45), have already experienced according to VocaLink’s consumer research. Of these, approximately three quarters eventually got their cash back whilst the rest simply did not see their money again, highlighting the need for a universal process to be devised and adopted in the event of erroneous payments.

Chris Dunne – Director at VocaLink commented: “The UK is in a fantastic position to make real time payments and all these other predictions a reality over the next decade. We have a world class digital payments infrastructure and this puts us at a distinct advantage – however if we are to stay ahead of the crowd, it is vital we start laying groundwork for the future now.”

“The collective insight of this whitepaper has shown us what we could and should be able to achieve in the payments sphere. Disparate corners of the UK’s society and economy will benefit hugely if we can map their needs against the evolution of the UK’s payment system and the burgeoning technology that supports it. This collaborative effort is only the beginning; we are keen to catalyse discussion across all relevant parties about what comes next and set the wheels in motion to make future payment technology a reality.”