Technology is changing the financial industry, and this change is amongst the most visible in the payment sector. This field is indeed highly exposed to users, and the front-end, highly influenced by customer experience, is paving the way for payments’ evolution. Heading this change and forging payment methods according to their preferences, new generations of users are enticing stakeholders to compete in the arena of innovation. Less visible, but equally important, the B2B and public spheres are as well looking for faster, cheaper and more secure transfer methods.
Here are the main trends currently shaping the payments of tomorrow.
PSD2 to enhance collaboration between stakeholders
The arrival of PSD2 and the adoption of APIs is changing the way stakeholders collaborate. The market opening to third parties enables data sharing between banks and solution providers, eventually revolutionising the financial industry, and payments first of all. Based on this, the development of new products and services will facilitate an enhanced experience and a customer-centric philosophy.
The directive will allow Account Information Service Providers (AISP) and Payment Initiation Service Providers (PISP) to compete and collaborate with banks. According to Accenture, « one in three debit card payments and one in 10 credit card payments are expected to move to PISP by 2020. » Currently, trust placed by users in third parties is moderate, but is expected to grow. As of now, 76% of consumers are likely to choose a traditional PISP over a third party. The risk of a silo development of API is not negligible, which walls for a harmonisation of the market.
In their last payment report, Capgemini defined infrastructure rationalisation as “the review and reduction, virtualization, or redistribution of technology, software, or infrastructure to ensure maximum operational capability and flexibility at lowest cost.” This is currently happening in the market, as intermediaries are evolving or coming together. Payment providers will change through merger and acquisitions to solidify their offer and meet customer expectations. A strategy implemented by players such as Mastercard, which recently acquired Oltio to broaden its offering. The regulators’ role is crucial here, and they are currently working towards infrastructure rationalisation, such as the Payment System Regulator in the UK.
Cash still strong, but rise of cashless payment solutions
According to many reports, cash is on the decline globally. Interestingly enough, this fact may be a hype phenomenon when considering certain countries, such as the US, where cash is still king amongst day-to-day payments methods. If some countries, such as the Nordics, are mainly using debit and credit cards, others in Europe are not seeing their cash level drop and are not expecting to see them do so in a near future. Mobile wallets, according to the PYMNTS report, have still a long way to go to become a serious threat to cash payments.
Alternate payment channels to be bolstered
Having made their appearance recently, wearables are expected to become a thriving niche in payments. Their practicality and ergonomic offer users frictionless payments, especially for day-to-day transactions. This could represent a direct threat for traditional cards.
The popularization of smart watches is opening a field of opportunities for tech firms that are now partnering with banks to offer seamless payments to their users. For instance, we saw this week the Swedish bank Nordea launching a new payment solution for Fitbit and Garmin smart watches.
Biometrics in payments, face pay & voice activated payments
Authorizing transactions with the help of biometrics to identify users is gaining popularity these days, with a lot more development to come. Last year, Mastercard already deployed the use of fingerprint technology to verify cardholder’s identity for in-store purchases. The continuous adoption of biometrics in payments may be attributable to the distinctiveness of human biological features combined with the demand originating from younger generations. In addition to fingerprints and eyes, user behaviour is also expected to be a means of identification. Here, the way a user behaves replaces the entry of data. However, with GDPR coming soon, PSPs main concern should be how to meet customers’ expectations and growth in demand of having their data protected, corrected and deleted upon request.
Mobile payments is nothing new, but the trend is growing significantly and its user perception is shifting. Users in countries such as China now fully place their trust in mobile, pushed forward by Alipay, WeChat Pay and other similar providers. Chinese tourists now prefer mobile payments to cash when travelling, even stating they are spending more using this channel.
Added value of mobile payments was limited until now. This is not the case anymore, as open banking bangs on the door, and API banking going mainstream.
The rise of challenger banks
Challenger banks are emerging globally, ‘challenging’ the incumbent players without fear it almost seems. In the UK, for instance, a multitude of challenger banks are popping up. Nowadays, they are stepping up their game even more by realizing the potential of collaborating between themselves. Challenger banks encompass a wide range of types, varying from mobile only banks to digital contenders and traditional banks, who are transforming their traditional approach. Additionally, there are also specialist banks, that focus specifically on vertical industries. Generally speaking, challenger banks operate differently, making them more agile than their traditional high street counterparts.
Three new majors schemes went live since the beginning of the year, the Real Time 1 (EBA RT1) for the processing of SEPA Credit Transfer Instant in Europe, The Clearing House (TCH) Real Time Payments in the United States, and the Australian New Payments Platform (NPP). These schemes will facilitate real time payment for a potential reach of one billion customers this year, in Europe, USA and Australia. This is only the beginning of a serious implementation of real-time payments globally, with countries such as Malaysia, France, the Netherlands and Congo amongst others planning to launch their own schemes within a year.
By Jean Leguy, Research Coordinator