The Global Payments Industry enters 2017..
It is not without reason that the payments industry lies at the heart of the FinTech boom. Across the globe, hundreds of startups are vying to provide digital services across the complex payments spectrum. Players ranging from Smartphone manufacturers, FinTechs,Banks and Retailers are all players in this ecosystem.Added to this the payments landscape across the globe is experiencing massive change driven by technology and regulatory mandates. Please find my take on the top five trends on this dynamic industry as we begin 2017, which truly promises to be a watershed year for the industry.
Trend #1 Mobile Payments volume to surge in 2017
By 2019, global consumer mobile payment volumes are expected to surpass 1 trillion US dollars [1] – this is a massive increase from just 450 billion US dollars in 2017.
The growing popularity of alternative payment modes like Mobile Wallets (e.g Apple Pay, Chase and Android Pay) are driving increased volumes across both open loop and closed loop payments. Couple this with in-app payments (e.g Uber) as well as Banking providers with their own Digital Wallets will step up their game only driving further adoption.
Retailers like Walmart, Nordstrom and Tesco have already started offering more convenient in store payments. At the same time, mobile commerce has matured as smartphone manufacturers have started to create devices with larger screens and payment companies have added one-click buy buttons in order to remove the friction of shopping on mobile phones.
This trend is being clearly seen across all forms of consumer and merchant payments. This is owed to the convenience of making these payments often at the click of a button. This trend will only continue to accelerate in 2017 as smartphone manufacturers continue to make devices that have more onscreen real estate. This will drive more mobile commerce. With IoT technology taking center stage, the day is not long off when connected devices (e.g. wearables) make their own payments.
A smoother and friction less consumer payment experience is what is driving adoption across all of these modes. It is not just about convenience (with a range of stored user preferences) but also comfort (a range of analytics that provide integration with the users other banking products). Thus, providing a more timely and integrated experience.
Trend #2 Payment Providers will rethink their business models
Across the globe, national governments and regulatory authorities are beginning to take note of the fact that they need to unshackle banking data from the incumbents and provide access to other service providers. The intention is to change archaic business models. Access to customer information and transaction data will enable the creation of new business services like with the FinTechs.
On the institutional side, provisions permitting cross border acquiring as well as capping of interchange fees have been passed. This will enable third part processors to access consumer account information thus enabling them to create new products. E..g. Offer banking services, contextual offers etc. This will lead to banks and payment providers building products that provide value added services on the data that they already own.
With the passage of the second revision of the pathbreaking Directive on Payment Services Directive (PSD-2), the European Parliament has adopted the legal foundation of the creation of a EU-wide single payments area (SEPA). While the goal of the PSD is to establish a set of modern, digital industry rules for all payment services in the European Union; it has significant ramifications for the financial services industry as it will surely current business models & foster new areas of competition. The key message from a regulatory standpoint is that consumer data can be opened up to other players in the payment value chain. This will lead to a clamor by players to own more of the customers data with a view to selling business services (e.g. accurate credit scoring, access to mortgage & other consumer loans and mutual funds etc) on that information.
Trend #3 Global Payment infrastructure moves to Real Time
The demand for fast payments from both consumers and corporates has led to about 40+ countries implementing immediate payment infrastructures that are highly secure yet speedy. The European Union leads the way with Denmark (Realtime 24/7), Norway and the UK (FPS) implementing such systems. The US and Canada have also begun making moves on this front as well.
The implications of this are two fold. One, this will drive down the already decreasing percentage of cash payments in the system while – two – increasing the ability of providers and non banks to provide value added services on the transaction data which is more readily available. At the same time, expect more regulatory focus on moving fraud and compliance programs into a real time mode.
Trend #4 Payment Providers will begin resembling Bay area startups
This one is a little provocative but the high tech trend towards digitization is clear. Payment technology is the eye of the storm – from a FinTech standpoint. This trend will accelerate in 2017 with the easy availability of open source technology in four critical areas – Big Data, Cloud Computing, Predictive Analytics & Blockchain.
Big Data will heavily be leveraged (on Private or Public Cloud based infrastructure) to perform real-time Predictive analytics on payments data in motion as well as at rest. Critical capabilities such as a Single View of Customer/Payment/Fraud & Customer Journey Management etc will all depend on Big Data. Blockchain technology (and its attractiveness in terms of removing the middleman while providing transparency & security) will continue to be prototyped across many different areas.
Trend #5 Cyber Security, Risk and Compliance will remain board level concerns
If there is one common thread across the entire payments value chain – Merchants, Acquirers, Gateways, Schemes, Banks, Corporates etc – it is the risk of cyber attacks. Though EMV based chip technology has reduced point of sales fraud, the trend in cyberattacks is only on the upsurge. Techniques like tokenization – have been developed to help both the schemes as well as providers of digital wallets etc reduce their compliance risk. As corporate payments and other B2C payments move to becoming more cross border – the focus on Anti Money Laundering and Fraud detection will only increase. The need of the hour is to deploy realtime analytics and Big Data techniques to tackle these at an application level.
Conclusion..
As payments services firms begin 2017, they will need to transition to a customer oriented mindset. They will being pushed to share data through open standards, become highly digitized in interacting with consumers and will begin leveraging the vast internal data (about customers, their transaction histories, financial preferences, operational insights etc) to create new products or services or to enhance the product experience.
References..
[1] Mobile Payment Volumes Forecast – https://www.statista.com/statistics/226530/mobile-payment-transaction-volume-forecast/