Each year, EU citizens alone make 122 billion digital payments, including card payments, bank-transfer apps, e-wallets and others. Businesses and consumers are slowly transitioning to a cashless world, where transactions are faster and easier. Mobile apps, contactless payment cards and bitcoin, are making cash redundant. Consumers’ needs are constantly changing, along with demands for accessibility and convenience, the ability to pay from anywhere at any time will become universal. Consumers’ fraud fears are being addressed with better detection methods and more secure payment options including digital wallets, mobile apps, and biometric identity confirmation. In this ever-evolving world, many changes and advances are still to come in the next few years.
We present the following 10 trends that have shaped the payments industry in 2018:
1. Digital & Mobile Wallet Revolution - A Digital wallet is a system that stores a user’s payment information and passwords for websites and other payment methods.
Similar to Digital wallets, Mobile wallets are virtual wallets that store payment information (credits cards, debit cards, gift cards, reward cards etc.) on a mobile device. Mobile wallets can be downloaded, or are already built-in, such as Apple Wallet.
Both Mobile and Digital wallets eliminate the need to carry a physical wallet and enhance the ongoing cashless trend while reducing the risk of theft and fraud by eliminating physical cards. Payments can be sent and users can garner incentives such as cashback and discounts.
While awareness of Digital and Mobile wallet services for online shoppers is at a high, usage is still struggling to gain traction as security concerns, fears of losing money and convenience of other payment methods, such as contactless payments, are prevalent.
2. Artificial Intelligence for Mundane Activities - As stated in Forbes, “Artificial intelligence will amplify and accelerate , using the power of machines to streamline payments at every level”. This focus on automation can increase the efficiency and speed that consumers are now expecting for real-time payments. Without AI, it is virtually impossible that the payment processing industry could process so many transactions globally, at such a fast pace, while keeping fraud and error rates low. There are also banks and apps using this technology in points #3 and #4.
A practical application of automation at work is for invoice payments. Rossum has developed a cognitive invoice data capture tool, where the AI can capture data from invoices and input the structured data into an accounting system, thus making it easier to pay the balance on time.
3. Biometrics Security Measures - Biometrics is the measurement of a person’s physical characteristics used to grant access by proving one’s identity. It is most urgent for immediate adoption in the financial services industry. Fingerprint logins are becoming the universal access to one’s mobile bank accounts, with iris scanning and facial recognition following.
FICO reported that there was a 10% increase in compromised cards at US ATMs in 2017. By implementing biometric authentication, instead of using cards, banks can cut down on fraud. Fingerprints are impossible to steal, which reassures customers of the security as compared to traditional methods. According to Joe Cunningham, the Head of Risk for Visa, “Everyone (will think) of biometrics when they think about payments in the future”.
4. Mobile Payment Apps to Simplify your Wallet - Peer-to-peer apps for payment transactions has seen a spike in the last few years. Apps such as Venmo, Square Inc, and Cash App are able to easily transfer money, whether it be for splitting a bill at a restaurant or even for larger amounts. The transaction takes seconds and saves the hassle of multiple credit card transactions and loose cash.
With the rise of these apps, it is helping users become cash-free. Not only for Generation Z (millenials), as most would assume, the instant payment app trend is crossing generations, and older users are utilizing it for utilities, rent and vacation costs (as shown below). It is easier to manage cash this way, as the transactions are instant - either entering or leaving a bank account. It is also a safe alternative, as no bank details need to be disclosed; the user enters his/her own bank information and sends or receives requests for payment.
5. Adopting Blockchain Technology - As claimed on Blockchain’s website, it is “the easy way to send, receive, store and trade digital currencies”. Blockchain acts as a public ledger, in which each transaction is recorded and also registered by a group of users. Credits are given and can be used as a form of payment - an alternative to traditional credit cards for online payments.
For the payment processing industry, this means consumers’ confidence is boosted, by the secure nature and the fixed database with added layers of security. Any false transactions are easy to track, and tokens can be used online in place of credit cards, keeping consumer data safer. Transactions are safer and quicker for international payments that would previously take weeks to finalize.
6. Bitcoin as a Currency - Bitcoin is an innovative P2P payment network, wherein a decentralized virtual currency is used - no need for banks’ central authority. Blockchain is the backbone of bitcoin, and the cryptocurrency that has the potential to disrupt the payment processing industry.
Although, at the moment, it seems unlikely that bitcoin will threaten traditional payment methods, its notoriety has gained some traction in recent years. Trading at a high of $20,000 per bitcoin at its peak, consumers saw substantial return on their investment. For the time being, it works better to pay with bitcoin for enterprise transactions of large volumes rather than for a slice of pizza. There could be boosted in the future, as the Lightning Network will make it easier to make smaller transactions without disrupting the underlying blockchain.
7. API by Design - An Application Programming Interface enables a software program to interact with other software. What this means for the payments processing industry is the ability to meet customers’ changing needs and demands. Key benefits include increased efficiency, speed and flexibility.
As consumers are becoming more demanding, in choices, security expectations, and interconnectivity, APIs are there to satisfy each new request. New tools are being built to streamline operations, improve experiences, and positively impact everyone's bottom line. According to Nordic APIs, “APIs are the key revolutionary force in payments”.
8. Alternative Financing - Alternative financing are ways in which users can purchase a product, but pay in instalments or with methods other than the immediate transfer of money for the purchased goods. This includes PayPal credit (formerly Bill Me Later), Affirm, and Klarna. The idea is that a user can purchase something online (on credit), and can then pay in instalments with certain financing terms (eg. 6 monthly payments for purchases over $99). This boosts consumer confidence which increases the likelihood of a customer purchasing an item. Knowing that there can be longer payment terms, also improves companies’ conversion rates.
9. Fintech that Breaks the Bank(s) - Fintech can be defined as technological advances in finance built to disrupt the traditional financial methods (banks). This includes the technology from payment apps, to artificial intelligence, cryptocurrencies and big data. Fintech threatens banks’ existence, weakening their longstanding, loyal customers, who are choosing innovative, sleek and personalized solutions over the traditional.
Going forward, in order to advance, financial and non-financial institutions need to work together to expand the payment ecosystem. The main goal should be the same - to help the consumer simplify his/her daily life, while having an enhanced payment experience.
10. Consumers Demand Rewards - Credits, rewards, discounts, and cashback are all being used by companies to incentivize consumers to use their products. It has become expected to receive some reward or incentive for signing up for a company card or downloading an app. Users can enjoy Uber credits for joining, 5% discounts on Amazon purchases on the Amazon Prime Rewards Visa Signature card, and a free burger when downloading Shake Shack’s Shack App. These incentives are meant to entice consumers to purchase or change their static spending habits.
Another example is with Visa’s Cashless Challenge, which incentivizes small merchants to move away from cash, and instead focus on card and mobile payments. Visa then selects 50 companies to receive $10,000 to upgrade their current payment infrastructure with a promise from merchants to do away with all cash transactions.
With new innovations, it is getting easier for consumers and companies to make or receive payments. According to Forbes, “Established payments companies will need to increase agility and take some calculated risks in deploying AI and other technology to maintain pace with newer players”. Generation Z is forcing the banking and payment industries to constantly innovate to meet their growing demands. Keep an eye out for more innovations in the near future - with the rise of AI and APIs, the power of payments will only increase.