Looking Ahead: Payment Trends in the New Year
UL’s Ali Raza on the five key trends that will drive major change in the payments ecosystem in 2018.Gone are the days where standing in a checkout line at the grocery store meant you likely had cash or a checkbook in hand. Gone, too, are the moments where chipping in for pizza to have dinner with a friend required a trip to the ATM to take out money.
These days, technological innovations have fundamentally revolutionized how we pay merchants, as well as each other, for everyday goods and services. This greater digitization of money is driving the dynamics of and changes to the payments ecosystem in unprecedented ways.
“For consumers and the industry at large, this is a magical time,” said Ali Raza, lead principal advisor with UL’s Transaction Security business unit, which supports the finance and payments industry by advising on, testing and certifying new solutions before implementation. “Technology is enabling greater choice, better products and innovative solutions, plus more convenience – all built on a framework of personalized data.”
Over the next several years, people will benefit greatly from the combination of emerging technologies. But before those benefits trickle down to consumers, players within the finance and payments industry will first have to prioritize the investment in and adoption of these emerging technologies and re-calibrate their operational structures to support them.
The following are the top trends poised to impact the finance and payments industry in the coming year, according to Raza:
Artificial Intelligence (AI). While the early stages of solutions using AI technology focused on fraud management, trading, and regulatory and compliance management, there’s no reason why the same principles at work can’t be applied to risk management, marketing and customer relationship management.
Real-Time Payments. The United States Federal Reserve has largely driven the introduction and adoption of real-time payments over the past 18 months, fueled by a desire to support faster, simpler and more intuitive methods across all payment channels. While the target date for implementation by financial institutions is 2020, many banks and payment companies have already committed to real-time payment methods. We can expect to see a broader rollout in the U.S. as soon as next year.
Blockchain. As it relates to distributed ledger technology, more commonly known as “blockchain,” most developments have occurred either in cross-border payments or in corporate or commercial payments and treasuries. But, several global and money center banks have been working with various early-stage companies on pilot or proof-of-concept programs that leverage blockchain for its greater speed, efficiency and security. Furthermore, American Express, Mastercard and Visa all recently announced blockchain initiatives.
Open Banking. The most significant development set to re-shape the fast-evolving EU payments market is the revised Payment Services Directive, PSD2, which enables the open sharing of data that banks have historically kept within the confines of their systems. Additionally, it opens up doors for flexible and innovative players in the payment market to offer services that don’t currently exist, such as account information services, digital identity and Know Your Customer (KYC) services. This integration of new and emerging payment services will undoubtedly increase competition in the market – one that’s been historically dominated by banks and other large financial institutions. While PSD2 will only be unveiled across Europe in 2018, regions around the globe will be watching closely to identify best practices and lessons learned from the experience.
Fintech-Bank Collaboration. The relationship between fintech companies and banks has shifted from disruption, disintermediation and displacement to collaboration, engagement and acquisition. Both parties now recognize the opportunities for mutually beneficial engagements to both themselves and their customers. Because of this, we can expect more regional and community banks to embrace fintech in 2018, both as a specialist value-add to their core offering and as a ‘banking as a service’ business model.
With these trends and more in play, to stay in the game and ahead of the curve, companies within the payments and finance spaces should prepare for continual change and innovation by asking themselves three pertinent questions:
- How do we successfully transform ourselves to help embrace these new technologies?
- How do we defend against both newer, more aggressive competitors, and data and security threats?
- How do we accomplish all of this, while still ensuring a viable and healthy business?
“The industry is undergoing massive structural change, bringing with it disruption and complexity that must be managed properly. Additionally, markets across the globe are transitioning to platforms where buyers and sellers interact virtually,” Raza said. “All of this leads to an even greater need for trust between companies and consumers as we enter into this next frontier of the payments space.”
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