Experts from the payments sector look back at the major talking points of 2019, and look to 2020 to discuss with Evie Rusman the key trends to watch out for
Alex Batlin, Trustology
Digital currency – the future of retail payments
What is the future of retail payments? Technologists and businesses alike are spending billions trying to answer this question, as they continuously aim to improve the customer experience at the point of purchase.
In a world where we’ve come to expect instant payments, any friction in the process can be detrimental to customer retention and brand appeal. The last thing people want to worry about is a payment being delayed at checkout, due to technical glitches, bank card issues or cumbersome payment queues.
Instore or online, payments need to be fast, easy and rewarding for the consumer.
So how does digital currency fit into this model? Since the launch of Bitcoin over a decade ago, this future of money has had its share of setbacks and bad PR, due to its volatility, unpredictable transaction costs, and security breaches.
Few people actually use digital currency to pay for goods and services, but the future of retail will be inextricably linked to the developments of digital currencies – and this future is closer than many realise. For instance, payments are already being accepted in BTC without having to convert to fiat with certain retail merchants such as Starbucks, Overstock, eGifter and Shopify to name a few.
However, many still just can’t wrap their heads around Bitcoin and other ‘virtual’ cryptocurrencies, and therefore can’t grasp the idea of not being able to touch or feel their form of payment. This is surprising, given that most consumers are already living in a world where they rarely pay for goods or services in cash. We’re either tapping our credit cards onto a contactless portal or paying with our mobile phone – so the concept of ‘cashless society’ is one that people have subconsciously grasped.
Complex and costly
What is not obvious at first glance is that the current system of payments is actually quite complex and costly.
At the national level, for instance, banks are having to deal with a reconciliation process between their respective ledgers, that involves multiple messaging networks (Visa, AMEX and Mastercard), end of day settlement with nation’s central bank real-time gross settlement system, and payment providers to give access to those networks – all to make the payment system work accordingly. That’s a lot of intermediaries involved to make it happen and cost, not to mention liquidity and credit risk as banks only settle cash end-of-day.
Adding to this complexity is the international payments arena which currently has no single global real-time gross settlement system in play, which means that banks are reliant on messaging networks such as SWIFT for their interbank communication and correspondent banks for settlement. Overall, we’re looking at higher credit risk and transaction costs.
Enter crypto payments innovation and blockchain
The overarching vision behind ‘cashless’ crypto payments is to create something that is traceable, accessible and accountable to those that possess it and to reduce the current cost of trust. At the present time, these innovations and technology have proven to be best suited against slower transaction uses cases given settlement is still slow for high-touch, low-cost transactions. But this is changing rapidly each day.
Cryptocurrencies or assets are more or less the digital equivalent of cash stored in a ‘digital wallet’. Unlike a physical wallet, cryptoassets aren’t stored literally. Instead, what is stored and secured are the private and public keys linked to those assets as they are needed to transact.
Leveraging blockchain technology, participants are able to transact and provide real-time verifications of those transactions transparently across one global, irrefutable distributed ledger that removes the need for intermediaries and reconciliation and settles in near real-time.
Accepting crypto can increase a retailer’s customer base, increase transaction speed and abolish expensive payment processing fees. Some of the biggest technology titans are already betting big on its future. Facebook’s cryptocurrency Libra, for example, promises a new global payment system supported by a “stablecoin” backed in a non-transparent manner by assets denominated in national currencies.
The aim of Libra is to eliminate the massive international fee charged by credit card companies and digital payment systems. The stablecoin is meant to allow users to pay for goods and services via its app, Messenger and WhatsApp, while dis-intermediating payment systems, regardless of where the users are based in the world.
Whether Libra will achieve its ambition is still uncertain, but there are many other stablecoins already in circulation, with the aim to go global, such as Gemini Dollar, the first regulated stablecoin, USDCoin and MakerDAI.
The global decentralised financial sector (also known as DeFi) is committed to addressing the traditional pain points of cryptocurrency so that stablecoins can be used for retail payments. It is already creating the foundations and infrastructure to accommodate digital currencies and to create a new world of financial services that can support new innovations in finance – with the same checks and balances as the old world of traditional banking and fiat currencies that still dominate our global system.
While stablecoins are being explored to manage the volatility of digital currency, cybersecurity specialists are focusing extensively on safeguarding digital assets to expedite mass adoption. Custodial wallets are being created with the most sophisticated technology so that people can store their cryptocurrency with the peace of mind they’ve come to expect with their traditional assets and account services.
New innovations like MoonPay are also making it easier to buy cryptocurrencies with fiat with just a few clicks from your mobile phone. This addresses another major pain point for those who’ve struggled to buy and sell crypto on an exchange platform by facilitating the instant purchase of major cryptocurrencies.
Another great advancement in the DeFi space is MetaMask, a browser plugin that allows users to make Ethereum transactions through regular websites. It facilitates the adoption of Ethereum because it bridges the gap between the user interfaces for Ethereum.
Without question, these types of technologies are paving the way for the mainstream acceptance of crypto payments. Major retailers must now acknowledge the inevitable future of digital currencies and embrace crypto as a way to pay for their goods and services.
So far, retailers such as eGifter, Gyft, Starbucks, Shopify, Overstock and Microsoft are beginning to accept digital currencies, while a company called Moon is taking matters into its own hands by helping customers pay for goods on Amazon using Bitcoin – even if the e-commerce platform doesn’t formally accept them.
Moon does this by using its technology to allow payments with cryptocurrencies using current payment methods.
After installing the extension, Moon automatically tracks when customers are at the Amazon checkout page and inserts the company’s own payment widget. You are able to see how much you are going to pay in cryptocurrencies before the transaction is made.
France gets on board
In France, a cryptocurrency payment system developed by Global POS and Payments Platform Easy2Play will allow an estimated 4 million customers to make crypto payments at over 25, 000 stores across France in 2020.
Over 30 major retailers have agreed to accept Bitcoin including American footwear company Foot Locker, sportswear giant Decathlon, cosmetics retailer Sephora, and furniture and home decor store Maisons Du Monde.
This is a real turning point for cryptocurrencies – and France’s bold move should inspire other countries and major retailers to follow suit.
Crypto payments are inevitable
Digital currencies are a byproduct of the digital world we live in and whether we believe in them or not – one thing is certain- Bitcoin, Etherieum and other altcoins are here to stay.
Over $275 billion worth of cryptocurrency is already in circulation – and the number continues to grow. Why not make it easier for people to spend it on things they want to buy?
Crypto payments are an inevitable part of the future and major retailers have got to prepare for this reality, and embrace it. A whole landscape has already developed, with the first wave of service platforms and providers interacting with decentralised currencies like Bitcoin and Ethereum with ways to onboard consumers from fiat currencies to crypto, to exchange between cryptocurrencies or create borrowing mechanisms.
That’s crucial to extend the advantages of decentralisation and capture the full lifecycle and potential of this asset class – from issuance, through transfer, and then into lending, as well as creating algorithmic stablecoins like MakerDAO.
David Chance , Fiserv
Global trends set to alter payments landscape
Changes in the way payments are initiated, processed and settled are being driven by a core set of global trends that are consistent in direction, but differ in terms of adoption speed across regions and markets. These trends include a focus on immediacy, the push for standardisation, recognition of the value of payments-related information, and the desire for simplification.
While real-time and instant payments remain the focus of discussions on payment speed, these discussions are expanding to include practical questions about funds accessibility at the time required by the recipient and the finality of the payment.
Common standards facilitate the automation of payment processing, leading to enhanced efficiency and reduced errors. As the push for standardisation continues, the ISO 20022 standard will grow in significance due to its global reach and ability to support messages outside of the payment itself, including requests for payment, notifications, e-invoices and query requests.
Standardisation of payments also enables the collection of intelligent information that can be monetised. A significant amount of information is tied to payments – who, what, when and how much – and artificial intelligence and machine learning are becoming more important in its analysis and ability to provide real insight.
A significant desire to simplify payments is driving modernisation strategies.
We see two modernisation models emerging. The first involves adapting existent multiple payment schemes to ISO 20022 and addressing existing risk profiles. While this can help, the second model is genuinely evolutionary, separating the payment initiation from the clearing/settlement process. This allows users to continue to use the payment initiation process to which they are accustomed (for example, corporate payroll files or consumer cards) while providing a streamlined payment environment based on a simple instant push credit transfer.
Payment providers that understand how these trends will affect their businesses and customers will be ahead of the curve in 2020.
Jan van Vonno, Tink
Three trends to watch out for
Harmonisation of the PSD2 landscape
Looking back at 2019, one thing is absolutely clear: the PSD2 saga is not over yet. Not only has the EBA granted delays on strong customer authentication for online card payments, but over the next 12 months we expect to find radical improvements among the PSD2 APIs on the market. In particular, we expect improvements around the customer journey — giving customers access to user-friendly services offered by both banks and TPPs
Customer-centric use cases defined by smart technologies
So far open banking has primarily been referred to in the context of multi-banking and money management apps. Although we expect nearly every incumbent bank to incorporate these capabilities into their core banking services, 2020 will primarily be defined by the application of AI and machine learning technologies to empower customers.
In particular, banks will see the opportunity in combining smart technologies and open banking technologies to accelerate customer onboarding, enhance customer services and anticipate customer needs.
The shift from platforms to marketplaces
The year of PSD2 will not only be remembered for ‘the race to September’, it will also be remembered as the year when banks all over Europe invested tremendous amounts of capital in creating a developer portal with countless PSD2 and non-PSD2 APIs.
In 2020, we expect that banks will start to shift their efforts: increasingly ‘consuming’ APIs instead of ‘exposing’ APIs. In other words, more banks will aim to operate as a TPP and a number of incumbent banks take the lead by launching a marketplace of TPP services for their own customers.
Nick Corrigan, Global Payments
SMEs predict alternative payments methods will dominate in 2020
As 2020 approaches, it is great to see that SMEs are planning to embrace newer mobile wallets and alternative payments as consumer spending habits change. Fundamentally, merchants in all sectors need to be able to provide the payment options that their customers want to use – particularly as we see a continued shift to e-commerce, and the methods available to customers increase.
It is important that throughout 2020 and beyond, SMEs have the right payments partner to help them not only accept different payments methods, but also provide guidance and insights on the ever changing payments landscape along the way too.
Research commissioned by Global Payments UK&I finds that SMEs forecast that 2020 will signal a shift in the way payments are made.
Pay By Bank, whereby a payment can be made directly from a customer’s bank, is a method that most SMEs (44%) think will be used for the majority of transactions.
Other findings include:
- Over a fifth (21%) of SMEs will begin accepting the likes of Alipay and WeChat Pay in 2020, with mobile wallets also increasing (35%).
- SMEs predict a continued decline in cash usage. 41% report that it was one of the top payment methods used in 2019, but less than a quarter (23%) believe this will remain the case in 2020.
Accepting digital payments
The shift towards accepting more digital forms of payment that can be accepted both online and in physical stores could indicate the way in which SMEs anticipate trade operating in 2020.
Almost half (46%) of SMEs believe they will see more activity through online channels than through the physical store next year. This is particularly the case for the retail, catering, and leisure sectors (59%).
As SMEs anticipate a higher level of online activity next year and beyond, they will also look to payments data to improve their online presence and customer service.
Of the 30% of SMEs that are planning to receive data management information from transactions in 2020, over two fifths (41%) will do so to improve their online processes, for example, by helping them to better understand cart abandonment. This is in addition to the 45% of SMEs who are already using data from payments to improve their online processes.
Brian Hanrahan, Nuapay
Open Banking payments set to accelerate in 2020
To date, the Open Banking conversation has centered on the data sharing element of the European PSD2 legislation and, more recently, on the Europe-wide delays to the implementation of Strong Customer Authentication (SCA). But we believe that 2020 will see a significant increase in the adoption of the payments side of Open Banking.
We’re already seeing a huge appetite from merchants for the payments capabilities of Open Banking. Many of those we speak to were already incredibly excited by the speed, security and cost-effectiveness that Open Banking payment methods offer. Now, they are also becoming increasingly impressed by the customer experience of the payment journey – an important pre-cursor to adoption.
This year, Nuapay asked a hundred businesses in the UK and Ireland exactly when they expected to implement Open Banking initiatives. The results were striking. 97% of merchants expected to implement initiatives within the next year. Of these, 56% expected to do so within six months. Clearly, the UK is on its way to widespread Open Banking adoption.
Data from the OBIE backs this up, too. After languishing at only a few thousand transactions per month until the start of the year, PIS payments have started accelerating – growing on average more than 100% per month for the last six month. In September they grew by more than 50% to nearly 700,000 PIS payment calls.
Of course, this figure remains a fraction of the total number of online payments. But it also clearly demonstrates that Open Banking payments are now being used at scale in live environments. As merchant awareness continues to grow, the Open Banking payments revolution will gather pace in 2020.
For consumers, this will mean tangible improvements to payment experiences in 2020. Open Banking has the potential to redesign the way customers interact with transactions in-store and online – from social media platforms to eCommerce sites.
As more merchants harness this technology, customers will enjoy a far superior and more seamless payments experience. In turn, increased expectations from the consumer will further catalyse more widespread adoption by businesses.
Sirpa Nordlund, Nets
Data was the star of 2019
There’s been a lot of noise about banking disruption in 2019. Fintechs have raised more capital than ever before and, although there have been constant announcements about AI, open banking, blockchain, instant payments and the IoT over the last few years, it’s only in the last 12 months that we’ve started to see implementations at scale.
The real star of 2019, though, is data. With interest rates still at record-breaking lows across Europe, the threats to banks are growing, and this is being compounded by BigTech really starting to step on financial institutions’ toes.
These players are not only launching products that directly compete with traditional banks, but also acquiring companies in financial services – and all these initiatives ride on the effective use of big data. This is creating new business models, where data is the commodity.
Facebook Pay will be free for consumers and Marketplace sellers because it makes commercial sense – a lack of fees will support increased adoption and the programme will be monetised by using purchase data for advertising. Google is taking a slightly different tack; it won’t sell its customers’ data, but will use it to offer loyalty programmes and other value added services to consumers and banks.
It will be interesting to see how consumers react to the ongoing monetisation of their data. When something that was charged for suddenly becomes free, it’s probably because you are the product. And despite the personalised, value-added services this enables, some will find it invasive.
Data security remains a challenge
Trust will be the overarching theme of 2020 financial services, because that’s where the battle between banks and BigTech will rage. Banks are trusted more by consumers than any of the BigTechs – particularly Facebook in the light of the Cambridge Analytica scandal and the intense regulatory attention Libra is attracting.
In 2020 and beyond, banks will need to indirectly monetise this trust by providing convenient services with seamless user experiences within their highly regulated environment. Financial institutions shouldn’t fear legislation like GDPR – if they let their customers control their own data while providing services that they value, they will thrive.
Banks are in a strong position to do this, as opposition is growing to BigTech, particularly in Europe, as Germany’s attempts to force Apple to open up its NFC chip shows. While this was unsuccessful in Australia, Apple shouldn’t count on the same in Germany.
Furthermore, BigTechs like Apple are generally using banks’ existing infrastructure, rather than becoming banks themselves – in effect, acting as a data layer – so there’s an opportunity for banks to combat the growing influence of their new competitors by pipping them to the post. In addition, years of discussion about a pan-European payment scheme to compete with the global schemes may finally come to fruition with PEPSI.
Fundamentally, payments are not about politics, they are about consumers’ trust and preferences. European payments players will do well to avoid an ‘Ok, boomer’ approach, and instead focus on making 2020 a success by launching the best products and services quickly as markets evolve.
Curtis Webb, MetaBank
Faster payments to become more popular
Even more so than before, we predict faster payments will explode in popularity. The ubiquity of faster payment tools PayPal, Venmo and Zelle for peer-to-peer transactions will likely hold steady, or possibly increase. But consumers expect lightning-fast payments for business-to-consumer transactions, too — and our research indicates we’ll see more companies adopt this innovation.
Per a recent study from MetaBank, Faster Payments: What Consumers Want from Businesses in 2019, companies that meet this consumer demand have a lot to gain — two in five Americans would be more willing to do business with a company again that offers a direct deposit option they’d receive in a few days.
However, that willingness increased to about half (47%) for direct deposit options available in minutes. Faster payments could drive new business too as a small but mighty 13% reported they’d be willing to switch insurance providers to one who offered faster payment of their claims.
All-in-all, the study made it clear — consumers want seamless, instant options to spend, receive and move money. In 2020, we forecast businesses will continue to respond to this demand.
Kushal Shah, Ekata
Businesses that can cut friction at checkout will see double digit increases in transaction volume.
According to a recent survey of 7,000 consumers across North America and Europe, an astounding 66 percent have abandoned their account opening or transaction on at least one occasion due to friction, including the process taking too long. Businesses that eliminate this type of friction universally, using new approaches such as pre-auth risk assessment, will experience double digit gains in transaction volume.
Organisations will shift to pre-authorization risk screening by building their own Machine Learning (ML) models to improve the customer experience.
Whether it’s the fear of pushing out good customers, the price tags tied to rejected transaction, or the Transaction Risk Analysis (TRA) requirements under PSD2, ML pre-auth is the answer to improve the customer experience, positively affect authorizations, and adhere to the new regulations. With ML now a central part of their strategy, businesses won’t just invest in third party models and data, but they will look to build their own models for optimal performance and more control over their customer experience.
Businesses will be the big winners as banks battle each other with innovative B2B payments options
Capital One, VISA, American Express and more have been making moves to bring innovative payment options to their business customers, a key one being instant credit. Because businesses will have so many compelling options to choose from in the marketplace, banks will have to rely on speed and convenience of approval to set themselves apart from the competition.