As a runner and history buff, I’ve considered how it took decades for humans to break the 4-minute mile – shattered by Roger Bannister in 1954. Forty-five years later, Morocco’s El Guerrouj lowered the record to 3:43:13, which has stood for 20 years. As humans, we can only run so fast. But we humans have become experts at harnessing technology to continue to speed up the pace – the Hennessey Venom F5 can run a mile in 12 seconds. That’s huge for those willing to pay $1.6 million for the fastest car.
What’s huge in the payments’ ecosystem is how we are harnessing technology to speed up transformation at a record pace. In just four years, the industry has moved from settling payments in days to the same day or even faster – in near real time.
Looking ahead to 2019, I note three primary forces of change that will have the greatest impact upon payments and those of us in the financial industry.
Consumers Continue to Gain Power Among Stakeholders
Among stakeholder groups – financial institutions, fintechs, merchants and consumers – in the payments’ ecosystem, consumers continue to gain power. How? Market disruption, created by fintechs has expanded consumer choice – and more choice translates to more power. In turn, consumers have higher expectations for faster, more convenient and more secure payments.
Consumers now expect quid pro quo in their relationships with institutions. Although nearly 80 percent of digital-savvy consumers are willing to share personal data with their banks, two-thirds demand faster, easier-to-access services in return, according to Accenture’s consumer research.
Data analytics applied to personal information will drive marketing and communications, lead to personalized rewards and help secure payments – but it will kill market segmentation.
Technology Continues to Advance Purposefully
Budgets constraints will translate into adopting new technologies that are purposeful, need fulfilling and problem solving as funds for running after shiny objects dry up.
Artificial intelligence (AI) continues to evolve beyond repetitive, rule-based tasks to create more personalized experiences for consumers. According to a recent Accenture study, 79 percent of bankers believe that AI “cobots” will work next to humans as co-workers, collaborators and advisors in banks within the next two years.
The battle between the “forces of good and evil” in securing payments continues to escalate. More fraudsters are using AI to force payments through authorization and duplicate card numbers and expiration dates on legitimate cards – substantially increasing the load of banks’ fraud detection systems. In response, banks must employ more discriminating AI to detect variances in consumers’ behavior in real time and spot fraudsters in the act.
The market may beat the Federal Reserve’s goal of making real-time payments in the United States ubiquitous by 2020 as existing real-time debit rails are harnessed along with the Clearing House’s Real-Time Payments network.
On a global level, 85 percent of bankers expect real-time payments to drive revenue growth, which is 22 percentage points higher than last year’s report. That’s how fast attitudes about real-time payments are changing around the world.
From a consumer perspective, real-time insights and payments will result in more convenient, frictionless consumer experiences (CX). Knowledge of customers’ shopping habits combined with geolocation permission will enable push promotions to customers’ mobile devices when they are in the vicinity of a store where they shop. When they purchase, their contactless payment will close the loop on the CX.
Regulatory Changes in the EU Spread Abroad
Expect emerging payment mandates in various countries to have global impact on payments. The two EU mandates last year were the Revised Payment Services Directive (PSD2) allowing third-party providers access to customers’ online accounts/payment services with their permission and the EU General Data Protection Regulation (GDPR) to protect EU citizens from privacy and data breaches.
Since its introduction, PSD2 has had impact upon bankers’ views about open APIs on a global basis. According to a 2018 Ovum Global Payments Insight survey, 89 percent of bankers now agree the business benefits of open APIs are clear – up from 61 percent the previous year.
As data breaches continue to mount in the United States, U.S. lawmakers intend to introduce legislation to toughen privacy laws, including limits on how much data companies can store and stiff penalties for companies with poor data security.
Prepare to Pick Up Your Pace
Preparing for the quickening pace of change in payments means:
- Implementing more powerful security controls including AI-based tools to turn the tide against fraudsters especially as institutions take advantage of the huge opportunities afforded by open APIs
- Flexible and agile infrastructures that respond to current demands of the payments’ ecosystem
- Strategic partnerships with fintech companies to retain relevance. According to Accenture, 44 percent of banks now work with more than twice the number of partners than they did two years ago.