Industry Disruptors
Three payments trends to watch in 2018 By Anil Das
R
apidly developing technologies and increasing forays into payments by non-banking entities are driving banks and payments service providers (PSPs) to rethink their business models, add value to current offerings through innovation and pursue collaboration with other parties in the payments value chain. Heading into 2018, a trio of trends will be instrumental in shaping the marketplace that PSPs have to navigate.
Demand for frictionless and faster payments experiences will keep growing Real-time payments processing, wide penetration of connected smart devices and advanced technologies will support the increasing demand for frictionless and faster payments across retail and corporate customers. For corporate customers, payments transformation opportunities will include integrated B2B platforms leveraging cognitive accounts payable and receivable systems, e-invoicing and cash management operations. For retail customers, embedded payment options will transform connected devices into “commerce capable” devices, enabling anytime/anywhere commerce. Niche technologies that will play key roles in the realization of a frictionless and faster payment experience include interfaces with emerging payments infrastructure, such as The Clearing House, Visa Direct, MasterCard Send, Zelle and others to enable a wide range of real-time payment use cases across various customer segments—P2P, P2B and B2P. They will also enable new revenue streams through value-added services. Additionally, opportunities will arise for enabling real-time payments in nontraditional environments, such as gig economies, with the demand for real-time payment acceptance. Tokenization enables secure storage and access of payment credentials across mobile devices and channels, enabling a secure and seamless commerce experience. Recent industry developments provide multiple technology options for implementing tokenization, providing the opportunity for banks and PSPs to gain full control in the payment ecosystem. Artificial intelligence (AI) and machine learning are widely used by banks and PSPs to efficiently harness the power of data and increase contextualization of commerce experiences. Other emerging 6
PAYMENTSBUSINESS
applications of AI in a fast and frictionless payment ecosystem will include fraud detection, AML sanctions screening, payments optimization, and product design and recommendations. GPII by SWIFT and blockchain will enable frictionless and costeffective cross-border payments addressing current challenges such as increased time and costs. Interest and participation in distributed ledger technology (DLT) deployment increased significantly among banks, PSPs and technology firms in 2017. Typical DLT applications in the payments lifecycle include digital identity verification, customer onboarding, trade finance and value-added services such as loyalty programs.
Open banking and collaboration with FinTechs will continue to foster innovation and drive new business models Open banking initiatives enabling data sharing facilitate collaboration between banks and third-party payment service providers. Such alliances hold promise to help banks deliver a differentiated, technology-driven customer experience tailored to the demands of digital natives, open new revenue streams and stay relevant by expanding their role in the payments ecosystem into a payments platform provider. Incumbents are employing open application programming interfaces (APIs) to launch new business models, such as developer exchange platforms and banking marketplaces, thereby creating a linkage between existing banking infrastructure and FinTech innovations Banks and PSPs can increase their preparedness for an open and competitive payments ecosystem by addressing some key imperatives: • Undergo end-to-end digital transformation, including revitalization of legacy systems, to deliver a differentiated customer experience. • Expose core services and establish partnerships with industry participants. Selective bets on FinTechs, either through investment stakes or participation in joint go-to-market initiatives, can help incumbents deliver best-of-breed products and services to end consumers. • Extend market addressability. Banks can deepen customer relationships, leveraging the digital banking platform as a touchpoint for payments in adjacent non-retail market segments, such as transit/toll payments, healthcare bill payments and January/February 2018