Due to the fast-paced Technological fundaments of online payments, the industry is rapidly evolving and continuing to become more complex, regulated & globalized. In this blog, we cover the 4 biggest payment trends in 2019 & years to come.
Payments are changing rapidly, in this blog we'll cover 4 key payment trends for 2019 and years to come.
The 4 key trends that will define the future of payments are
As the payments universe expands, customer experience is becoming the prime competitive differentiator. For years, the established banks have had a monopoly on payments and the payment data of consumers. With the current developments regarding PSD2/Open Banking, payment data is now available (only when given permission) to a range of other institutions as well. The new and modernised consumers are more likely to share their payment data with third parties, as well as to try out new financial services as opposed to the conservative generations who try to stick to what they know. As a result of the shift in consumer behaviour, it is clear that BigTechs will make their way into payments and this is where they will try to gain a competitive advantage over the traditional banks through providing a top-notch customer experience.
BigTechs such as Alibaba, Amazon, Facebook, Uber and Tencent could impose a threat to incumbents when entering the financial services market. This is due to the fact that BigTechs have a substantial customer reach and excel in UX, whereas the majority of incumbent banks are responding slowly to the digitalisation of the industry. BigTechs also have immense customer bases, outstanding data capabilities, and the newest technologies.
Some of the implications of these BigTechs in the financial services are:
Even though there are a number of BigTechs that have developed and launched their 0wn payment services, the vast majority still rely on the use of traditional banking partners.
With BigTech’s movement into the payments industry, the important question is not so much about if they will do it, but more, when are they entering and how substantial is the threat for incumbent banks and other financial institutions?
Take the recent collaboration between Apple, GoldmanSachs and MasterCard for example. What is up for discussion, are the key differentiating factors are for this card. One thing is for sure, Apple is trying to attain customers by focusing on the overall user experience of the Apple Card. This is the most recent example of BigTechs paving their way into payments, but this movement is widespread and could have far-reaching implications in the payments ecosystem if successful.
Once dominated by cards and terminals, the payments industry is now rapidly adapting to the needs of customers. In the western world, there is a noticeable shift in focus toward mobile device capabilities.
With that being said, payments acceptance has, itself, expanded at the POS, online and on the go.
Payments used to be dependent on location, whereas currently, the shift toward mobile device capabilities seem to allow payments to be device enabled. Further technological advancements enable payments to be carried out by integrating multiple mobile devices such as smartwatches, fitness bands, phones, and even IOT enabled cars.
Innovation in the payments industry is mainly focused on speed and ease of purchases. In essence, the customer has high expectations regarding the ability of merchants to provide a seamless cross-channel experience that provides them with all the preferred options that come with it. It seems that the next payment capability developments in the western world will, therefore, be comparable to countries such as China.
This could mean mass adoption of biometrically verified payments at the POS, online and on the go, as well as further developments in device powered payments such as QR code transactions. These developments are mostly focused on lowering the barriers for consumers to pay and make for an environment where payments are not dependant on cash or cards.
With a variety of new payment methods and ongoing development and digitalisation of the currently established payment methods, cyber risk is on the rise and cybersecurity in payments has never been more important.
There is no discussion whether cyber attacks will increase. What is more important is preventing any risk regarding cybersecurity with Authentication, ID verification, Online Identification, authorisation and more.
With the developments in PSD2/Open Banking, more and more financial institutions are obtaining financial and payment data from the general public. Cybersecurity is a global and general concern that does not limit itself to payments. The numbers, however, show that the risk of cyber attacks on financial institutions is substantial. Financial services firms fall victim to cybersecurity attacks 300 times more frequently than businesses in other industries.
Financial services developments and the risks they add has led to EU officials pushing for Risk-Based Authentication. As well as introducing SCA (strong customer authentication) regulations as part of the introduction of PSD2. SCA requires European merchants to build an additional layer of authentication in their checkout process.
Other recent developments within the financial services are for instance KYC (know your customer) regulations. With the strong emphasis on Risk-Based Authentication by EU officials the European Central Bank, the European Banking Authority and European Commission took strong action against to further develop KYC and AML regulations.
With cybercriminals continuing to carry out more comprehensive attacks on financial institutions, it is clear that fraud attempts will continue to increase. Regardless of the increased risks, there’s also a noticeable trend in the development of security measures and regulatory activities to protect businesses and consumers.
A clear indicator that the financial sector is adapting to this kind of requirement is the partnership between BioCatch and Entersekt. With the desired result being to refine the overall online banking experience by combining “Behavioural Biometrics and Strong Mobile Authentication”, both companies are bringing high tech solutions to digital banking security.
In the coming year(s), the payments industry will be heavily influenced by continuous consolidation.
The future of payments is likely to be driven by acquisitions between incumbents and FinTechs with well-developed technologies.
In payments, the number of mergers and acquisitions have been quite remarkable and have shown strong similarities. These come down to high-tech solutions, developed by a selection of innovative people, developed at a start-up, being taken over by larger companies. For instance, acquirers taking over fraud engines, PSP’s taking over smaller acquirers, PayPal(online) taking over iZettle (offline) and many more occasions. These FinTechs are looking for solutions that can propel their growth. In essence, they are buying the technology and customer base, which has shown to be a successful strategic decision for many FinTechs. For established financial institutions, developing these high-tech solutions cost a lot of time, you do not take over any customers and the desired result is not assured. The only challenge that a merger/acquisition presents is that the integration process is hard to predict and can take a long time.
For the startups with innovative solutions, a consolidation allows their solution (and/or company) to scale. Without this, they lack the brand recognition, infrastructure, industry knowledge, seamless integration and customer base to scale.
It seems that most new and traditional financial institutions have recognised that trying to compete with the key points of differentiation is a guaranteed waste of time and resources. This has created the perfect environment for FI’s to consolidate. In essence, it’s a win-win situation, and we will, therefore, see many more M&A’s in the FinTech industry in 2019.
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PSD2 and Open Banking are transforming the industry. They require the implementation of strong customer authentication (SCA) for online financial activities. Its purpose, along with many other things, is to reduce the risk of fraud and to increase security through additional authentication factors.