By Andrew Warren, Vice President, Banking & Financial Services at Cognizant
We do not need a crystal ball to determine the future of payments, it can be summed up in a few words: speed, transparency, personalisation, choice, and safety. The evolution of entities in the payments ecosystem in the last decade – whether traditional banks, payment processors, fintechs, or merchants – points to the fact that we are moving to a model where the transfer of money will be instant, frictionless, and omni-channel.
What do these words mean in practice and how will these principles define the payments experience for providers, banks, fintechs, and users alike?
Real-time a prerequisite
We are quickly moving towards a world where real-time delivery is seen as normal and will be expected of all financial services. Freelance and small business need and expect instantaneous payment and will no longer accept the traditional processing cycles. Providers such as Mastercard, PayPal, and Stripe have addressed this issue in recent years by revolutionising instant payments. Customers and merchants also want transparency around the costs associated with offering and accepting payments in this ‘pick-and-choose’ model, across cash, card, on-line, mobile, eWallet, and traditional payment rails like BACS or through Faster Payments.
For the processors and networks, this will mean facilitation of instant settlements, more added-value services for merchants at point-of-sale (POS), investing in improved fraud technology across channels, possibly assuming more of the friction from disputes and fraud, and in some cases, the costs of this innovation, especially for small businesses.
Diversification for ubiquity
Whilst new and improved ways of moving money might come at a cost for the providers, there is an obvious advantage for them in volumes of transactions doubling or tripling in the next three to five years. Enabling technologies such as 5G may accelerate mobile payments, whilst interconnected devices, biometrics, and cloud will drive customers to take advantage of the proliferation of choice around when, where, and how they pay.
The other benefit is the possibility of extending payments platforms to do more than mere payment processing or PoS, playing a role in every aspect of a customer’s life, from booking holidays to chatting with friends, paying bills, making investment decisions, and moving funds. There is an aspect of convergence here, which we have already seen with providers such as WeChat in China. This is an opportunity for traditional retailers and banks alike.
Personalisation is king
While trust was once hailed as the Holy Grail in banking, customers are increasingly seeking better experiences, with higher expectations of speed, convenience, and personalisation, delivered by technologies such as artificial intelligence (AI) and machine learning (ML). Conversational-first AI allows providers to serve customers more effectively, and autonomous processes enable better experience differentiation. For example, American Express’ Mezi personal travel assistant app uses AI to help cardholders pay for holidays and business trips based on their preferences. Similarly, Bank of America’s virtual AI assistant Erica is helping clients with effective money management.
Greater choice from new players entering the payments fore
The landscape is rich with opportunity to evolve and innovate, meaning the move into payments is a good one for businesses. Therefore, it is no surprise that companies such as Uber and WhatsApp are diversifying into the space. From allowing customers to create an account in as little as five minutes to sophisticated monthly budgeting tools, the offerings of digital banks such as Monzo and tech players like WhatsApp are testament to the industry’s efforts to keep up with rapidly evolving consumer expectations.
When it comes to remaining relevant, banks would do well to partner with the digital players to ensure they remain an important element of the ecosystem as well as find a niche segment to focus their innovation.
Digital’s impact on banks operations
Digital will continue to change the way banks operate – a fact the UK woke up to when non-cash overtook cash in terms of payment volumes for the first time in 2017. While the drivers for digital payment adoption are myriad, it is also important to stop and think about the emerging modes and methods of digital payments. We have seen the rise, fall, and rise again of crypto-currencies, and the markets are still grappling with the full extent of the risks associated with these, be it ascertaining their value-in-storage, security or inter-convertibility with other digital or non-digital currencies.
This is an area where the government, regulators, and market players will all have to work together to see how easily existing infrastructure can be extended to address some of these risks. Legacy infrastructure with locked-in costs may slow the adoption for traditional banks or providers in established markets like the US or UK, whilst markets like Australia, Singapore, and India are rapidly bypassing traditional infrastructure like branches and moving to make mobile or eWallets the mode of choice.
Safety in the cashless era
The rise of the digital cashless economy could also impact bank runs. Those in the traditional banking space will need to ensure that they have a strong, risk-based approach to identifying and managing the factors that could trigger bank runs such as fake news, mass consumer sentiment, digital currency, and the cash versus cashless debate. We have been progressing towards a cashless society for some time. The current health crisis has accelerated this trend, with some businesses going completely cash-free.
Part of the solution entails moving to faster and cheaper cloud-enabled technologies, allowing for the sentiment analysis of social media data – comprised of huge swatches of structured and unstructured data – to anticipate the potential risk of a bank run.
These new principles of payments make it an exciting time for both payment providers and users, with more opportunities for financial services and more convenience for consumers’ lives. While digital underscores everything, the key to success will be doing more than just ‘digitalising’, and using it to deliver speed, transparency, personalisation, choice, and safety.