Seven forces are reshaping payments and opening new opportunities. Banks and PSPs that offer value beyond costs have a chance to capture the rewards of these changes.
Inflation and interest rates create macro challenges but also present opportunities – for example, higher interest rates may boost payment revenue for deposit-holding institutions.
Digital Currency
A digital currency is any money or payment that solely exists in electronic form and is tracked via computerized electrical codes. In a world increasingly shifting toward a cashless society, digital money is becoming the dominant form of payment. It could eventually replace paper bills, coins, checks, and other forms of traditional currency.
While private cryptocurrencies like Bitcoin are popular among many, there is growing interest in CBDCs, which are being developed by central banks around the globe.
These digital forms of national currencies promise to deliver faster, more secure transactions than cash while eliminating the volatility and risks of private cryptocurrencies.
Banks, card networks and nonbank providers, big tech companies, merchant providers, and third-party processors are all in the early stages of reshaping their business models to take advantage of this new opportunity.
As the global economy normalizes and restrictions lift, these businesses must accelerate their development of omnichannel payment capabilities to maintain competitiveness and drive innovation. This can only be achieved with a clear strategy and the right qualifications.
Open Banking
Open banking is a new way for consumers to share their bank account data with third parties. Its key advantage is bypassing the card payment middleman, allowing merchants to pay directly from customers’ accounts for the exact transaction cost or less. This is a significant competitive advantage over the current system that charges card-issuing banks to act as intermediaries.
Opening up banking is a growing trend that will reshape the payments landscape in many countries. For instance, it has helped drive omnichannel payments, embedded finance, and instant cross-border payments in Europe.
This development could also significantly improve the services of Small and Medium Enterprises (SMEs), for example, enabling them to speed up their financing application processes by leveraging the data they already share with their banks.
To succeed, PSPs must understand the impact of this dynamic shift and be proactive in assessing the risks and opportunities it presents. They can do this by focusing on the value pools that their technology, business models, and partnerships with PayTechs can unlock.
Invisible Payments
As the payments analytics landscape shifts toward invisible forms of payment, they’ll be woven into commerce experiences. This trend is primarily driven by the increasing availability of new technologies, including facial recognition, iris scanning, and fingerprint sensors.
These innovations will allow a single point of contact to read and authenticate multiple payment methods. Examples use AI to read a customer’s palm or toll tags used in a drive-thru to pay for fuel and snacks without the driver reaching for their wallet.
Invisible payments will be powered by real-time payment rails, which enable the movement of funds between accounts in seconds. This will make it easier for customers to move money between their accounts, vital for a fully connected future where consumers can enjoy seamless commerce experiences.
Developing these new payment technologies will also unlock radical data monetization opportunities for businesses, enabling them to build more unique customer offerings. Rather than working with multiple fintech, enterprises will want to consolidate relationships with a single payments facilitator that can provide the full range of services needed for an integrated payment ecosystem.
Connected Commerce
Commerce in the Internet of Things world is about capturing data, interpreting it to understand user needs, finding the best-matched products or services, and triggering payments with minimal or no human intervention.
It could be as simple as a refrigerator creating a shopping list for its owner or a car capable of paying for fuel and charging the battery based on real-time pricing.
This new world of connected commerce has significant implications for the future of payments. Embedded finance has already made inroads with the introduction of Alternative Payment Methods (APM) such as mobile wallets, contactless, and bank transfers. It is a trend that will likely accelerate over the next few years as consumers embrace digital-first experiences.
Traditional firms must determine their strategy for capturing new market opportunities. It will likely require them to invest in their customer experience, becoming rail agnostic to protect connected lending streams and monetize the additional transactional data generated by billions of connected devices. And they should be prepared to defend against aggressive incursions from big technology companies with the resources and momentum to increase.
Super-apps
Super apps monetize their ecosystems by uniting services and products into one interface. For example, Uber merged ride-hailing and food delivery into a single app in 2019 because the company found that users engage with its app longer when using multiple services.
While super-apps are taking Asia by storm, it’s unclear whether they will take off in the West. For starters, they may not be suitable for all consumer segments.
For instance, a company’s product diversity could be perceived as confusing or unnecessary to some consumers, especially if the product mix isn’t aligned with their needs and goals.
Also, regulatory pressures, the pace of technological change, and cultural differences will likely limit how far American tech companies can go in attempting to create their super apps. In any case, they should heed the lessons learned from Asia and proceed cautiously.
The potential for radical data monetization and unique customer offerings is real, but so are the risks. The future of payments is about how the sector responds to these challenges.
