ACI Blog

Consumer Payments in Europe: What Are the Trends That Are Here to Stay?

The way we pay for everything, from food to clothes and everything in between, is changing significantly. 80 percent of consumers report they have made more contactless payments than ever before, and nearly a quarter (24%) of these consumers are making more use of their mobile wallets.

The COVID-19 pandemic and resulting lockdowns might have acted as an accelerant for certain changes in payments behaviour, but as I and the rest of Britain emerge from a prolonged winter lockdown, encouraged by the prospect of springtime pints amongst peers and friends, it’s the perfect time to consider the longer-term prospects of some of these pandemic-wrought changes. So, what’s in store for payments for the balance of 2021?

Contact-free will continue to replace contactless

Consumers started to move from contactless to contact-free in 2020, eschewing physical form factors such as cash and plastic in favour of mobile-based payments when allowed out and about. And of course, opting to shop – and pay – online from the comfort and safety of their home wherever possible during lockdown.

With Strong Customer Authentication (SCA) now in place across Europe, and mandated for the U.K. by 14 September 2021, we will start to see consumers become increasingly comfortable with using their mobile devices while making payments. Under SCA, consumers are required to authenticate themselves via codes sent as text messages, extending the consumer/mobile bond into myriad purchasing experiences. This will pave the way for enhanced customer experiences with user-friendly biometric authentication offered through bank and mobile wallet providers, replacing the text message stepping stone.

While text message codes are a definite step in the right direction, some may find this extra layer of friction clunky at first. And some consumers, aware of the increasing sophistication of financial crime, may find some security friction most welcome. This confrontation between convenience and security is age-old in payments, and banks should move to iron out the kinks in their customer journeys to enable faster adoption. A key example here is Request to Pay (R2P), launching across Europe now, ushering in contact-free payments that we will see become the norm in the decade ahead.

Real-time payments will become standard

2020 shone a light on how having real-time payments and access to cash is no longer a nice-to-have, but a necessity. While banks have been investing heavily in access to real-time payment rails across Europe for a number of years, the critical task for this decade will be how they embed real-time payments into the consumer journey.

A key driving force that will help answer this question is the bank-led European Payments Initiative (EPI). EPI will introduce a new card that will enable physical point-of-sale purchases (still seen by some markets to be the prize target), settling funds over the real-time payment rails. In addition, EPI will also provide digital wallet capabilities, expected to leverage R2P, and underpinned by the same real-time payment rails. These wallet capabilities will be implemented to enable European digital wallet providers, such as Bizum in Spain, to offer payments with a standard set of European rules to govern the EPI consumer payments ecosystem.

As such, real time is no longer about just the connection. When augmented with modern digital capabilities, real time is looking to what value can be added to the consumer payments journey – how can it enrich the experience, change payment habits, help keep a customer or snag them from a competitor. While there will likely be a hype curve towards the end of 2021, in the next three to five years, we will see full adoption start to manifest itself with real-time payments in use across most, if not all, consumer payments use cases.

European banks will get into bed with “Big Tech”

There has been a significant increase in payments activity across GAFA (Google, Apple, Facebook, Amazon) over the last few years, with the media coverage to prove it. Already live in India, with huge and growing volumes riding the real-time rails, through to partnering with Plaid in the U.S., Google Pay has taken its India success to launch a new mobile wallet that acts as a pseudo bank account. It also offers a direct connection to bank accounts accessed through Plaid’s APIs.

In comparison, WhatsApp Pay, also live in India and running on real-time payment rails, launched in Brazil last year on a cards rail, but was stopped by the central bank. With Brazil’s real-time scheme PIX now live, the central bank publicly acknowledged the need to get WhatsApp Pay up and running with PIX, thus catapulting the new real-time scheme into ubiquity and large-scale usage. It has dramatically reduced card transactions and non-domestic revenues as a result.

Apple and Amazon are also increasingly playing a role in real time and digital payments. Apple Pay has a universally acknowledged acceptance mark, and although constrained to only cards today, following the Google route seems likely, with “PayByBank” capability increasing in demand. As for Amazon, with the increasing acceptance of Amazon Pay for eCommerce, alternative credit, one-click functionality, and already being live in India with UPI real-time payments, broadening into new markets seems quite likely.

But Big Tech is not restricted to GAFA alone. A lot of markets are also seeing their homegrown tech success stories leveraging and expanding in this space. Grab Pay, for example, started off as a taxi hailing app in Singapore, then expanded its service to include a digital wallet with high penetration, and experiences in other verticals such as ticketing and hotels. Another such example is Paytm in India, in the top ten global unicorn list, which started its life as bill payment-only service before offering a wallet capability.

The entrance of Big Tech into the payments space brings with it natural friction with consumer payment providers. With more and more consumers choosing to manage their finances through the likes of Apple Pay, will we see a pull towards Big Tech for payments in Europe? Or will the EU ecosystem adopt its own digital wallet habits, driven by EPI?

In Europe at least, the likelihood is that banks will collaborate with Big Tech, at least for a while. Banks will get instant access to a huge pool of consumers through WhatsApp and Facebook channels, which both sides desperately want to serve. This not only opens up consumer acquisition possibilities with first mover banks stealing customers from other banks, but also makes banking and payments services really easy to use – keeping existing customers happy. For Big Tech, the benefits of working with banks, and not against them, are founded in behavioral economics. Access to payments data enables them to build a more complete picture of an individual consumer, increasing customer stickiness, whilst driving up marketing data revenues.

2020 accelerated many of the trends that were already starting to emerge in the payments landscape. And while contact-free and instant payments will not become ubiquitous overnight, they will take a significant step towards becoming the norm in the year ahead.

Find out more about the alternative payment methods, and strategies banks should consider when modernizing their systems, in our eBook “The Need for Speed to Market in Consumer Payments

Practice Lead, Real-Time & Digital Payments

Dean has been in the solution space for over 20 years. Initially starting out at IBM as an IT architect consulting to cross-industry blue chip clients, it was at IBM where, as lead integration architect on an ePOS chip & PIN replacement programme for a leading UK retailer, Dean caught the cards and payments bug. Following IBM, Dean moved 100 percent into cards and payments solution consulting and product management leadership within TSYS, and later with Vocalink. At Vocalink Dean was head of product for what is now known as Pay By Bank App, combining faster payments with mobile payments to replace plastic cards to buy goods (a precursor to PSD2). At ACI Worldwide, Dean has held various product leadership roles covering consumer and merchant management, clearing & settlement, reconciliation, dispute management, mobile payments and now immediate payments and hub solutions. With this latest addition Dean is working with global partners to support the transformation of payments into a digitally-native, real-time industry, supporting any payment, every possibility.