Payments’ Big Five: What We Will Be Hearing About in 2018
The new year is here… so while resolutions are enacted, and almost inevitably broken before the month is out, it is also the time to look ahead at what the next year may bring. One thing that is clear is that payments will become an even more important ingredient in the business strategy of every merchant. From my perspective, these are the five trends that will have the biggest impact in 2018.
The mobile story will just get bigger and bigger. As mobile wallet adoption continues to rise globally, the message for merchants is a simple one; get your mobile strategy right or get left behind. In many Asian and Latin American countries, mobile wallets are now the dominant payment platform. In China, consumers have adopted mobile almost exclusively as their payment channel of choice. Consumers want to buy products and services when they want, and wherever they are. Mobile is central to new consumer behaviors emerging around the globe. Offering the right payments experience and a seamless mobile checkout solution is going to be crucial to commercial success in 2018.
Which brings me directly to the next trend …
The Alipay and WeChat phenomenon
Consumers not only want “any time, anywhere” payments, they also want to use the payment methods they know and trust. Nothing underlines this fact better than the inroads that Alipay and WeChat are making in Europe. In just a little over five years, these two digital platforms have changed the nature of Chinese retail payments, and helped hundreds of millions of Chinese consumers move from cash to electronic payments.
In the last few years we have seen a flurry of European retailers adopting Alipay and WeChat Pay, from premium department stores Selfridges and Harrods in the UK, to traders in Camden Market. The logic is quite simple: Over five million tourists travelled to Europe in 2017, and figures show that Chinese travellers spend more than any other nation when travelling abroad. Retailers in Europe are missing a big trick if they don’t develop strategies to integrate new forms of alternative payments and cater to this huge consumer group. We expect this trend to continue, and at ACI, we are helping our clients to accept the payment methods preferred by Chinese consumers.
The Telco Opportunity
Although many consumers now spend more time and money on their mobile devices than on their desktops and in physical stores, telcos – the facilitators of this movement – are currently (on average) only billing 3 percent of consumer spend. Add to this the increasing number of new market entrants, in particular OTT (“over the top”) players, who are threatening the traditional bread-and-butter revenue streams of telco companies, and it is clear that MNOs and MVNOs need to consider how to carve out a profitable, sustainable path in a digitally-connected future.
According to an analysis by ACI Worldwide and Red Dawn Consulting, the mobile payments market is set to double over the next five years, and telcos have a towering opportunity to increase their mobile payments revenue at least fourfold by 2022.
However, this €13 billion opportunity can only be realized by those telcos willing to think ‘outside the box’ – or rather ‘inside the handset’ – by examining how they can deliver against consumer demand for speed, convenience and security.
It goes without saying that fraud needs to be at the top of the agenda for retailers and merchants, wherever they are. As the industry continues to add more channels – opening and expanding capabilities with the target of real-time, borderless, any-to-any payments – fraudsters will attempt to attack the weakest links. ACI’s most recent analysis shows that fraud attempts are expected to rise 30 percent during the holiday shopping season. Identity theft (via data breaches), account takeover (including phishing attacks) and friendly fraud (chargebacks) continue to be the biggest challenges for consumers and merchants, and it goes without saying that sophisticated fraud monitoring and prevention capabilities will be more crucial than ever before.
PSD2 and authentication
Which brings me to my last big trend: A few weeks ago, the European Commission announced the final regulatory technical standards (RTS) for the revised Payments Service Directive (PSD2), which will take effect in January 2018. One of the most contentious recommendations is a new requirement for PSPs to increase the strength of customer authentication needed to complete a transaction.
In the new PSD2 world, regulators want us to authenticate every transaction via at least two steps. It looks like ‘friction free’ will remain a fantasy in the PSD2 world. PSPs may be exempted if they have developed ways of assessing the risks of certain transactions and can identify fraudulent ones. Exemptions also exist for contactless payments and transactions for smaller amounts.
Expect a big debate in 2018 and beyond, about the need for strong authentication and whether these measures are too ‘heavyweight.’
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