Five Payments Trends to Watch in 2018 [Part 1]
2018 is set to be a year of rapid change and new challenges for payments players. The floodgates are opening with PSD2 and UK Open Banking coming into force, bringing an onslaught of new competitors and potential partners. Whether evolution is mandated or market-driven, banks and processors are facing a critical year in their long-term success.
With this in mind, I sat down with five of our own experts on the New Payments Ecosystem, to get their views on the trends to watch in 2018 and how to make digital transformation decisions that solve for the now… and lay the foundations for the future. In the first installment of this two-part series, I spoke with Craig Ramsey and Mark Ranta about real-time payments and the open banking opportunity.
1. Real-Time Right Now, and For the Future
Craig Ramsey, Director of Product Management, Real-Time Payments
How to solve a problem like real-time? It’s a question many banks have asked themselves in 2017. The short answer of ‘upgrade everything’ might be tempting, but of course that’s not realistic. Instead, a reduced risk option is a transitional path that involves a quick tactical solve for immediate payments, which can be easily implemented now and coexist with their current systems, whilst looking to the future and readying for the new real-time 'norm.'
Tactical solutions work in the current payments environment, where most payments institutions are still working towards true real-time, but soon it won’t be enough. To fully take advantage of the growth that real-time payments offer, it has to be part of a complete digital transformation project within the bank. Preparations need to be made, not just for 2018, but for the next 20 years.
UK Faster Payments is predicting a 25 percent increase in real-time volumes, to 1.8bn transactions in 2018, and then a further 20 percent increase to 2.1bn transactions in 2019. As other real-time schemes launch worldwide (i.e. Australia’s NPP, TCH in the U.S. and EBA Clearing RT1) they are confident to emulate – if not surpass – the incredible upward trajectory of immediate payments in the UK.
Consumers and businesses alike are highly digitized in their payments, with lower cash and cheque usage. The increased transaction value limits on real-time payments schemes (or absence of limits completely) bodes well for the convergence of some ACH/RTGS payments onto these new real-time rails, and an increase in transaction volumes due to the reduced cost per transaction.
To turn this market growth into growth for your business doesn’t mean you have to rip and replace your current systems, but it does mean you need to make a careful short-term, tactical decision to avoid creating technical debt in the near future – incremental improvement is the new rip and replace.
Some banks’ tactical solutions for real-time payments involve yet further payment silos, but all the evidence from live real-time schemes points towards a convergence of payment types. This might relieve some of the current pressure, but what you really need is a solution that will grow with your real-time business. Something lightweight that leverages existing solutions investment, and allows you to upgrade parts of your infrastructure in a timeframe that suits your business to become the foundation of your real-time processing.
When considering real-time payments in 2018, it’s more about considering how to become a real-time bank for the future. For example, liquidity and exceptions tools need to work across a real-time business, not just in a current silo. Begin building a real-time hub to leverage best practice solutions that work across your bank’s payments ecosystem and not just the silo. Think about reusable solutions and you can solve tactically, within budget and time constraints, with a solution that meets your long-terms strategic goals.
Paving a smooth path for the bank in twenty years’ time might not be your primary personal concern – especially given the average CIO moves on to their next challenge after four years – and it can be more challenging to build a compelling business case for the long-term view. But if you have ambitions to be the next CIO at your bank, you should support the creation of that business case. Technical debt will come to impact your career – and the future of the bank – sooner than you think!
2. It’s Time to ‘Punch It’ on Open Banking
Mark Ranta – Director of Product Management, Open Banking
Open banking, and the Open API technology that underpins it, is now a global force. But it isn’t rising in the same form around the world. The rate of evolution, the regulatory and technological approaches, and the market maturity varies, but the likelihood is that the side that is furthest ahead in the race to open will ultimately gain the most traction. And the first past the post will set the boundaries for the rest of the players.
As access to payment systems begins to open up, the market has awakened, and we are beginning to see a lot of innovative ideas being realized. Start-ups are playing with concepts that were out of reach as little as 12 months ago. In terms of services that will make it to market and gain traction, I believe we will see new loan-based products that drive consumer spending, including at Point of Sale, thanks to the ubiquity of microfinancing.
We will also see even more ‘neo’ and alternative banks that play to consumer experience, versus just showing customers the data. This new banking space will give the consumer new hope for #newpayments, and more options to ‘build’ their own bank thanks to hyper-tailored services that are aggregated under a traditional provider’s banner. The elusive, "Bank of Me."
The fight will be to become not only the most open bank, but also the first to get there. Consumers will flock to the most open bank quite organically, because it will be the easiest path to constructing their own personalized banking experience, but with the foundation of a heritage brand they trust with their money. It’s all about the #sleepatnightability; people do trust brick and mortar banks more than popular perception would have you believe – and this will be crucial to the success of open banking.
The dark side of this rush to provide the ‘next big thing’ in payments will be the high number of failures. Consumers will have their fingers burnt by rogue start-ups that don’t have the reliability they expect from financial services providers. To avoid the potential impact, payments players need to carefully manage the way they allow and control access to customers’ accounts and data. This can be done through a payments API orchestration and integration solution, with the ability to update customers on their permissioning at a granular level. Banks need to educate their customers on open payments, in a personalized way of course.
Unlike some other payments trends, we will see the foundations of this unfold in 2018, and set the trajectory for the future of banking. The historic trendline for big changes in payments has been about three to five years, but payments transformation will hit lightspeed in 2018 thanks to a perfect storm of regulation, competitive forces, and consumer demand. The market has discussed consumer demand for years, but now customers are in full rebellion. They have the endpoints in their home, in their car, in their hand, and even in their spectacles. The only thing missing from their new connected life, is proper payments.
What are the other trends to watch in 2018? Read the second installment of this blog post.
Discover more about payments transformation: Download our detailed guides.
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