Five Payments Trends to Watch in 2018 [Part 2]
Monday, January 22, 2018
Posted by Rachel Hunt to Retail Payments, Payments and Industry Trends
Share this:
The New Payments Ecosystem Is Here. 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.
Following on from the first installment, where we talked real-time payments and open banking, I sat down with three more of our own experts on the New Payments Ecosystem. Here are 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.
3. Tokenization: The Missing Link in the Evolution of Payments
Silvia Mensdorff – Director of Customer Value, Europe
A payment is a payment, is a payment. In the past the payment experience was limited by technology, but now payments are driven by customer experience. Whether that customer is a consumer or a business, they want a seamless experience across any kind of payment. That means you must be able to meet all payment types; new, old, and (as of today) undefined. The answer to that is tokenization – the missing link between technology and experience.
Tokenization is a key link to delivering on the promises of open banking; it’s about making it seamless for the customer by providing an easy authentication process that protects them without burdening the experience. Opening up the payments ecosystem for innovation provides new potential entry points for fraudsters. The benefits of tokenization in combating potential new weaknesses has been evidenced, in safeguarding the payments data in the mobile channel. Thanks to that secure, fast, and seamless mobile experience, this new payment type has taken off.
But tokenization offers greater opportunity that just securing the payment – it’s about finding a way to make your existing investment in payments solutions work harder. If your back-office system manages card transactions via tokens, it can manage the new payments in the same way, for example extending the value-add services around post-transaction alternative financing.
In fact, the mobile channel can be leveraged really effectively in this way, making use of geo-based offers and promotions delivered to the smart device with secure payments enabled by biometrics built in, and utilizing installments or low-interest loans to drive consumer spending at the point of sale. A missing link that drives innovation and ROI – hurray for tokenization!
4. Driving Instant Payments with Open APIs
Barry Kislingbury – Director of Solution Consulting, Faster Payments
One of the biggest factors in the imminent ubiquity of real-time payments is going to be the open payments ecosystem. Overlay services on immediate payments rails will provide new business cases for merchants, corporates and SMEs alike – focused on the ease of transacting and the customer experience. And improved control for payers and payees through Request for Pay (RfP) and confirmation of Payee (CoP) will significantly contribute to increased transaction volumes that are up to 10 times, or perhaps even 100 times greater, than they are today.
The UK Faster Payments Scheme is targeting 2019 for its RfP service, and the EBA is expected to launch ‘Request to Pay’ in November 2018. The Clearing House in the U.S. launched a similar service in 2017. Of course, ‘Request to Pay’ (also called real-time debit by some) and Open Banking (APIs/PSD2) will provide a platform for innovation and further drive the adoption of immediate payments.
Designed to provide a flexible way for payments to be made and received, the new service could include warnings and notifications for consumers and businesses regarding upcoming bills, and allow them to change payment dates and amounts to suit their situation. 53 percent of consumers want more knowledge about upcoming Direct Debits, and RfP can provide this certainty in payments.
The use cases are clear when it comes to improved customer experience and resulting loyalty, as well as the potential to drive consumer spending. But RfP also holds the potential to generate revenues; small businesses have to chase £26.8bn per year in late payments at a cost of around £10.8bn, and in the UK £750m goes unclaimed each year in gift aid for charities. 10 percent of charities find the current cost of gift aid claims are higher than the amount received. RfP could provide a new solution to these issues.
I believe that RfP has the potential to truly make immediate payments the new norm. Payment players need to consider how they will augment overlay services when they solve for real-time, because this is where they can drive transaction volume growth and ultimately grow their business. Instant payments aren’t a new banking silo, they are part of a holistic approach to the new paradigm of real-time banking, going hand-in-hand with open banking. And they need to be addressed in 2018 if you want to be poised for success.
5. Innovation in Authentication
Lu Zurawski – Solution Practice Lead, Open Banking
Open payments are here at last! Or to be more specific, PSD2 came into effect (on January 13th 2018), though key aspects of the new regulation will not be enforced for another 18 months. The industry is awaiting the Regulatory Technical Standards (RTS) on Strong Customer Authentication (SCA) and secure communication. Although this particular area of a hefty new regulation may not sound like a natural hotbed for innovation, we will in fact see great new payments ideas, as the demand for SCA necessitates clever ways to back customer-centric payments experiences with explicit consent and authentication.
We are reaching a tipping point, where transaction protection elements (like PINs and 3D Secure) layered onto traditional payment products may be too cumbersome for the new fast, open (yet secure) payments ecosystem. It’s likely they will be replaced by a new approach, and soon.
Emerging markets are a great example of the need to innovate on authentication and authorization, but also respond to customer preference. In Latin America the introduction and adoption of mobile wallets was accompanied by a range of secure payments services, with QR codes in the mix but six digit one-time passcodes appearing to win-out. This contrasts with China, where 600 million active WeChat and AliPay users have created #QRCodeContagion.
The payments industry needs to innovate on new ways to approve and authenticate, but also new flows for this process that leverage the overlay services introduced by open banking. For example, we could utilize the existing one-time passcode technology, but improve the customer experience by weaving in Request for Pay to create a new form of payment approval based on explicit authentication requests.
Developing a way to integrate and orchestrate these new payments services and flows across your business will be a game-changer in 2018.
//////
Historically payments as an industry has moved rather slowly, but like all technology sectors we’re experiencing far more concentrated and wide-reaching change than ever before. The need to adapt ahead of the curve is crucial.
The evidence from our industry experts points towards the end of payments silos, both inside your organization and in the external ecosystem. The way that banks, processors, merchants and fintechs address this convergence may differ, but the real danger lies in doing nothing.
Discover more about payments transformation: Download our detailed guides.
DISRUPTIVE! Prioritizing Innovation Roadmaps for Banks and Fin Techs (white paper)
DISRUPTIVE! Prioritizing Innovation Roadmaps for Processors and Fin Techs (white paper)
Related Blog Posts
Taking a Holistic View of ISO 20022 Migration and Payments Modernization in the Pacific
Today’s payments modernization efforts, most notably real-time payments, not only work to satisfy changing consumer preferences and behaviors, they also serve to future-proof national economies throughout the world. But for real-time payments to deliver maximum value, consumers and financial institutions must be able to exchange meaningful and actionable information — hence the development of ISO 20022, a standard for electronic data interchange that facilitates the fast, standardized and secure exchange of financial messages across borders.
How ISO 20022 Represents Both a Challenge and an Opportunity for Southeast Asia’s Payments Landscape
Governments across Southeast Asia (SEA) are increasingly recognizing the vital role that payments play in the engines of their economies, which has resulted in a number of payments modernization initiatives such as those in Vietnam and Malaysia (PayNet). Yet there is one particular area in which SEA’s financial institutions might still be lagging behind their global counterparts: the adoption of ISO 20022, which has become the global standard for high-value payments and immediate payments (IP) when it comes to cross-border payments.
Ready or Not, The Time Is Now for Real-Time Payments
Research from ACI and GlobalData confirms that demand for real-time payments is only going in one direction: up. The root cause of this increasing demand is rising customer expectations and behaviors; clunky and opaque payment experiences are becoming less tolerable in a world where customers can buy, watch and listen to almost anything with a swipe, tap or click.
When It Comes to Payments, COVID-19 Crisis Could Lead to Long-Term Shifts in Consumer Behavior [Q&A]
ACI Worldwide and GlobalData recently launched Prime Time for Real-Time, a new global report tracking and analyzing real-time payments volumes, growth and dynamics across 30 global markets. According to the global research, an industry first, more than half a trillion real-time payments transactions will be processed over the next five years. I discussed what the findings mean, and how the COVID-19 pandemic might be a further catalyst for behavioral change, with ACI’s global head of real-time payments, Craig Ramsey.
TCH RTP and FedNow: What’s Next for U.S. Immediate Payments?
It has taken some time, but immediate payments (IP) are on the move in the United States. Although the speed of adoption has been slightly behind the curve of regions like India, the Nordics and the U.K., the U.S. has seen significant year-on-year IP growth of 69 percent.
Social, Mobile and Instant Payments: How Digital Payment Overlay Services Will Power Up P27
For some years now, the Nordics region has been a global-standard bearer for payments and financial services innovation. Sweden has for many years been a leader in the progressive move towards cashlessness, championing the range of efficiencies that it brings. Major payments innovators like Klarna, FundedByMe and iZettle are based in the region, rubber-stamping Stockholm as a genuine fintech hub. Analysts and insight leaders also regularly single the Nordics out as a genuine leader, in particular praising the collaboration between governments, regulators, financial institutions and businesses that has led to such fertile ground for financial modernization initiatives.
Women in Payments: Celebrating International Women’s Day 2020
International Women’s Day, celebrated on March 8, honors the social, economic, cultural and political achievements of women – including equality for all women.
To commemorate the occasion, we spoke with a few female leaders in the payments industry about what the day means both for them and for the wider payments industry. The comments and insights we received were nothing short of inspiring and encouraging.
Women in Payments: Student Perspectives on the Payments Industry (Part 1)
Last month, ACI’s Omaha office hosted six students from the University of Nebraska Omaha’s Information Technology department for a one-day event, showcasing ACI’s solution offerings and the company’s role in the global payments industry. The six students, all of whom were members of UNO’s Association for Computing Machinery-Women (ACM-W) chapter, had previously participated in one of ACI Omaha’s Coding for Girls Camps.
How to Meet ISO 20022 Migration Deadlines for Fedwire and SWIFT
Over the next decade, we will undoubtedly see huge shifts in how financial institutions throughout North America transact, whether domestically or across international borders. This will be driven not just by changing technologies, but also by regulatory events – such as the widespread adoption of financial messaging standards like ISO 20022.
How Can European Banks Meet the ISO 20022 Migration Deadlines for TARGET2 and SWIFT?
First published in 2004 – and already broadly used in some quarters – ISO 20022 is rapidly set to become the de facto standard for financial messaging around the world, replacing MT messages.