A business’ strategy cannot be complete without considering current and future changes in the payment landscape. This year, the major movements in payments involve technological, social, and regulatory changes – a complex combination that businesses must stay aware of in order to take advantage of the many opportunities they bring. In this article, we will outline the five main trends that will sweep over the payments landscape in 2018 and their importance.
Although the topic of “mobile payments” has been a buzzword in the payment landscape for several years, the figures on actual adoption have not quite met up to the hype. For example, in a recent US survey from 2017, only 29% of smartphone owners said they would use a mobile payment app. However, trends in other parts of the world show that this is about to change. One reason for this is the continual expansion of Asian mobile wallets into other parts of the world. Popular apps such as Alipay and WeChat have many loyal users throughout Asia, who use the apps extensively to pay for everyday products and make peer-to-peer payments. As Asian consumers become ever more mobile and travel to other parts of the world more often, the reach of these mobile payment platforms will also likely widen to provide greater convenience to Asian travellers. In fact, Chinese citizens are expected to make 225 million international trips by 2030, which adds up to a 7.3% CAGR for the period 2016 – 2030. Not only will Asian users demand that these apps are accepted by a growing number of countries and payment providers, consumers of other nationalities and cultures are also likely to come into greater contact with the capabilities of such apps, and will therefore adopt them or call for similar local alternatives.
Other aspects of mobile payments will also likely increase, such as payments via the Internet of Things (IoT), including wearables. By 2021, it is predicted that over 15 billion machine-to-machine (M2M) and consumer electronic devices will connect to the IoT, providing vast opportunities for payments to be carried out on a contactless, instantaneous basis. Fitness trackers are already immensely popular and are beginning to partner with payment methods such as Mastercard and Visa to offer their customers contactless payment possibilities. Partnerships such as these make wearables one of the most important trending contexts in payments, especially considering that 240 million units of wearables are expected to be shipped by 2021.
New Payment Systems in Retail
As the payment landscape continues to expand and diversify, consumers also continue to demand more choice and flexibility in their payment methods and options. One such example of this change is the increase in retail companies offering “buy-now, pay-later” systems, also known as “split payments”, where customers can pay for their goods in instalments over time. Some retailers in New Zealand and the UK have started offering this payment option and others have partnered with payment businesses that specialize in providing pay-later services. As customers demand ever greater flexibility and payment options that are convenient for them, split payments will likely emerge as an important tool for retailers to keep customers happy.
Change in European Payments with PSD2
PSD2, also known as the Revised Payment Services Directive, is the new European legislation that requires banks to provide access to their clients’ data via open APIs. It applies to all countries within the European Union and has been obligatory since the end of January 2018. PSD2 marked the arrival of “open banking” to Europe and the end of banks’ monopoly on client data. This opened the use of that data for retailers, FinTech firms, and others in the payment industry. For example, FinTech companies are now able to access customers’ bank information without asking for permission, allowing to create new products and services that can act as add-ons to the services provided by traditional financial institutions. This also forces traditional banks to drastically innovate to provide unique opportunities to their customers or they risk being replaced by the growing FinTech revolution.
Increased Emphasis on Biometric Payment Verification
Another important change with the arrival of PSD2 is the increasing importance of biometric verification for payments in Europe. The reason for an increased need of biometrics comes from the increased regulations on customer payment authorization. Although PSD2 allows for greater access to customer data, extra protection must be put in place to ensure that such an open approach to data will not be overly vulnerable. The legislation requires businesses to collect at least two pieces of identity verification to authorize a customer’s payment and biometric data provides one of the most secure authorization solutions.
Using Machine Learning Will Set Payment Businesses Apart
The general prediction for machine learning and artificial intelligence in the coming years is that the more companies invest in these innovative tools, the more those companies will grow. This prediction is no different for the payments industry. Companies such as Capital One and Liberty Mutual have implemented chatbots that customers can access online and which can respond to the most frequently asked questions. Fraudulent charges can also be identified much faster by using machine learning algorithms to compare a customer’s payment history with compiled patterns of fraudulent use in real time. An improvement in risk management is necessary in the online payment industry, as cyberattacks are expected to cost businesses over $2 trillion by 2019.
The payments landscape is ever-growing and diversifying, thus providing plenty of opportunities to innovate. Mobile payments and new payment systems in retail will drive changes in consumer payment behaviour, while the arrival of PSD2 boosted the need for verification with a greater reliance on biometrics and machine learning. By keeping these five trends in mind, businesses can stay ahead of the curve and be prepared for the coming changes.