The results are in!
Accenture Consulting has revealed the ten trends that they believe will drive the future of payments, thanks to the results of its Payments Pulse survey of 1,500 consumers in the United States – and each trend is intriguing in its own way.
From Gen Z-ers, to the power of “The Network”, to outhinking the “criminals making it their full-time job to out-innovate the payments industry”, it would not be an exaggeration to say that 2018 could genuinely be the most exciting and disruptive year for payments that we have ever known.
In this post we take a look at some of the trends more closely and assess their likely impact.
Gen Z Rising
Let’s start with the Gen Z’ers – this is the generation one behind the Millennials, and therefore the future customer base of the digital payments industry. Accenture estimates that Gen Z will make up 40% of all US consumers by 2020.
Gen Z are more than just a chip off the old millennial block. Gen Z’ers learned to tap, swipe and Instagram before they could talk. They are digital obsessives, with short attention spans, and a financial philosophy of “see now, buy now”.
According to Accenture, Gen Z’ers could happily live without television, friends, or even money, as long as they have their smartphones, their apps, and their Snapchat account.
Well, perhaps not without money. Gen Z love mobile money apps – 69% use them daily or weekly, compared to just 17% of the baby boomer generation. As they begin to enter the workforce Gen Z’ers will recast the payments industry in their own image – and that means apps, mobile money, instant payments, digital wallets, and virtual services.
How will Gen Z revolutionise the payments ecosystem? Most likely through GAFA; Google, Apple, Facebook, Amazon; although surprisingly, and unlike their millennial counterparts, Gen Z’ers embrace all forms of finance, including more traditional bricks and mortar stores, and even call centres.
Verdict: Gen Z are the most tech savvy generation we have ever known, and although they share some characteristics with both baby boomers and millennials, they are the unique, mould-breaking generation that will redefine the way payments are made, with digital to the fore.
UX Is The New Gold
The arrival of a new set of payments directives in the New Year, PSD2, will mean that almost any company will be able to access their users financial accounts, and authorise payments on their behalf.
What that effectively means is that almost all service providers will be able to offer the same set of payments services, and what that means, as Accenture puts it, is that “as the payments universe expands, customer experience is becoming the prime competitive differentiator.”
Whoever gives their customers the best experience will succeed the most, because all companies will provide more or less the same services. This is backed up by Accenture’s finding that more than half of all millennials and Generation Z’ers are happy to share their bank account details with third parties.
It won’t just be the UX that is important, it will also be timing. Reaching customers at the right time – when they need and are actively searching for a financial service – will be crucial. Advantage Google?
Verdict: Financial services firms will have to put customers first and satisfy their expectations more than ever because going forward it will be so easy to switch providers, and even more straightforward to complain about poor service.
Mobile Hits Its Groove
Finance and mobile phones have traditionally been uneasy bedfellows, with firms struggling to persuade customers that their smartphone is the right place for them to make payments or manage their budgets – but that is changing fast.
The penny has finally dropped, says Accenture, who believe that the biggest trend to emerge within mobile finance will be single view accounts that let you see all your finances, from different providers, in one place.
Mobile wallets will become a force too. Currently their penetration amongst Accenture survey respondents was just 28%, compared to Apple, Android, or Samsung Pay (49%) and merchant wallets (39%). But who will provide them? Again, GAFA are big on mobile, and may well become the mobile Payments Services Providers (PSPs) of the future.
Verdict: High street banks, you have been warned! As more and more users migrate to mobile for financial services, banks will have to work hard to establish their digital credentials.
Who doesn’t like to be rewarded? Practically nobody, according to Accenture’s findings. US consumers earned some $15 billion of rewards last year.
However, the relationship between rewards and interchange fees is at breaking point. In other words, the cost of providing these rewards is climbing and about to reach a tipping point where they become no longer economically sustainable.
Accenture says that customers are most likely to switch primary rewards cards for a “large and upfront signing bonus”, whilst 76% of respondents wanted to redeem deals “when swiping at the point of sale”.
Verdict: Simply put, the race is on between financial services firms to reinvent the rewards scheme for the next generation. Banks, GAFA, and fintech startups are gathering at the starting line, and waiting for the pistol.
The Network Effect
Banks are building networks like Billy-o, and collaborating like never before. Why? Largely due to the rise of peer-to-peer networks. Dissatisfied at paying over the odds for financial services, customers decided to do it for themselves which led to the rise of payments disruptors such as TransferWise, Revolut, WorldPay and too many others to mention.
Now, banks are trying to get into the P2P game themselves, and working collaboratively to bring down costs for consumers and corporates. Open APIs encourage collaboration, and have led to the rise of projects such as Ripple, The Ethereum Alliance and Zelle.
Verdict: Banks are embracing the global village, which is a good sign. They are still playing catch-up as fintech disruptors claimed this space years before, but with superior resources, banks could reclaim the lost ground if they act fast. As ever, the threat posed by GAFA looms large.
Fintech and Bank Fusion
Fintech firms and the big banks are the best of frenemies, but there are signs that both sides of the divide are prepared to work together for what Accenture describes as “a powerful mutual dependency. A symbiosis of very different organizations with complementary strengths.”
The reality is that both need each other. Large financial firms lack the agility and fresh thinking that fintech firms provide, by attacking the big banks’ weak points. Fintech firms lack the scale and resources to go it alone. Therefore, expect to see plenty of strategic partnerships, acquisitions, commercial agreements and joint ventures.
Verdict: in Accenture’s words, “best-of-both-worlds partnerships will power the future of payments transformation.”
An Arms Race In Code
Code, says Accenture, has the potential to wipe out the plastic debit or credit card for good. By using unique and encrypted codes, banks can make transactions more secure and in doing so fundamentally change the way we make payments.
Devices capable of transmitting the code, can be embedded anywhere, so look out for more wearables and IoT driven devices, biometrics, facial recognition etc. There is also tokenisation to think about – it has already enabled Apple Pay and Android Pay to become credible, trusted, payments providers.
Verdict: This is a fundamental shift in the entire payments infrastructure. It may be time say goodbye to plastic. We have all heard about Amazon’s futuristic physical stores with no tills, and payment taken “automagically” as you leave the premises with your belongings. It is not far away.
PayPal, Venmo, Stripe, Square – payments services are ubiquitous in today’s society – it has never been easier to make, and to take, payments.
Accenture says that “The trend in recent years has been that card growth has outpaced merchant outlet growth. In other words, there are more cards than there are places that accept them. This gap will start to close as universal acceptance becomes a reality.”
Verdict: Any business can accept card payments in the modern world, but what about contactless, bitcoin, biometrics and other emerging future technologies? It would be an irony if these disruptive services ended up hampering the ability of entrepreneurs and agile startups to compete with the big corporates.
Fraudsters Innovate Too
No sooner has an enterprise installed a new security fix, than a hacker has worked out how to crack or bypass it.
The reality is that for digital fraudsters, crime does pay. Accenture warns that the payments industry can expect to lose $31.3 billion in global card losses in 2018, mainly due to “card not present” transaction fraud.
Losses due to fraud have increased by 18% year on year since 2013, the company says, and with barriers to entry so low thanks to digital disruption, anybody can become a hacker with a laptop and enough intelligence and determination.
Verdict: every new technology, from fingerprint ID to face-recognition, to data encryption, comes with its own security issues, and the murky world of online fraud and illicit profits is a constant threat. There are no catch-all solutions, so firms must remain vigilant and be continuously innovating – to keep the criminals at bay.
RIP and Replace Required
Finally, Accenture warns that the old days of payments really are numbered: “Real-time payments is very real—39 countries have already implemented immediate payments, according to the InstaPay tracker. There is also the push to enable tokenization and new overlay services such as API integration and proxy and delivery services. In addition, nearly half of the global messaging standard ISO 20022 initiatives are happening in payments, moving beyond the European Union into North America”
Verdict: The great payments infrastructure overhaul has finally begun! It may take a while to replace today’s “monolithic” technology stack, but the future promises to be more flexible, agile, faster, more efficient, real-time and, fingers crossed, secure.
There is a lot to be excited about going into 2018 for payments geeks. When we talk about the future of payments technologies, we are, in fact, talking about the here and now.