Trends shaping the future of payments
Ever since people started laying down roots in agricultural societies, payments have become the key to everything. Everyone’s livelihoods are oriented around paying and getting paid. New efficiencies in payments have a direct impact on our daily lives, benefiting us in both work and personal contexts. Which is why we’ve seen an explosion of innovations in the payment space: it’s an area ripe for disruption after disruption. From our vantage point in 2018, here are five of the most important developments we’re seeing in the payment space.
1. Goodbye to banking intermediaries
End-to-end digital processes are replacing middlemen.
The days of traditional wire transfers are numbered, as the speed of international business zooms past its toleration of “3-5 business days.” This sluggishness was due to money being transferred to intermediary banks on their way to their ultimate destination. But thanks to new breakthroughs in technologies, payments can now start taking direct flights. Blockchain is a great example. As it gains momentum as preferred method of wiring money, the need for intermediaries will diminish.
This trend of replacing time-consuming human oversight with smarter automation applies to other banking functions too. Big banks can no longer get by with just slapping digital portals and mobile apps on top of their people- and paper-based infrastructures — they’re going to need to reimagine and reinvent all their services, or else risk being outstripped by fintech companies. Aware of the risk of entering direct competition, we’ll likely see lots of examples of old and new joining forces.
2. The rise of machine-learning fraud prevention technology
The bots have our backs.
The one concern that was stopping the ease of swift, sleek digitally-enabled payments was the risk of fraud. But thanks to a slate of new AI-powered technologies that detect and flag fraud, payment services can achieve the openness and speed they need without compromising safety. Forter is one example of a company offering completely automated technology that protects online merchants from fraud, with algorithms that take manual review out of the picture.
3. Payment infrastructures get much-needed upgrades
Decades-old systems are being laid to rest.
The payment infrastructures in place today, most created decades ago, are capable of carrying relatively little information. More modern infrastructure will enable the protected transmission of much more data, and across better integrated systems to boot. Governments across the world are working to upgrade their payments infrastructure to support faster settlement of retail, wholesale, and financial market transactions. Some regional projects are underway, too, such as in Scandinavia. Earlier this year, a group of major Swedish, Danish, Norwegian and Finnish banks committed to exploring the possibility of a pan-Nordic payment infrastructure, with a vision of creating “the world’s first area for domestic and cross-border payments in multiple currencies (SEK, DKK, NOK and EUR).”
4. Anyone can be a merchant
Your local lemonade stand now accepts credit cards.
We’re moving towards cashless societies, quickly. The implications of this means that even popcorn stands will need to offer their customers a method of payment that doesn’t involve nickels and dimes. Mobile point-of-sale (mPOS) devices are answering the call, making it possible for even the most modest merchants to offer their customers credit card payments. This adoption of this solution is forecasted to grow at break-neck speed. BI Intelligence predicts that by 2021 there will be 27.7 million mPOS devices in circulation in the U.S., up from just 3.2 million in 2014.
5. Mobile payments and wallets enter the mainstream
The latest leap towards the dematerialization of payments.
Though their dominance has long been predicted, mobile payments are finally gaining traction, thanks in large part to APIs and open banking (which have enabled mobile payment providers to offer value-added services). In the U.S., payments through apps like Apple Pay and Venmo are increasingly being accepted by retailers. China has leapfrogged most other nations in this arena, with WeChat, Alipay and other payments services facilitating an eye-watering $12.8 trillion dollars worth of mobile transactions in 2017 alone. Now that this pie is growing, everyone wants a slice, with both the technology giants like Google and mega retailers like Starbucks starting to offer their own branded wallets to customers.
Coins jangling in pockets will soon be the stuff of lore, a scarcely believable tale that the grandparents of the future will tell their grandchildren. But this evolution is all for the best: the more control we have over our money and how it moves the better. And in any case, it’s inevitable. The digital rocketship is leaving, and it’s taking payments with it.