Global Payments Industry in 2018 – Breaking Through to New Horizons..

The Global Payments Industry in 2018…

In 2017, the Payments industry largely kept its promise of leading financial services – http://www.vamsitalkstech.com/?p=3425. This evidenced in two important categories – consumer adoption and technology innovation. From a numbers standpoint, this has been accompanied by healthy growth in both the volumes and the count of payments. Mckinsey estimates that (as of 2017) the payments industry now makes up 34% of the global banking industry.[1] The coming year will find that three key forces – Digital technology, Consumer demands & Regulatory change – will continue to drive growth in the industry. With that in mind, let us consider the top industry themes and trends for 2018.

Image Credit – Pmts.com

Background and my predictions for 2017..

Payment Providers – How Big Data Analytics Provides New Opportunities in 2017

Trend #1 Digital Payments volumes continue to surge in 2018

Consumer payment volumes are now beginning to overtake business payments. McKinsey forecasts that from a volumes standpoint, by 2021, global payment volumes will surpass 2.2 trillion US dollars [1] –  a massive increase from just 450 billion US dollars in 2017.  The key drivers for this increase are the number of consumers rapidly coming online in countries such as China and India (with the latter alone contributing a base of 500 million internet subscribers) in 2017.  In India, the demonetization campaign conducted a year ago has resulted in a surge of digital transactions.

Banks have not been sitting still in the face of the instant payment paradigm. Across the globe, Banks have been nudging more consumers to begin using digital payments as a way of providing speed while managing both cost & risk – often at the expense of cheque payments. In the UK, Fast Payments Service which was launched in 2008, processing the five billionth payment in 2015.

The Faster Payments Scheme – UK

Currently, four types of payments can be processed through Faster Payments – immediate payments, forward dated payments, standing payment orders and Direct Corporate Access (single business payments with upto 250k pounds per transaction). Nearly every large and medium-sized Bank in the United Kingdon supports Faster Payments including the likes of Barclays and HSBC.

In response to all this rapid change, players across the payments spectrum and in adjacent verticals such as Retail & Telco will need to begin enhancing their mobile apps & in-store payments. Established card schemes such as Mastercard and Visa have begun rolling out API driven interfaces.

Trend #2 The Internet Leaders take increasing share of the consumer and corporate payments…

We are also witnessing a whole range of nimble competitors such as FinTechs and other financial institutions jockeying to sell both closed and open loop payments products to customers.

The likes of Apple, Amazon, Facebook, Alibaba, and Google are originating payments from not just their online portals and mobile apps but also from sensors, personal assistants (Echo, Siri etc) and voice-driven interfaces. These players will also drive capabilities into a range of payments related usecases – from Single View of Customer to Data Monetization to AML/Risk & Fraud detection.

Euromonitor contends that the leading mobile-centric nation in the world is China. In 2015, Chinese consumers made more purchases through mobile phones than using traditional computers. As of 2016, this number had increased to 2/3rd of all online purchases. Chinese players led by AliPay and WeChat are increasingly looking to replicate their domestic success abroad. This is being helped by global travel by Chinese consumers who are expected to take 225 million international trips in 2030, at a compound annual growth rate (CAGR) of 7.3% over 2016-2030. [3]

Trend #3 Regulators push for  Open Data Sharing & Innovation…

With Payment Systems Directive 2 (PSD2), the European Parliament has adopted the legal foundation for the creation of an EU-wide single payments area (SEPA).  While the goal of the PSD is to establish a set of modern, digital industry rules for all payment services in the European Union; it has significant ramifications for the financial services industry as it will surely current business models & foster new areas of competition. The key message from a regulatory standpoint is that consumer data can be opened up to other players in the payment value chain. This will lead to a clamor by players to own more of the customer’s data with a view to selling business services (e.g. accurate credit scoring, access to mortgage & other consumer loans and mutual funds etc) on that information.

Why the PSD2 will Spark Digital Innovation in European Banking and Payments….

Trend #4 Customer Experience drives volumes growth…

Customers are demanding smarter UX capabilities and intuitive cross-channel interfaces. Technology built around ensuring that payment providers can create a single view of a Cardholder across multiple accounts & channels of usage will result in more ecross-sellross sell/upsell and better customer segmentation.

For instance, the 360 degree view is a snapshot of the below types of data –

  • Customer’s Demographic information – Name, Address, Age etc
  • Length of the Customer-Enterprise relationship
  • Products and Services purchased overall
  • Preferred Channel & time of Contact
  • Marketing Campaigns the customer has responded to
  • Major Milestones in the Customers relationship
  • Ongoing activity – Open Orders, Deposits, Shipments, Customer Cases etc
  • Ongoing Customer Lifetime Value (CLV) Metrics and the Category of customer (Gold, Silver, Bronze etc)
  • Any Risk factors – Likelihood of Churn, Customer Mood Alert, Ongoing issues etc
  • Next Best Action for Customer

Payment providers have been sitting on petabytes of customer data and have only now begun waking up to the possibilities of monetizing this data. An area of increasing interest is to provide sophisticated analytics to merchants as a way of driving merchant rewards programs. Retailers, Airlines, and other online merchants need to understand what segments their customers fall into as well as what the best avenues are to market to each of them. E.g. Web apps, desktop or tablet etc. Using all of the Payment Data available to them, Payment providers can help Merchant Retailers understand their customers better as well as improve their loyalty programs.

Trend #5 Cross-Border Payments offer a lot of business growth but Compliance and Security remain huge challenges…

While Cross-border transactions still generate substantially higher margins than domestic. This blog has cataloged a range of Risk/Fraud and KYC/Compliance usecases in the cards industry. We increasingly find that banks across the spectrum are putting in strong capabilities around real-time fraud detection, risk management and AML (Anti Money Laundering).

Big Data Counters Payment Card Fraud (1/3)…

Advanced analytics and business reporting are being used to target money launderers and fraudsters. These projects, however, have large and complex outlays and needs advanced capabilities around Big Data & Artificial Intelligence.

Conclusion…

The Payments industry is the most dynamic portion of Global Banking. Players will need a lot of creativity to connect the twin worlds of slow-moving finance and fast-moving technology. In 2018, the pressure will be on players to deliver higher rates of adoption, margins leveraging technology driven innovation.

References…

[1] McKinsey – Payments Insights https://www.mckinsey.com/industries/financial-services/our-insights/global-payments-2017-amid-rapid-change-an-upward-trajectory

[2] Faster Payments UK –

http://www.fasterpayments.org.uk/about-us/how-faster-payments-works

[3] Forbes – “Three Payment Trends that will change how we pay in 2018”

https://www.forbes.com/sites/michelleevans1/2017/10/27/three-payment-trends-that-will-change-how-we-pay-in-2018/#7aca91b46c2c

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