The dynamics in the payments industry are changing rapidly. Consumers are increasingly using digital channels and demanding faster and more flexible payment options from companies. New technology and data capabilities are reducing payment friction and elevating the consumer experience. Competitors are moving quickly to differentiate themselves, with some looking to disrupt the entire payment industry.
The cause of these changes boils down to these 3 major things: jurisdiction, modernization, and demand. Jurisdictions enable legislation to foster payments, modernization, and openness. Increasing regulatory change is aimed at increasing competition as well through: challenger banks, foreign banks, and non-banks. Modernized and sophisticated capabilities online have been created by financial service organizations, Paytechs, and Fintechs. Demand has increased customer experience capabilities and digital payment methods through businesses and the everyday consumer as well.
Here are a few places organizations are impacted by global payment trends. Businesses large and small need to be ready and prepared to respond.
• An accelerated focus in the industry ( banks, wirehouses, corporations big and small) being ahead of the digital transformation curve in payments instead of lagging behind.
• Ability to deliver on a broad array of new use cases that improve customer experience and reduce payments related to friction and do so in a cost-effective manner.
• Ability to improve their accounting, payroll, procurement-related processes with payments innovation, specifically, rich data that will come with new payments solutions
• Creating and submitting e-invoices on behalf of the client leveraging ISO 20022.
• For SMEs, a full suite of accounting services, including Accounts Receivables/Accounts Payable or API integration into accounting software (e.g. Quickbooks).
• There is increasing popularity of APIs used to expose data, functionality, and services to create better value this is known as the Open Banking trend.
Read our article on Open Banking Explained for Canadian Markets
Contactless transactions are ubiquitous in many parts of the world. Americans, however, have been slow to adopt them; the highly anticipated “death of the wallet” simply never materialized. According to a Forbes article “Banking After COVID-19: The Rise of Contactless Payments in the U.S”, in 2018 just 3% of cards in the U.S. were contactless, versus around 64% in the U.K. and just under 96% in South Korea.
COVID-19 has had a big impact on these numbers, according to an article by Visa, “tap to pay transactions in everyday segments in the U.S. have grown more than 100% year over year. 31 million Americans tapped a Visa contactless card or digital wallet in March 2020, up from 25 million in November.”
The U.S. currently has the most contactless cards of any market globally at 175 million. U.S. consumers have been quick to adopt these new cards due to COVID-19. They are using them regularly and contactless card transaction growth continues to accelerate. Seeing how quickly the U.S has switched over to contactless payment due to COVID-19 shows the progression we are seeing in the payment industry.
The Economist believes that cashless transactions worldwide have risen to levels they had not expected for another two to five years’ time. In America, mobile-banking traffic rose by 85% and online-banking registrations by 200% in the month of April. In the same article, The Economist states that conventional banks now account for only 72% of the total market value of the global banking and payments industry, down from 81% at the start of the year and 96% a decade ago. Fintech firms such as Ant Group and PayPal make up 11%: their market value has almost doubled this year to nearly $900bn. Conventional non-bank payments firms such as Visa are doing well too, and make up the other 17% of the industry total. Card payments have kept growing suggesting that cash held by the public has fallen in circulation. Thanks to online shopping and the efforts that companies are putting in to go virtual, there is less of a need to physically go out.
We believe the payments industry is going to continue to change rapidly. The customers and the businesses will both benefit in this upward direction and some trends will continue to surprise us. Due to COVID-19, we are leaving behind the older practices of payment and are arguably being forced into a contactless payment world faster than previously anticipated. Evolution, even by force, is not a bad thing especially in the payments industry, making payments faster and better. Consumers demand for more efficient and flexible payment options. Regulators push for openness and options while businesses desire to increase client experience at a lower cost. Consumers are converging and driving a near revolution in Payments vs. an Evolution. Be prepared!
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