You might have noticed that innovation in payments is a hot topic right now; however, despite all the investment being made, there’s not a lot to show for it. There are two reasons for this:

  • Many of the innovators are new to the payments industry and don’t understand the complexities of finality, settlement, liquidity and risk.
  • Financial services organizations that have been in the banking industry for many years and do understand payments are less accustomed to innovating.

When we look at innovation in payments, we need to consider that payments are typically made up of two parts:

  1. The payment initiation or order.
  2. The inter-bank settlement, or the card authorization and settlement.

Most of the innovation is occurring on the payment initiation side, whereas innovation on the inter-bank side is lagging. Until the two sides are in harmony, we will not see industrialized innovation.

What Are Polymorphic Payments?

Instead, we will see what we call polymorphic payments:

  • The ubiquitous use and acceptance of a proliferation of payment methods and types.
  • A consistent user experience regardless of the payment type, platform, settlement method or destination account.
  • A change in the way that the consumer experience is constructed.

What Are the Implications?

For banks and the industry as a whole, there are four implications:

  • Banks must consider polymorphic payments. Banks need to digitally enable bank accounts to work in all payment scenarios, whether online, mobile or point of sale.
  • Merchant acquirers need to offer multiple payment types. Merchant acquirers need to integrate not just monetary value but also non-monetary value—such as loyalty, rewards, offers, coupons, discounts—into the payment experience.
  • Banks must expose their core payment systems through APIs. This will allow merchants to embed those API calls in their applications to let their customers make payments, request refunds or request balances, whether online or at point of sale.
  • The Banking industry must implement more real-time and information-rich infrastructure such as we have here in the United Kingdom with faster payments and G3 in Singapore.

There’s a lot of room for transformation and innovation in payments—polymorphic payments will likely play a large role in the Banking industry’s future.

For more on Everyday Payments, see our positioning paper.

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