Payments are experiencing a significant wave of change across multiple dimensions, including speed, transaction volumes and new ways of paying.
At the same time, the opportunity to generate revenue from payments is decreasing. E-commerce and contactless cards are rapidly displacing cash, driving up digital transactions. Distributed ledger technology (Blockchain) is starting to be deployed to reduce the time and cost of settlement. The Internet of Things (IoT), with payments embedded into devices and machines, is facilitating connected commerce—paying anywhere, anytime from any device. GAFAA (Google, Amazon, Facebook, Apple, Alibaba) are disrupting value chains by providing payment services and “raising the bar” in customer experience, while also generating fees for themselves. Fintech is catalyzing these trends—more than 30 percent of recent Fintech investments have been in payments. In Europe, PSD2 is opening up the market for non-banks to provide payment services, putting at least nine percent of cards revenues at risk by 2020. Interchange cap regulation will further reduce cards revenues by an average of 27 percent in Europe by 2020.
Combined, these factors represent significant change—change that benefits both customers and merchants who have access to new payment solutions offered by innovative technology companies. However, banks no longer have a monopoly on retail payments. Their daily interaction with customers through payments and other touchpoints are at risk as banks, card issuers and processors now share the payments value chain with new entrants and third-party providers (figure 1).
Banks can address these challenges strategically by becoming an Everyday Payment Provider, digitalizing the customer experience and operations, and providing payment services to customers where they want, when they want them and on any device they choose. This means:
- Enabling polymorphic payments to give consumers access to multiple payments methods that support a 24/7 digital experience, regardless of the instrument, method, currency or provider; and to advise consumers on the most appropriate payment method and source of funds (or funding strategy) for each transaction.
- Exposing APIs externally to encourage the creation of new apps and business models by allowing third parties to use open bank APIs to incorporate payments functionality and data into their applications.
- Addressing merchant needs to provide a single acquiring service that supports omni-channel retailing across different payment channels and other value-added services (such as budgeting and reporting).
- Shaping blockchain solutions for payments to transform payment transaction processing and improve cost competitiveness, resilience, security and data validation.
- Implementing real-time domestic and cross-border payments to provide instant availability of funds, 24/7, enable new business models, improve working capital efficiency and deliver great customer experiences.
Many thanks to my Accenture colleague Luca Bortolan for his research, analysis and contributions to these insights.