Unless you are Nostradamus, being a prognosticator is tough business. Consultants are often accused of over-hyping the short term and underestimating the long term. With this blog, I have attempted to strike the balance between long-term trends and short-term, actionable insights.
With the start of the new year, I thought it would be a good time to take a look back, hold myself accountable and see how I did. In the past 18 months, we have made 21 predictions. I can confidently say that all continue their forward progress—and some have accelerated. We have selected the top two most salient trends across issuing, acceptance, and commercial payments and have highlighted their continued impact on the industry.
For a look ahead, look no further than my colleague Alan McIntyre’s predictions for 2020. For now, let’s reflect on the past year’s developments.
Customers want a mobile-first rewarding experience
We anticipated that while US customers hadn’t quite fully embraced mobile payments—the tipping point was near. Well that moment has arrived. On Thanksgiving Day 2019, people were mobile shopping rampantly. Adobe Analytics reported that nearly half of shopping (45 percent) that day was done on a mobile device such as a smartphone or tablet. That’s a 24 percent increase as online sales totaled $4.2B, up 14.5 percent from the previous year.1
Not only are customers shopping via mobile, they expect a greater variety of features and functionality when they pay. Take for instance the Apple Card. Consumers use the card to access benefits such as daily cash back, enhanced security and low interest rates. With the card, Apple Pay usage is accelerating, approaching nearly half of proximity mobile payment users—more than any other leading merchant or bank ‘pay’ solution.2 And the big news here is that the Apple Card provides all this with no app. It is native to the device. A harbinger of a reconfigured landscape.
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Customers want greater rewards when using their cards. In the past year, the seemingly ever-increasing pecuniary rewards arms race—higher earn-rates and intro bonuses—took a reprieve, at least temporarily, while programs that deliver meaningful, highly curated experiences, as part of rewards, are on the rise.
For instance, Chase is adding several benefits to its card line-up, including Lyft Pink and Door Dash credits for Chase Sapphire Reserve cardholders,3 while American Express, which refreshed its Platinum products, has experienced a 60 percent increase in its Platinum card base.4 Leading issuers, such as Chase and Amex, have made lifestyle and financial services accessible to members along with features that activate as customer needs arise. With its merchant offers platform, the latter has seen 32 percent growth in merchant-funded offers and 24 percent growth in the number of unique card members redeeming offers.5 And through a combination of agile development and fintech partnerships, the entire industry is now innovating on what defines the payments experience.
As rewards become more rewarding, customers will grow to expect highly relevant, personalized, but never creepy experiences; as products like Apple Card redefine what’s possible, industry players are already upping the ante and we’re still in the early innings.
Fast and friction-free is the name of the game
Merchants have long looked at payments as a cost center, when it should be considered a brand multiplier, as retail payments can make or break relationships. Consumer interest in frictionless payments is driving recency, frequency and monetary value to digital payment-savvy retailers. Those who aren’t so savvy will lose business. In fact, 87 percent of online shoppers will abandon their carts if checkout is complex—and 55 percent will abandon the retailer!6
Customers’ transactions with merchants should be so simple and seamless, they are nearly invisible. Such frictionless payments are more important than ever in an integrated omnichannel world. Financial institutions are working together to develop more integrated solutions that blur the lines between payments and software. Some payment processors and platforms are now offering “click to pay” to merchants—a simplified way for card payments to be made across web and mobile sites, mobile apps and connected devices. Click to pay provides customers a consistent, simple user experience and stronger protection of payment information across channels. Vendors including BassPro, JoAnn Fabric and Crafts, Papa John’s and Saks Fifth Avenue are offering this option.
Behind the scenes, the environment is already changing. We estimate that by the end of this year, roughly 70 cents of every $1 of card spend processed will touch an integrated solution at some point in the value chain.7 My colleague Emily Boese recently spoke at Money20/20 on how acquirers can find high-value-adding pathways from enabling fundamental change.
Open the digital doorway to better services for companies
Large corporations and small- and medium-sized businesses are critical customers for commercial banks—but we’re seeing a slowdown in commercial deposit growth. According to the Federal Reserve, growth of commercial deposits slowed to 3.8 percent between 2017 and 2019, down from 5.1 percent between 2014 and 2016.8
Corporate portals are one way in which banks can connect with businesses digitally, however, portals are often clunky and non-intuitive.
Businesses are demanding more from banks. They want more capabilities, more information and ease of access when it comes to payments. And digital natives are more strongly positioned to deliver on these expectations than commercial banks. Perhaps this is why we are seeing such strong momentum in the US commercial cards market (projected 12 percent growth p.a. through 2024, with virtual cards growing at over 20 percent p.a.).9
Corporate portals are one way in which banks can connect with businesses digitally, however, portals are often clunky and non-intuitive. Instead they should serve as a one-stop digital extension of the relationship manager and commercial client services. Portals will best help corporate customers when they are unique—not uniform—with options, screens and fields personalized for that business. Personalized customer service would also include proactively pushing information in real time, such as alerting commercial customers to large credits, overdraft risks or when repetitive payments are unusually large compared to previous months’ trends.
New players such as Brex Cash are starting to offer solutions that provide these benefits, along with other perks such as lower fees and higher deposit rates than traditional providers. To best serve the growing number of digitally savvy clients, banks will need to reimagine and modernize the infrastructure that underpins corporate portals. Modern and truly flexible infrastructure gives banks the backbone needed to be more customer-centric and personalized, and offers the opportunity to double-down on security, a key differentiator in the next wave of infrastructure modernization and commercial payments innovation.
As I said in my introduction, a lot has happened in the past year, but things are always clearer in the rearview mirror, right? Please share any comments or feedback you have on this look back. In my next few blogs, we’ll dig deeper into how to adapt to these trends by placing five big bets.
1Ingrid Lunden, “Online shopping on Thanksgiving hit $4.2B, up 14.5% on 2018, 45% of sales via mobile” 11/2019
2eMarketer, “Apple Pay Overtakes Starbucks as Top Mobile Payment App in the US” 10/2019
3Chase, “Chase Introduces New Cardmember Benefits With Lyft and DoorDash” 1/2020
4Jennifer Surane, “AmEx Says Rewards War for Premium Card Customers Is Leveling Off” 12/2019
5American Express 2019 Investor Day
6James Melton, “Getting the Online Checkout Process Wrong Can Be Costly, Research Shows” 8/13/2018
7 Accenture Research
8Accenture Research; Federal Reserve, H.8 Assets and Liabilities of Commercial Banks in the United States
9Frank Martien, Brian Rutland and Tom Skomba, “US Commercial Card Spend Expected to Exceed $1 Trillion by 2024”, 2/2020
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