In his report on the top 10 banking trends for 2020, our global banking lead, Alan McIntyre, made a telling observation: that the focus of Open Banking has shifted from payments initiation services to consumers’ data rights.
The impact? Today, banks don’t just need to show that they can be trusted with aggregated customer information. Crucially, they also need to demonstrate that they can actively add value by using that data to improve customers’ financial health.
This brings major implications for payments services. Let’s step through them:
Most of the data currently aggregated by banks and third-party providers (TPPs) is based on customers’ spending history. As such, it includes details like what their budget is and where and how they spend it—data that can be analysed to provide recommendations on how they can spend smarter. Banks can use the resulting insights to develop new and more tailored offers for customers, such as optimising their loans or improving their experience of the payments journey.
From a payments perspective, a really interesting trend currently underway is the introduction of new payments methods. This development is especially important in the context of the COVID-19 pandemic, which has led to customers being encouraged to use digital payments instruments. We can already see these in the market, in the form of offerings such as Blik—which enables customers in Poland to use their mobile phones to pay in shops and withdraw money from ATMs.
Blik is just one example of the collaborative initiatives being undertaken by multiple banks to build a more effective payments ecosystem. This trend is also evident in the increasing popularity of “pay-by-bank” options and the new partnerships emerging in that space.
At the same time, we’re also seeing a growing focus on new payments instruments that combine traditional payments and loans. Examples include the “buy now, pay later” solution introduced by Klarna, which is growing in popularity.
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Such offerings are just the start. In the future, banks will be able to use their analysis of customers’ data to predict their spending and offer tailored loans at the point of sale, or suggest a payment-by-instalments option without any additional checks. Advances like these will support the main trend that we can observe in this area today: the focus on transforming payments into instant, invisible and free.
Drawing on customers’ aggregated spending history, banks and TPPs will be able to take payments offerings that are currently complicated, and embed them seamlessly into customer journeys. The effect will be to let the customer enjoy the final product rather than worrying about the payment.
This suits customers—because the reality is that most of them don’t mind or care what type of payment method is used for their transaction, so long as it’s quick and free of charge. This means we may see a shift away from card transactions, and into new payments methods like pay-by-bank or payment-by-instalments.
As these developments underline, new payments methods will not only improve customer journeys—they also will introduce payments into new areas outside the banking industry. The result? The payments landscape won’t just be different, but much, much bigger and more competitive. To sustain their position in the payments marketplace, it’s a landscape that banks need to be ready for.
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