The payments industry is in a state of flux as technological, economic and demographic factors cut across the sector, says Sydney-based consultancy Capgemini.
The industry is undergoing rapid growth in innovations across the value chain, making it more fragmented. Non-bank payment providers in the form of start-up and technology giants such as Apple and Facebook are causing disruption and disintermediation in parts of the payments and banking landscapes.
A recent paper by Capgemini, Top 10 Trends in Payments in 2016, tries to explain some of these changes. Here are four of the key trends they identify.
More front-end innovation
Innovation in the customer-facing parts of the payment system is gathering pace as mobile and social platforms drive demand for new services.
These innovations are making transactions effortless by providing a seamless experience for customers. However, these innovations are not to the underlying payments infrastructure.
Driving the trend is advances in hardware and devices, allowing for an increase in channels for retail customers.
Separately, BPAY’s most recent Usage & Attitudes Survey reveals that smartphone payments continue to grow, with an increase in the use of mobile app banking, commonly for checking balances or transferring between accounts.
However, two thirds of people still prefer to use an internet banking website, the survey found. In fact, while mobile is growing for small value payments, for large bill payments people still tend to prefer using a laptop or computer. Of bill and electronic payments via BPAY specifically, nearly half occur via a website on a laptop or desktop computer.
Capgemini says innovation in retail payments will find its way to the B2B and corporate sectors.
Front-end innovation in payments might also reduce credit card usage as users migrate to other payment options.
Payments processing will undergo transformation
The back-end of the payments system (payments processing systems) is currently lagging in innovation compared with the customer facing front-end, due to siloed legacy systems and a continued focus on complying with increased regulations.
“Most financial institutions are undertaking a strategic review of payments processing systems as increasing complexity of their internal systems is constraining them from quickly responding to external market changes,” Capgemini says.
Driving the trend are increasing customer expectations for anytime/anywhere payments, immediate payments and multichannel payments.
In Australia, the New Payments Platform will address the issue of legacy backend systems not innovating as quickly, and BPAY along with the banks are already moving these systems forward.
BPAY will provide the first ‘overlay service’ on the NPP, the Initial Convenience Service, which will let consumers pay and be paid in real-time from their bank accounts via their mobile phone, tablet, or via the internet. Banks will need to become nimbler to compete with fintech firms and offer personalised valued-added services such as rewards, reporting, and analytics to serve their customers better.
“While traditional payments processors have taken an incremental approach to transformation, some might benefit from robust, end-to-end project management and execution aligned to a clear business vision,” Capgemini says.
Payment services providers will increase focus on big data
Payment service providers are looking at ways to leverage data analytics and predictive modelling to drive their value-added services for retail and corporate customers, Capgemini says.
This is driven in part by reduced costs for data mining and warehousing and by interest from customers in services such as rewards redemptions and special deals.
In the corporate sphere, some specialist payment providers are adding services such as sourcing, inventory management and customer acquisition onto their cloud-based platforms.
Straight-through processing – where transactions are conducted electronically without the need for re-keying or manual intervention – will become the norm for corporate payments, Capgemini says. Non-banks are coming up with solutions which can initiate a corporate payment online, post the payment instructions and integrate the process with the enterprise’s existing systems.
Regulators to foster innovation and competition
Regulators are responding to increased customer demand for data privacy and security and to the entry of non-traditional players into the payments sphere.
They are focussing on standardisation and innovation, as well as opening up the market to new players to encourage completion. This could lead to further fragmentation of the payments value chain, Capgemini says.
This article represents the views and opinions of the author and do not necessarily reflect the opinions of BPAY.
Published by BPAY Pty Ltd. BPAY is offered by over 150 Financial Institutions. Contact your Financial Institution to see if it offers BPAY and to get the terms and conditions. This is general advice – before using BPAY please review the terms and conditions and consider whether BPAY is appropriate for your personal circumstances.