The nature of money and payment systems have changed drastically over the years. From a simple barter system followed thousands of years ago, the advent of currency and cash transactions, to digital payments powered by cutting-edge technology – there has been a gradual movement towards easy, convenient, and secure payment methods.
Overall, the digitization of payments has gained more steam in the past four to five years, and more changes are expected in the future, owing to the rapid pace of technological development and changing consumer behavior. Besides convenience and security, there is a strong push for contactless payments in the post-COVID world, which has given further impetus to digital payment innovation.
Talking in numbers, the Digital Payments Global Market Report 2020-30: COVID-19 Implications and Growth predicts that the global digital payment market will grow from $3,885.6 billion in 2019 to $8,059.3 billion at a CAGR of 20% through 2023.
Clearly, the preference for digital payments is rising. But what innovations can we expect in the near future? Can we expect self-driving cars to make automatic payments for curb-side pick-ups and hope to walk out of retail stores with a contactless auto-debit facility? Indeed, these are just two of the possibilities that we can expect to see real soon, thanks to systems integration capabilities that integrate points of sales with payment gateways or platforms for a seamless payment experience. Even banks are foraying into the world of analytics to help customers manage their money better.
So, if you spend beyond a certain threshold at a fast-food joint in the future, your bank may alert you or refuse to process your payment to drive positive financial behavior, which can potentially improve customer experience and retention for banks tremendously.
As you would agree, the idea behind innovating digital payments is not just convenience but also efficiency.
Below, we have identified some key factors behind the digital push in the payments ecosystem:
- Frictionless Options provided by FinTech Companies
Presently, while some financial institutions continue to rely on legacy IT infrastructure and manual practices, financial startups, also known as ‘FinTechs,’ are offering customers innovative financial products and services without any lengthy forms or unnecessary hoops, often at lower rates with improved security. Naturally, customers are drawn towards convenience, a key benefit of technology-integrations, forcing banks to evolve and come out of age-old practices.
- Emerging Regulatory Guidelines
Countries like the US, India, and almost the entire European Union have put stringent regulations to monitor financial activities and the conduct of financial institutions to prevent monopolistic behavior, which is detrimental for consumers.
Open Banking in the EU is a result of such regulations. Banks in the EU and UK must provide APIs to third-party providers (who are primarily Fintech’s or startups), giving out customer data (with user consent) to facilitate payments and make it a level playfield for smaller (and new) firms. So, a small startup can create an innovative product using these APIs in the open banking world, leading to more choice and convenience for customers and additional pressure on larger institutions to continue turning the wheels of innovation.
Talking about open banking, collaborative payment systems created by integrating system and analytics APIs can improve security and make it easier to identify and thwart payment fraud. For example, Visa’s Marqeta enables various financial world stakeholders to build smooth and easy payment experiences using the open-source API platform. Besides, the platform provides rich data, opening up opportunities for customer retention and real-time fraud detection.
Open-source API platforms also enable developers across the globe to collaborate and identify vulnerabilities to prevent money laundering and other emerging threats.
- Changing Customer Experience
Consumers are gradually moving away from cash payments to using mobile wallets or smartphones in day-to-day life. Wallets and frictionless payment mechanisms like UPI (Unified Payments Interface) are fast and convenient and more secure in most cases.
From a customer point of view, e-wallets give them a sense of security. Instead of using their account for online payments or withdrawing cash at an ATM, users feel secure knowing that only the money topped up in their digital wallet could be at risk, and their remaining assets are safe. However, there is competition in the world of digital wallets as well, and the only winner is the most secure, convenient, widely acceptable, and cheapest option, like Amazon Pay, which also saves user preferences for faster checkouts.
Another example could be of cross-border payments that took up to 3 to 4 working days in the past. However, technology integration has made it possible to reduce this timeframe to a few hours at max. In India, UPI has transformed the payments ecosystem, enabling real-time payments within the country.
- Monetizing Digital Payments
As digital payments have gathered steam across the world, bank and payment companies have realized that they can be monetized in 2 ways apart from the usual transaction fees.
First, the customer using an organization’s payment platform can be proposed new products in financial management, investment, and niche products like micro-mortgages and microlending. Ensuring a seamless customer payment experience will go a long way in encouraging them to consider these propositions.
Second and relatedly, the humongous amount of data generated by the customers can be used to make a 360-degree customer profile. It can be leveraged to develop novel personalized products and understand where customer preferences are headed. Better and complete data will mean improved segmentation, focused marketing campaigns, and a higher ROI on them.
COVID-19 Impact on Digital Payments
Digital Payments, in the foreseeable future, are going to be influenced by the after-effects of COVID-19 and technological advancements. There is already an increased emphasis on frictionless and seamless payment mechanisms in most industries. Soon, we expect to leverage technologies like computer vision and deep learning to identify customers and link that information to aid in seamless payment mechanisms, as we mentioned at the beginning of this article. Technological advancements like blockchain and deep learning can also help in battling financial crime and make the payment ecosystem much more transparent and secure.
At Zensar, we are working towards creating intelligent payment experiences by not only looking at individual transactions but focusing on generating moments of truth throughout the payment lifecycle to identify additional revenue streams while streamlining the existing ones.
We have developed several capabilities that can be leveraged in the area of digital payments, such as seamless analytics and system integration capabilities, to aid the digital transformation across industries in the payments space. Some of these are mentioned below.
- API led system integration with payment gateways/systems to provide real-time connectivity.
- Analytics for unearthing consumer behavior.
- Automation solutions for the payment processing lifecycle.
- Implementation of payment related API’s for Open Banking Standards e.g. PSD2 in Europe /UK.