For some financial organisations, “disruption” is a dirty word. Competition—from start-ups, virtual currencies, the sharing economy, and mobile apps—is disrupting the traditional payments landscape. The Macquarie Group recently published research predicting that Australia’s Big Four banks could lose as much as $27 billion a year due to ‘digital disruption’. Incumbents face more challenges and many financial institutions, retailers and processors are uncertain about how to best prepare for and prosper from this disruption.
Disruption, however, does not equate to “distraction.” In actuality, it means “opportunity,” especially for the traditional payment players. The global payments industry is at an important inflection point where businesses need the best strategy and execution to meet the challenges ahead. Organisations must turn disruptive trends and technologies into a business advantage. They must embrace new technologies to create opportunities.
Disruption is about finding new, simpler ways to do what we’ve always done. When it comes to how consumers will transact, pay and interact with retailers and banks in the future, the key to success will be technologies that add value while offering greater simplicity.
Here’s a look at some of the top trends driving continued disruption and innovation in the payments space.
Real time payments
The opportunities offered by real time payments will have a lasting impact on Australia in the coming years. Many consumers believe payments are already processed in real time without understanding the complexity of what happens after they swipe their cards or click to purchase. The New Payments Platform (NPP), which is set to be rolled out in Australia by the end of 2016, will bring added speed and security to the networks. With the NPP, consumers will have greater control over their money, regardless of whom they’re paying.
This increased speed and security will allow banks and retailers to reclaim a more direct connection with consumers, drive out inefficiencies, reduce costs and protect margins in the face of evolving change and regulation.
We’re already seeing financial organisations beginning to explore the possibilities offered by biometrics and this area will continue to drive new methods for consumers to interact with financial organisations and retailers. For instance, St. George Bank recently announced that it will be adding a fingerprint login to its mobile banking services. ANZ is also working on technology to allow consumers to identify themselves by voice. Biometric technology is poised to bring greater security to current payments processes, offering consumers the opportunity to choose how they prefer to verify their identity and keeping users engaged in the security process, without complicating the overall experience.
Mobile devices have proven to be a key disruptor in how payments are initiated. Australians have embraced mobile commerce, with 3.4 million using an m-commerce service in 2013 – a 448 percent increase over three years. Of the nearly nine million Australians with a smartphone, nearly half had downloaded a banking and finance app. Because of this, all of Australia’s Big Four banks and many of its major retailers are unveiling new mobile solutions, aimed at simplifying payments and integrating additional services, such as loyalty programs.
For instance, the newest feature in Commonwealth Bank’s app allows consumers to use their mobile phones to make an ATM withdrawal, using a secure PIN sent to their device. Westpac predicts three million people will make an average of five contactless mobile payments per month in 2015– resulting in an industry worth $3 billion. Mobile solutions allow financial institutions the opportunity to diversify their payment options and create a strong, more personalised link to loyalty.
The Internet of Things
The Internet of Things (IoT) will create new avenues for organisations to obtain valuable data from their consumers. Experts predict that 30 billion things will be connected to the Internet by 2020, generating trillions in revenue. With this connectivity comes more opportunities for consumers to engage directly with financial organisations and retailers across all industries.
The IoT will also bring new challenges for organisations working to manage and make sense of the huge amounts of data collected and shared by our devices. While there is still much uncertainty about what the IoT will mean for the payments landscape, it will prove to be an important starting ground for innovation. Organisations must begin exploring how they might leverage the connected opportunities of the future.
Innovation is non-linear. Disruption continues to evolve on multiple fronts and in unforeseen directions. We’ve seen NFC develop alongside Bluetooth Low Energy (BLE), and we’ll continue to see new technologies that compliment and run alongside each other in the payments space. This simultaneous evolution fosters disruption and development, as it means that no single player will own the entire payments ecosystem. We’ll continue to see a variety of players looking to claim a piece of the pie, which will add value and drive simplicity, convenience and security.
What’s becoming clear is that innovation in the payment space is not just about payments. It’s about forging a deeper connection with consumers, and utilising data to drive continued innovation, trust, convenience and security.
Chris Hill is the vice president, pacific for ACI Worldwide.