The trends that are changing the paradigm of making payments

A generation ago, a consumer would visit a Shopping complex to fulfill all of one’s shopping needs and undoubtedly pay in cash. A lot has changed since then. The arrival of personal computers in homes and the launch of companies, such as Amazon, Alibaba Group, and eBay, in the 1990s, acquainted consumers with the new concept of shopping online. The popularization of smartphones within the last decade then introduced consumers to anytime, anywhere commerce.

Technology has reinvented commerce. It changed what consumers expect to experience in physical retail and foodservice outlets. It opened the door to new ways of engaging with brands across the path to purchase. It altered the role the payments industry plays in the transaction. Stemming from this week’s Money20/20 event, the below takes a deep dive into three of the most impactful technology-driven trends reshaping payments.

While cash and cards still dominate the payments landscape, there appears to be a greater acceptance of mobile payment technology, especially by younger demographic groups and for certain types of transactions (P2P). The trends that might shape the future of payments are given below.

Growing Impact of GenZ

The segment of today’s teens and young adults who follow the Millennial generation is projected to make up as much as 40% of U.S. consumers by the year 2020. Similar to the younger aged Millennials, this segment (age 18-21) is all about digital technology and the mobile phone. In fact, 80% would give up television for a day – and 28% would give up friends or money – to keep their mobile phone.

This generation demands immediacy and highly personalized (and relevant) experiences. Almost 70% of the Gen Z generation use mobile banking apps daily, with 68% wanting instant P2P payments. While being mobile-first, this generation also uses other channels more than other generations.

CX as a differentiator

The collection and analysis of massive amounts of data provide the foundation for an improved customer experience (CX) in all industries, especially banking and payments. The improved ability to provide payments advisory services and expense management is desired by 70% of the youngest generation, says the Accenture study. These consumers also want an easier way to shop and make purchases on their mobile device.

While payment data has historically been under the control of traditional financial services organizations, more than 60% of Millennial and Gen Z consumers are willing to share their bank account credentials with third parties. This is of special importance during a time of expanded open banking capability and regulatory acceptance.

AI comes into the picture

With card fraud losses increasing every year, it has become imperative for PSPs to look for better solutions to improve cybersecurity and fraud detection while reducing costs.

Robotic Process Automation(RPA) and machine learning are beginning to play an increasingly important role in the financial services industry by reducing costs and increasing productivity. With machine learning frauds can be identified and analyzed in near real-time with algorithms that mine data from the customer’s purchasing history while reviewing patterns of likely fraud for preventing attacks, reducing fraud and improving risk management. Machine learning can also be used in anti-money laundering to monitor the audit trail of illegal money transfer.

Investment in machine learning solutions for fraud detections is expected to rise, with 68% of financial institutions citing machine learning investments as a high priority investment.

Advanced authentication technologies to fight fraud and data breaches

The consequence of the rhetoric used to describe success is that we come to think of the qualities of those successful few as being incredibly rare.

Biometrics, digital identity, secure element, geo-location, and interoperable cryptographic keys are the leading mechanisms being employed by stakeholders to provide robust authentication.

Banks and corporates are witnessing significant losses with an increasing number of cybersecurity-related incidents around the world.

• SWIFT network was hacked multiple times in different parts of the world leading to losses of several million
• WannaCry malware caused ransomware attack affecting more than 150 countries and 200,000 computers

A paradigm shift is needed by all stakeholders including regulators to take the more proactive approach and take ownership in terms of preventing cyber attacks

Stakeholders will collaborate to form an interoperable set of standards such as Fast Identity Online for Simpler and stronger authentication using biometrics and cryptographic infographics

Many new players and third-party developers are expected to develop a plug and pay multi-layered authentication techniques which can be integrated easily with banks mobile solutions

Increasing adoption of advanced authentication techniques could be witnessed by banks in the coming years, and there could be more collaboration with FinTechs in the space.