We’re concluding our series on the history of payments with Part II of our focus on the future. If you have just landed here, catch up on the initial blogs of this series: What can we learn from the past (Part. 1), What can we learn from the past (Part. 2), Present: The payment ecosystem explained, Future: State of transformation: (Part.1). Martin Herlinghaus
Investment and competition are accelerating innovation in payments. At the same time, a focus on standardization and interoperability is creating a unified, global universe in which new players can emerge and try to create a sustainable market presence—or be acquired by larger players.
Alternative Payment Methods
“Buy now, pay later” is a concept that has been around since the early days of commerce, but is taking on new meaning in the digital era. Ever since the financial crisis of 2008 customers become much more financially aware of alternatives to traditional credit cards. Many companies are emerging to offer “pay-later” convenience even at the point of sale (POS).
Similarly, the payments industry at large is moving very quickly to enable instant payments. FinTech companies are challenging the status-quo of the existing ACH (automated clearing house) systems and banks are developing/acquiring new faster payment initiatives. Where it used to take days to transfer money from one bank account to another, demand is growing from consumers and merchants to create faster ways to transfer funds and pay at POS systems. One such instant payments feature, called “request to pay,” enables the merchant POS to send out a payment request that a customer can simply accept through his or her mobile phone.
Pressure continues to build for adoption of crypto currencies, such as Bitcoin, based on distributed ledger technologies such as a blockchain system that enable peer-to-peer transfer of payment tokens and prevent recorded transactions from being altered retroactively.
Crypto currencies are perhaps the most controversial topic both within the payments community as they have the potential to dramatically transform and digitize the global economy and especially the cash market. Governments struggle with classifying crypto currencies both out of concern that they can conceal payment for illicit activities, and over the issue of whether to themselves establish their own digital currencies.
It is certain that emerging technologies will continue to accelerate the pace of innovation in payments.
Apple’s introduction of Touch ID on iPhone and iPad have widened consumer awareness and acceptance of biometrics. Combined with an embedded secure element in the smartphone, Touch ID was a major impetus behind adoption of mobile payment and with the growing use of voice recognition, biometrics is poised to broaden the use of contactless payments.
With secure payment technology embedded in smartphones and other mobile devices, it becomes less important to build high-level security features into physical POS terminals, which will eventually be utilized only as a transmitter of tokens between the consumer’s mobile and an issuer.
2) Artificial Intelligence (AI)
The combination of voice recognition and AI allows a user to interact with payments in the most natural way – via voice. Some financial institutions, about 6%, currently use AI to personalize the customer experience, such as actively informing them about a new incoming payment request or using a personal banking consultant ‘bot’.
AI can identify patterns out of massive amounts of data, so it brings new capabilities that will allow payment systems to interpret the wishes of consumers and complete the actions needed to create a satisfying experience.
3) The Internet of Things (IoT)
IoT makes it possible to put computerized intelligence at a multitude of endpoints.
Developers are actively seeking to utilize IoT in enabling connected commerce, where consumers can pay using a range of connected devices from smartphones, wearables and speakers to connected cars or household appliances.
On the merchant side IoT is expanding the realm of POS devices to include new touch points that could include fitting room mirrors, smart advertising displays, vending machines, parking meters and toll gates, among others. In fact, with IoT, we are likely to see an even bigger competitive race to monetize and capitalize on the Internet of Payments.
Partnering for Success
Electronic payments have always involved multiple entities engaged in virtual partnerships to ensure payments are received for goods and services provided. No company can expect to dominate payments but must instead work to turn potential competitors into allies in order to expand the potential market.
We are seeing this power of alliances play out in the rapid expansion of cloud-based services. The development of application programming interfaces makes it possible for a developer to leverage the internal processing power of another developer’s application. For instance, a POS software developer that specializes in inventory management could utilize APIs to interact with another developer’s payments processing engine, and another developer’s marketing application.
Tomorrow’s leading financial institutions are likely to be those that are to provide platform-as-a-service (PaaS) and banking-as-a-service (BaaS) solutions on which partners can offer efficient, scalable, best-in-class financial products, while the financial institution benefits from access to best-of-breed services that it would otherwise have to build itself at great expense.
This points the way to a payments future that no longer focuses on establishing competing distribution channels, but rather on how to maximize opportunities through participation in an ecosystem of solutions.
Over the past 20 years the payments industry has undergone a lot of changes. New channels, technologies and partners emerged and while they operated independently from each other for a long time, they do converge in today’s world of interconnected services. In this new omni-channel reality smartPOS acts as the ultimate bridge technology between the physical and the digital world, connecting transactions, value-added services, payments and data.