Last week bobsguide reported on the benefits of Cloud Computing, a key topic up for discussion at Sibos this year. This week, in bobsguide’s final Sibos feature, we delve deeper into the future of payments. The surge of innovation within the payments industry is driving a shift in the way we make payments. Paying by cash and cheque is declining in favour of digital payments, both online and through mobile payment apps and digital wallets. The money we pay with is also changing to include digital currencies, such as Bitcoin. We are living in a time when the payments landscape is ever-changing and some financial institutions are struggling to keep up with consumer demand.
According to a Business Insider report based on their BI Intelligence research, there is a race going on to control online and mobile payments and tech giants, Apple, Amazon and PayPal are positioned to get the furthest in this sector. So where does this leave the banking industry? Banks are trying to become more customer-centric by paying more attention to what their customers want and have realised that order to stay relevant and current, they need to make an adjustment to the payment methods they provide. According to various surveys, consumers want the ability to access their money and make payments on the go. Mobile payments are becoming widely accepted because they allow people to make payments and transfer money no matter where they are.
The BI Intelligence report also shows that there has been a significant increase payment start-ups and venture capital funding into start-up initiatives, which may be because banks are releasing that in order to keep up with innovation they need to invest in this area. According to the report, Peer-to-Peer (P2P) payment apps that allow friends to transfer money to each other will grow 8.5 times in the next four years and banks such as Lloyds, TSB, Halifax and Barclays have already introduced a P2P mobile payment service through Paym, led by the Payments council.
Many banks want to introduce more alternative payment methods but are unsure about how to use the technology behind them. Terms such as Near-Field communication (NFC) often sound more confusing than they actually are and banking executives need to feel comfortable with the technology being used if they are going to implement it. NFC is a set of standards for smartphones and other mobile devices to establish radio communication with each other when they are touching or brought in close proximity of each other. Apple intends to use NFC chips for their new mobile payments platform, Apple Pay. NFC technology has been around for over a decade but so far, no company has convinced consumers to transfer their cards to NFC chips. NFC has been unsuccessful in the past due to market fragmentation, a frustrating PIN code verification system and lack of cooperation from Softcard (joint venture between AT&T, T-Mobile and Verizon in the mobile payment space) who banned Google wallet from all of their devices when it launched in 2011. This time around, Apple has reached an agreement with Softcard to allow Apple Pay on iPhone 6 devices. NFC requires a special chip on both the mobile device and the payment terminal which means that retailers will be required to update their current systems. Subway is the latest restaurant to team up with Softcard to allow consumers to tap a payment terminal at their local Subway to pay for their order using their supported NFC-enabled mobile devices.
The risk of fraud within digital payments
The risk of fraud is extremely high within digital payments and banks are finding it increasingly difficult to manage transactions in real-time to ensure customer and client authenticity. According to Sunil Sachdev, (Managing Director, International Payments, Fiserv) financial crime has become an arms race between banks, risk managers and criminals and that in recent years there has been an explosion in both access channels and real-time payment methods meaning that monitoring financial transactions and ensuring that they are secure and legitimate has become increasingly challenging.
Sachdev believes that big data provides a way of mitigating the risk of fraud in today’s society. “Predictive analytics have long been a powerful weapon in the fight against criminals, and variations of other financial crime fighting techniques – behaviour monitoring, network analysis, pattern recognition and profiling – have been key components of banks’ toolkits for decades. But today as fraudsters are using rapidly evolving attack scenarios, it’s Big Data that’s changing the game.”
According to Sachdev it’s the combination of behavioral profiling, real-time detection scenarios and predictive analytics provides the most accurate results and that in this scenario big data enables financial institutions to provide these services on a scale that simply wasn’t possible five years ago.
Banks are increasingly trying to provide customers with the ability to access their bank account from various digital devices, such as mobile, desktop and tablet. However, this is useless if the banks do not understand which device their customer uses for each area of banking. According to Sachdev, the delivery of banking services across multiple channels is an important feature for financial institutions looking to reflect consumer patterns of device usage, with access to services now being expected anyplace, anytime. A strategy that takes in all channels is important for financial institutions, but at the same time they must remember that people use channels in different ways, and for varying tasks. To create a channel strategy that serves the best purpose, banks need to cater for the channel and the context in which it is used, such as:
- Mobile: caters for on-the-go services such as balance checks and last minute payments, which means that the channel must be designed to give easy access to simple functions to match the out of the house context in which it is used.
- Tablet: a more focused decision to spend time reviewing bank accounts and moving money, carried out in a relaxed setting like the living room on a device with a greater level of functionality.
- PC: an outright decision to spend time looking at financial services. This channel is more likely to involve detailed checks on financial information and activities such as researching new financial products.
A solid strategy that covers these points has a wide range of benefits, allowing a financial institution to reduce costs, increase revenue, compete in new areas, provide a more convenient and direct channel with their customers, differentiate themselves with the competition and raise customer engagement. A true omnichannel strategy reflects not only a presence across all channels, but also builds an intuitive set of functions for consumers across them.
Driving digital payment innovation
Right now, innovation within the payments industry is focused on mobile and Sachdev believes that financial institutions should focus on the real and immediate opportunities within mobile payments, including mobile transfers, mobile check deposit, person-to-person payments and bill payments, in order to capitalise on this opportunity and assume a leadership position in the mobile payments space.
According to Sachdev, mobile in particular is a space where innovation can flourish, reflecting today’s hyper-connected world. Innovative features using digital channels are becoming more common, for example customers at Bank of the West are able to check account balances without logging into their banking apps, and those at America First Credit Union can apply for vehicle loans simply by photographing the identification number of the vehicle that they wish to buy.
Sachdev also believes that in payments, financial institutions can look refresh existing payment methods to drive innovation – with the UK government looking to follow the lead of the US and link centuries old cheques with the latest smartphone technology, for example. Killer apps, such as mobile cheque capture, make a huge difference when it comes to influencing customer behaviour. This technology is creating a hybrid model as banks realise they can reduce costs and improve the overall customer experience by blending new technology with traditional payment instruments.
The future of payments
So where do consumers and industry experts see the future of payments? According to Sachdev, mobile payments are the way forward and banks should focus on delivering solutions to their customers. “Financial institutions are well-positioned to benefit from mobile payments by leveraging existing advantages and assets to encourage members to conduct many types of mobile payments today and retain their business for a lifetime. By focusing now on delivering solutions for the way members are already using mobile payments, financial institutions can benefit from increased transactions and greater member loyalty while creating the potential to attract new members as mobile payments become more widespread.”
According to the Pay Your Way 2025: Future Payments survey by the Payments Council which surveyed over 4,000 consumers, more than half of the British public expect to be able to pay by scanning their thumbprint by the year 2025. The survey also highlights Dr Ian Pearson’s (Lead Futurologist, Futurizon) predictions for the payment methods of the future such as, face recognition, security jewellery, fingerprint and digital currencies. “The nature of cash will change. In 2025, many people will use PayPal, electronic vouchers, virtual currency such as BitCoin and others yet to enter the market.”
Whatever the future holds, according to the Payments Council’s survey and many industry experts, consumers want speed and security when it comes to digital payments. 93% of people surveyed by the Payments Council agreed that the security of payments is important to them, while 62% admit to concerns that payments using new technology might not be secure. The challenge for financial institutions is to provide innovative payments options that are both fast and secure.
By Nicole Miskelly, bobsguide Lead Journalist