If there’s one word to describe the direction that the payments industry has headed over the past year, I think it’s this: convenience. Consumers want to be able to make purchases on-the-go with just a tap of their smartphones. Workers want easier ways to access their earnings and support their lifestyles. Companies want faster, more efficient ways to transfer funds around the world and support their global operations. Across the board, what everyone wants is financial solutions that are quick, simple, and accessible. Convenience.
In our latest ebook, Hyperwallet explores many of the forces shaping the global payments landscape in 2019. Here are three of those trends that I want to highlight: the disruptive players in consumer financial services, the smoothing of end-to-end payment solutions, and the emergence of single sign-on identity verification. And as you’ll see, even in the coming year, progress in the payments industry is all about convenience.
Challenger banks innovate consumer financial services
Over the past few years, we've seen a number of technology companies emerge to meet consumer needs that have not been adequately addressed by standard financial institutions. These so-called 'challenger banks,' which focus especially on improving simplicity, functionality, and ease-of-use, have some common characteristics that distinguish them from traditional banks:
- Technology-first financial startups or subsidiaries.
- Strictly digital (and often mobile-only) with no physical branches.
- Certified through a bank charter or e-money license.
- Typically not a consumer's primary account.
Monzo, Chime, Revolut, and other challenger banks not only offer convenient money management at a lower cost than their competitors, but they provide a host of features that other financial institutions often don't: multi-currency accounts, P2P money transfers, instant currency conversion, as well as value-added services like lending and insurance. These companies are catching on (Monzo alone claims to add 20,000 new accounts in the United Kingdom each week), and they're forcing legacy banks to pay more attention to the user experience. Look for challenger banks to continue disrupting consumer financial services through 2019 and beyond (and hopefully for established institutions to learn from their success).
Seamless pay-in/pay-out solutions become the norm
It used to be that two-sided marketplaces (companies like HomeAway or DoorDash who both receive payments from consumers and send payments to independent workers or suppliers) had an important choice to make: integrated or standalone?
With an integrated pay-in/pay-out solution, a marketplace's payment provider accepts funds from the purchasing consumer and splits the value based on pre-determined rates. For example, in a $50 transaction, the marketplace might automatically get $5 while the remainder goes to the worker. The marketplace is never responsible for disbursing payments, which reduces workload and risk, but it loses oversight of the flow of funds. On the other hand, a standalone pay-in/pay-out solution makes the marketplace an intermediary in the transaction: $50 comes in, and they're responsible for making sure it's properly distributed. That means more control over how each payment is split, but also more effort and regulatory concern.
Consolidation of payment providers (think Hyperwallet, Braintree, and PayPal) is helping marketplaces get the best of both solution models. Companies can unlock an integrated pay-in/pay-out without the burden of handling funds, but with the option to oversee and control payments at a granular level. Bank on more partnerships like this as providers strive for a seamless end-to-end experience that can be a distinguishing factor for marketplaces.
Common logins streamline payments identity verification
In any payment process, identity verification is often the most frustrating part of the user experience. Depending on the platform, consumers may be required to provide a collection of personal information (address, date of birth, phone number) and upload scans of government-issued identification before they can participate in a transaction.
Around the world, a number of banking organisations are working to streamline the identity verification process by implementing electronic authentication systems. For example, Sweden's BankID program provides users with a sort of digital passport that acts as a common login for identity verification, giving them instant certification when connecting with Swedish companies, financial institutions, and government agencies. BankID is also required to use Swish, a mobile peer-to-peer payment system created by the country's largest banks, which boasted 71 percent nationwide adoption in 2017.
Similar systems are in development elsewhere (including the United States' login.gov, which acts as a single sign-on for government websites), but Sweden's BankID demonstrates that these solutions need support from both the public and private sectors in order to achieve significant acceptance. Nonetheless, next year will see growing pressure to streamline the identity verification process, particularly in the payments space.
Convenience is the key to success
Consumers, workers, and companies have made it abundantly clear: when it comes to payments, convenience tops their list of demands—and given the current industry trends, they’re in luck. In 2019, payment providers who adopt new innovations to improve the simplicity, accessibility, and speed of their solutions are poised to win out over their competitors.
Download Hyperwallet’s The 5 Trends Shaping Global Payments in 2019 and discover the other key opportunities for payments companies in the coming year.