It’s the start of a new year and therefore a good time to assess the past and think about what’s ahead. Last year we saw the launch of the first new core payments infrastructure in the U.S. in more than 40 years (TCH RTP), the release of a New Payments Platform (NPP) in Australia and the implementation of Open Banking CMA9 in the UK which laid a strong foundation for 2019. Looking at the “crystal ball” to see what we can expect in 2019, I predict the following four areas will fundamentally change the future of payments.
Change the plumbing
Retail customer expectations have evolved thanks to the rise of real-time sharing of information – from Twitter, Instagram, Snapchat, etc. Retail consumers expect a seamless flow of information, instantaneously and 24x7x365. They also crave the same kind of service from their payment’s infrastructure. Consumers are expecting their payments to be instantaneous, ubiquitous and always-on, with the ability to add their own information (or Emoji’s as is the case with Venmo).
If the information-rich, real-time payments service is available to retail banking consumers, then the corporate banking consumers who actually pay for that infrastructure want speed combined with enhanced data flow to support their increasingly digital business. Corporate/Transaction Banking consumers are looking for faster, seamless, cross-border payments along with the ability to track the payments in real-time with transparency. This has led to the rise of new payments infrastructures across the globe, like the implementation of UK FPS, Singapore G3, Australia NPP and EU Instant SEPA. In 2019, North America will continue to play catch-up with Canada already launching a modernization initiative and the Federal Reserve seeking public comments in Oct 2018 on what could be “potential steps” that could be taken by the Fed “to support the vision of RTGS [real-time gross settlement] of faster payments.” Even international payments underwent a change by launch of SWIFT GPI. In 2019, I expect this change to start accelerating rapidly, with corporations jumping on this bandwagon. There will also be an increased focus on standardization using ISO20022 message formats, with EBA’s EURO 1 migrating to ISO 20022 in 2021 while the FEDWIRE & CHIPS are currently scheduled to move to ISO 20022 by 2022.
Mine the Data
In 2006, loyalty marketer Clive Humby declared data “the new oil” – a resource with the same transformative, wealth-creating power associated with fossil fuel. Payments data is commercially the “sweetest oil” because it helps close the loop on the information flow. That’s why the big tech giants including Google, Apple, Facebook and Amazon (GAFA) want to be a part of the payments landscape. Accurately closing the loop between advertising and what’s sold allows GAFA organizations to know what is working and what is not. For example, they want to know what the consumer actually bought and for how much, based on targeted ads. This allows GAFA to price and improve the marketing. Additionally, it allows them to build a “payments” profile for credit scoring, buying patterns, returns processing etc.
Corporate consumers are also looking for more information about their own payments and liquidity profiles. They want to get real-time insights combining the payments data with their own internal data sources like inventory, RFID tracking and invoices to help them perform cash forecasting, reconciliations and treasury functions much more efficiently. The new payment rails will be based on ISO20022, which will support the creation of enhanced data intensive services. This year we’ll see a close and real-time coupling between payments and analytics engines.
Lego bricks, not monoliths
There is a rise of Open Banking/PSD2-like regulation across the globe. Either through regulatory means or due to market pressures, I foresee that payments will no longer be the monopoly of the banks. The banks will be forced to open the ability to initiate and execute payments to Third Party Players. We have already seen the rise of Payment Service Providers (PSPs) like Adyen, Klarna, Alipay, Square, Paypal etc. which are not banks per-se. With PSD2 coming into effect in September 2019, we will see the world move away from a product-centric view of payments so entrenched within the current banking world to a more services-based view leveraging APIs and micro-services. We should see new and innovative services coming to the forefront by combining other services like Fx, Credit, Accounting etc. Already, the likes of BBVA, Nordea, Visa, and Mastercard have started providing premium (non-free) APIs to developers and TPPs to offer services beyond simple payments and card authorizations.
Enhanced security in this new faster and open world will continue to be a focus this year. We have seen several high-profile breaches in the recent past, including the Bank of Bangladesh hack using SWIFT payments, the Equifax breach of Social Security numbers, birth dates and home addresses for up to 143 million Americans, and the most recent 380,000 sets of payment details stolen from British Airways. The sophistication of these hacks combined with intricate knowledge of how the payment systems work leads us to believe very focused and organized minds are behind these hacks. Card no present (CNP) frauds are on the rise and will increase exponentially with real-time payments and open banking. LexisNexis’ annual True Cost of Fraud survey for 2018 found that fraud cost represents an average 2.10% of mid/large m-Commerce digital goods merchants’ annual revenues. However, all is not lost. Newer tools like AI/ML, geolocation, digital identity etc. can make tremendous impact. This year, we will see a rise in spend in tackling these issues by leveraging the advances in the technology.
All the areas I’ve outlined above are interdependent. The new payment rails have incorporated features to support enhanced data elements and overlay services in their design. Real-time payments and open banking both have significant impact on fraud management. So, while none of these trends are individually prophetic, together they will lay the ground for a completely new payments landscape in 2019.