Data powers the payments industry from behind the scenes, as innovative technologies, consumer services, and security protocols are created with the slew of available consumer data. Banks and fintechs alike can leverage the power of data to offer their consumers a seamless, convenient, and satisfying payment experience.
To talk more about the current and future of data usage in the payments industry, PaymentsJournal sat down with Barry Baird, Head of Payments Capability & Delivery at TD Bank.
The implications of Visa’s Plaid acquisition
Back in January 2020, Visa announced its $5.3 billion acquisition of Plaid, a fintech with a massive data transfer network that enables customers to securely share their bank account and financial data with thousands of services and apps. By doing so, individual consumers and businesses are able to easily make payments through external applications.
The data element of this acquisition could be a game-changer, noted Baird, telling PaymentsJournal that “this acquisition is giving Visa the opportunity to propel the evolution of the industry forward in the data game to make sure it is covering all future operational capabilities, from mobile wallets to other emerging payment vehicles.”
In other words, the acquisition will be a forcing function that opens the conversation surrounding open banking and data usage more broadly. This makes sense, as banks with a more thorough collection of data are better able to provide personalized, secure, and faster payments services to their customers.
Data exchange enables real-time payments, adding value to consumers
To have the greatest success in leveraging data, the implementation of secure data exchange—such as banks using data from merchants or small businesses to create a better payments experience for consumers— is necessary. The reason is simple: A broader range of data allows banks to better serve their consumers.
Data reliant initiatives and capabilities in the payments industry enable real-time payments, which meet consumer expectations of a quick, painless payment experience. Three data-driven examples of this are ISO 20022, 5G, and the Internet of Things (IoT). Here’s how they add value to consumers:
1. ISO 20022
Though a bit more dated than 5G and IoT, with the first edition being published in 2004, ISO 20022 is an example worth mentioning when it comes to using data exchange to enhance consumer experiences. ISO 20022 serves as a rich guide of the standards financial institutions use to exchange payments data. It is expected to have a major impact on electronic payments moving forward, bettering the end-user experience and keeping payments secure.
The fifth generation higher-speed wireless technology for digital cellular networks, 5G, was only recently deployed in the United States. Asia is considerably ahead of the United States as of now in terms of 5G capabilities, but there are plans to catch up.
In December 2019, T-Mobile announced the launch of America’s “first nationwide 5G network,” which covers over 200 million Americans. With the nationwide population hovering over 330 million, however, that leaves 40% of Americans out of the loop. An estimated 97% of the American population is expected to be on 5G in the next three years.
A powerful 5G network can increase the speed and convenience of digital payments, mobile banking, and in-store payment experiences for consumers. 5G’s higher speed also enables the use of higher-tech authentication features that increase transaction security. These authentication features heavily rely on user data, 5G’s faster uploading of this data will result in faster real-time verification.
3. The Internet of Things (IoT)
Mercator Advisory Group classifies IoT payments as machine-triggered payments based on real-time data analytics. Under this classification, the payment must be fully automated and rely on real-time data analysis. That data is “used predicatively to remove friction from the customer, which is really relevant to payments,” said Baird.
He then offered the example of a smart refrigerator: “Perhaps it can order groceries for me, because it sees that my milk has expired or knows the rate I consume certain products. It will go ahead and predict that need, and have the groceries on my doorstep when I get home from work.”
Customers aren’t personally involved in IoT payment transactions, but instead have granted permission for the algorithms running in the background to use real-time data to execute orders and transactions on their behalf.
There are generational differences in how consumers view data
There is a difference in how younger people, particularly Generation Z consumers, feel about how their data is being used. Older adults are more likely to feel that the rapidly expanding slew of personal data that banks and companies have access to is concerning or a violation of their privacy. Younger adults, however, tend to see it differently.
These digital natives are used to having their personal information collected, and, in fact, expect that companies already have access to their data. Young consumers are also more likely to view data storage as “the nature of the beast,” and be less concerned with the privacy implications as long as their data isn’t being used inappropriately.
The takeaway? Banks are leveraging data to improve the payments experience
Baird explained to PaymentsJournal that “these new rails of real-time payments, and corresponding ability to pass along more data with these payments, translates to a better user and consumer experience.” It’s not just consumers that benefit, though. Value is added to everyone involved in a transaction—not just the banks or consumers, but potentially even merchants.
For example, TD uses internal customer data and matches it up externally to improve new products and offerings. TD is already active in receiving real-time payments, and real-time sending capabilities are in development so that soon, both ends of the transaction are covered.
With a deep understanding of the significance data has, and how it will shape the future of payments, consumers can expect TD and other banks to keep expanding how they use data to propel the industry into the future.