The financial industry has seen substantial evolution and technological advancements in recent years—and the payment sector is at the forefront of these changes. The global marketplace of payment providers is getting more crowded by the day, and not only are we seeing innovative exploration coming from existing players, but we’re also experiencing an assortment of creative solutions from new players across the landscape. What tools and features will 2019 offer consumers as they continue to hunt for more convenient and faster ways to purchase goods and services? There are a number of trends on the horizon; below are a few notable considerations.
More Payment Choices for Consumers
Payment options are growing in all directions to match ever-expanding consumer needs and expectations. Mobile wallets have been available for a number of years and their full adoption has been small but steady for younger generations of consumers. In fact, a recent study from Experian found that approximately 10 percent of millennial consumers use a digital wallet for most of their daily purchases, but only 25 percent of total consumers have used an app to make a payment (CNBC). Currently, the top mobile wallets are Apple Pay with a 16.6 percent market share, Google Wallet with a 16 percent share, Android Pay with an 11.3 percent share and Samsung Pay with an 8.2 percent share (Payments Journal). To make these mobile wallets truly valuable in 2019 and increase their usage by a broader group of consumers, these companies will focus on updating their platforms to provide (1) a more streamlined experience (especially the onboarding process and appropriate in-app messaging), (2) better protection of consumers’ data and (3) more valuable “in ecosystem” rewards programs or branded value propositions.
Varied Payment Methods
Currently, cash and plastic still win the race as preferred payment methods. However, prepaid card usage rose slightly more than the use of debit cards in 2017 – 3.9% v. 3.8% (The Nilson Report). Consumers also appear to be searching for better integrated payment experiences, such as card solutions that also allow payment via an app which helps straddle the physical-digital divide. For instance, Venmo initially began as a digital transaction tool but has recently introduced a physical debit card that connects to users’ accounts for a physical transaction. In the coming years, consumers will continue using cards, but there will be an expectation that this will go beyond the “plastic to swipe/insert” mentality. Whether it’s deeper integration with other accounts or benefits like interest-earning prepaid card accounts, card providers will need to evolve beyond typical debit/credit utility and capabilities.
In terms of the infamous “cash topic,” some speculate society is working towards a cashless future, evidenced by the statistic that only 12 percent of consumers use cash as a preferred payment method (TSYS). However, based on underlying consumer behavior it doesn’t appear that cash will be going away anytime soon. Clearly, in certain customer demographics, cash continues to play a foundational role in consumer budgeting and household money management. As recent trends have shown, key customer segments are utilizing prepaid cards as a way to live cashless and without a traditional banking product as part of everyday life. In the coming years, more financial institutions likely will offer payment solutions that mirror the underlying benefits of using cash but without the structure of traditional checking and savings accounts.
Stronger Security and Privacy in Financial Institutions
Data security and privacy is a major consumer topic that has made recent headlines in the news. With cyber attacks in the financial services sector up over 70 percent in 2017, this should come at no surprise (HTF Market Intelligence). For institutions to remain protected and trusted, they must keep up with ever-changing compliance standards, technology advancements and ongoing security attacks. For example, recent legislation in the U.S. requires institutions to notify consumers of data breaches. Clearly, this type of transparency places additional pressures on companies to take every measure possible to protect customer data.
Financial institutions will continue to evaluate an assortment of technology solutions, such as secure cloud-based storage of customer data, enhanced encryption methods that protect transactions and artificial intelligence that works in real-time to detect fraud to strengthen their overall security infrastructure. As they analyze the systems they have in place, companies will also focus on educating consumers about ways to better protect themselves and be informed on practical cybersecurity best practices.
Machine Learning and Artificial Intelligence: More Than Buzz Words
The financial industry is in agreement that artificial intelligence (AI) and machine learning are no longer futuristic visions. They are a present-day reality and are being utilized more than most consumers appreciate. Machine learning is a type of AI that uses data science to collect insights and make predictions. It exists in consumers’ day-to-day lives without them even realizing it. For example, consider the security alerts that arrive on your phone from your card company when an unfamiliar purchase is made. Through machine-learning algorithms, the company gathers statistical and historical data about the typical purchases a customer makes, from which they are able to identify any “suspicious” activity that is outside of the statistical norm. These anomalies are then flagged using AI capabilities and an alert is automatically sent to the cardholder in real-time.
Machine learning goes beyond fraud detection and is being used by financial institutions to address an assortment of internal challenges including reducing operational costs and increasing employee productivity by removing duplicative layers of human interaction. AI and machine learning will create more seamless and efficient experiences for customers that will, in turn, reduce churn rates and increase overall satisfaction. With approximately 46 percent of large fintechs and 30 percent of large financial institutions identifying AI as the most relevant technology to invest in over the next year, consumers can expect more interactions with their financial providers to be facilitated by machine learning capabilities (N-IX).
Adapting with Technology
Current payment and financial trends will center around expanded payment options, a stronger focus on data and security infrastructure and the adoption of machine learning and AI. The financial industry has an opportunity to be at the forefront of these technological advancements and help serve consumers at all income levels. As we approach a new decade that will undoubtedly be filled with greater innovation and creativity, payment providers will continue to differentiate themselves based on their ability to adapt, evolve and provide the best possible end-to-end customer experience possible.