In an e-book published last week by PYMNTS.com, “Fresh” is how I described payments in 2018. I can’t think of a time when we’ve seen as many innovations emerge in this industry than the past 11 months.
The market clearly drives many of these changes and corresponding innovations as evidenced by the double-digit growth in online payments. This year’s holiday spend serves as an example. According to Adobe Analytics, Cyber Monday hit $7.9 billion, making it the largest online shopping day of all time in the U.S., with sales from smart phones exceeding $2 billion, the most in history. What does that say about customer preference? If I can sit in my house and get the same, if not better, deal, pay via my digital wallet on my phone, and have this item delivered, I’m going to do it.
This dynamic shift in experiential expectations means banks need to innovate to keep pace. Up-and-coming products need to address the user experience and deliver on the instant gratification to which we’ve become accustomed. For the first time, payments are transforming into a make-or-break selling point in attracting new accounts and maintaining our current portfolios.
Take faster payments. Real-time or near-real-time solutions create opportunities to address business-to-business pain points. There are a multitude of use cases leveraging existing rails and using emerging ones. Established systems offer Same-Day ACH, proprietary push-payments powered by service providers, and expedited products running on card infrastructure, among others. In addition, for the first time in 40 years, we have a new payments settlement system in The Clearing House’s Real-Time Payments Network, and the Federal Reserve has issued a request for comment to explore operating a real-time gross settlement service. What does all this mean? Faster is here to stay and work to accelerate payments will continue in 2019 and beyond.
In addition to speed, 2018 strengthened solutions that improve the end-user experience. Ten years ago, would you have imagined payments would become a social mechanism? Not likely, but just look at Venmo’s adoption rates. In the third quarter of 2018, the provider reported a 78 percent increase in year-over-year payment volume; the company historically has attributed its success to its social component, referring to it as a “secret sauce.” Venmo faces steep competition from Square’s Cash, and Zelle, which is a bank-centric payment end-user interface. Next year’s numbers will tell if that social component will be enough to continue to grow volume.
The desire for global connectedness spreads into other payment functions as well. This year’s Money 2020, for example, featured a track on social responsibility through payments. Solutions like the FIS Charitable Giving Solution powered by Good Coin, an ICBA Bancard partner, produce frictionless ways to leverage banking infrastructure to support philanthropic work. As an integrated giving solution, Good Coin enables individuals or businesses to give back to the charities they care about directly through their online banking experience. This concept of social responsibility in payments is a budding trend that elevated in importance in 2018 and is one to watch in 2019.
With all of this innovation comes the potential for novel sources of fraud, so we need to be looking for risk mitigation services to safeguard our offerings. Thus, risk management becomes a vehicle for complementary innovation. Consider the convergence of artificial intelligence and traditional fraud tools, which enhance our ability to efficiently detect anomalies and signal potential issues. Another advancement, 3D Secure 2.0, delivers substantially increased protections for card-not-present transactions, and has contributed to a significant reduction in fraud losses. And as innovative payment offerings come online, more will be done to shield payments against rising threats. Expect expansive developments in this area next year.
2019: A Fresh Perspective
No matter how you look at it, 2018 brought forth significant developments in payments. This year saw exponential growth in novel payment concepts that remove friction from the process. From contactless cards to wearables to P2P solutions and beyond, technological innovation is now a necessity.
This rate of change isn’t slowing, and it puts the pressure on financial institutions to have a strategy in place to respond to evolving dynamics, particularly around customer expectations and needs. Banks should enter 2019 with an open mind around emerging technologies and a fresh perspective on their mission in this shifting landscape.
By Tina Giorgio, ICBA Bancard President & CEO