5 trends driving the payments industry
The payments industry in India is expected to reach $700 billion in terms of the transaction value by 2022. More than 80% of the Indian urban population will move to digital payments as a part of their daily routine and 70% of the retail chains will adopt the same, according to the Capgemini Report on payment trends. Electronic fund transfers and mobile banking are expected to drive the growth of digital payment systems in India at a rapid pace.
Globally, the total transaction value of digital payments is likely to amount to US $3,265,209 million in 2018 and it is expected to show an annual growth rate of 13.5% resulting to an amount of US $411,354 million in 2022.
Here are some of the trends that are currently dominating the digital payments market globally.
1) Fintechs travel the extra mile to offer improved banking services
Over the years banks have provided end-to-end services to customers be it the savings account holders or current account holders. However, this position has been challenged by new entrants and fintechs in the market that provide easier end-to-end solutions to customers. Also, regulations in international markets such as Europe have helped further this cause by promoting open banking ecosystems through Revised Payment Service Directive (PSD2). In their efforts to secure their market share and ensure a stable position, banks have started adapting to the new ecosystem by joining forces with third-parties like neobanks to offer innovative customer services.
The evolution of fintechs and new technologies today help in dealing with the increased customer demand for real-time and personalized services. This is helping banks enhance their customer experience by adopting modern techniques through initiatives such as Application Program Interface (API), blockchain, instant payment and virtual wallet, the latest entrant into the market. This is used by fintechs today especially for customer acquisition with minimum resources by piggybacking with established banks.
2) Open APIs make for stakeholder collaborations
The rise of fintechs and ever increasing customer expectations have encouraged banks to adopt a new collective approach to both operations as well as services. One of the driving forces behind the increased adoption of APIs is Europe’s PSD2 – a directive that allows the customers of a bank (both business and consumers) to use third parties to manage their finances. Some of the key players in this space include Holvi, N26, Seed and many more while fintech platforms like Open also provide banking and payment APIs for easy integrations.
3) Upcoming rationalization in payment infrastructure
The increasing regulations in the international market are also making way for modernization in the field of payments thus giving the traditional intermediaries a run for their money. Payment schemes and intermediaries are looking for rationalization in technology and a push to provide niche schemes to its customers. Global initiatives like Genuine Progress Indicator(GPI) help reduce costs for cross-border transactions from time to time. GPI is an alternative method like GDP which is used to measure the economic growth of a country.
4) Use of new channels like contactless payment solutions
In this digital era, the use of alternative payment solutions have decreased the use of regular payment solutions like netbanking. The excessive use of smartphones has led to an increase in the use of contactless payment solutions. According to Juniper Research, the number of transactions using this medium went up by 174.1% to reach US $ 2.86 billion over the past two years.
5) Rise in Investment in authentication technology
In the past, a number of banks and corporates have incurred losses due to breach of security and data hacking. The WannaCry Ransomware attack in 2017 led to major losses in the international market which affected more than 150 countries and more than 200,000 computers.
In order to build on customer trust and to avoid a data breach and security concerns, firms continue to invest in security technology like biometrics, digital identity, geolocation, secure element and interoperable cryptographic keys to provide robust authentication.
Thus, the rise in fintechs and customer expectations have made digital payments the norm of the day. Well, we’re half way through 2018 and with the pace at which the trends are moving, it will be quite interesting to see what the market has to offer over the next 5 months. Watch this space for the more.