A customer-centric approach makes businesses and institutions focus on studying customer behavior. This way, we observed how the value of money changed from generation to generation, and now it’s out of the core values list! Money and ways for payments become no more than convenience, so there’s no pronounced demand for classic bank services. People are ready to trust any financial institution with good customer service packages and data security. Money also never stays the same. Cryptocurrencies became adapted by society more widely due to faster transactions and additional value. Cryptocurrencies became a mass product because their creators applied mechanisms that were previously used only in stock market circles.
Active development of digital payment options disrupts the financial services industry year-by-year. The COVID-19 crisis drives even more changes related to contactless payments. PSD2 regulations create new perspectives in traditional banking and Fintechs co-existence. Here are the tendencies that set directions for digital payment innovations.
1. Customer experience as a prime competitive differentiator through digital payment providers
- About 46% of today’s consumers use digital channels exclusively for their personal banking. (Singularity University)
- This year, 90% of smartphone users will make a mobile payment. (TechCrunch)
- 60% of consumers want to use financial institutions that provide a single platform, such as social media or mobile banking apps(APU).
Today’s customers demand a fast and seamless payment process when they want to close a deal with any product or service company. Here’s where modern technology players enter the game with payment transaction abilities integrated into favorite shopping apps and communicational services to simplify transactions ‘’routine’’.
Customer intelligence receives a primary role in revenue growth and determines business profitability. Financial services providers aim to ensure real-time customer interactions, providing them with AI insights-driven lists of product recommendations, and the ability to pay through the app’s API integration. Banking institutions adapt smart chatbots to initiate contact, navigate users through a website with a one-click effort, and answer their typical questions. The last function significantly optimizes costs for a human workforce.
AI also won its place in credit scoring, helping providers to determine the client’s creditworthiness and optimal conditions for a personal plan.
Better service and user experience drive more and more customers to move from core banking relationships to compartmentalized FS providers that offer more convenience and value.
2. Packaged Financial Services in the Wake of Regulation
Apart from the increase of various kinds and methods of payments, different services gathered at “one place’’ are also expected. Payment Services Directive (PSD2) creates more opportunities for account information service providers to consolidate multiple financial services and options. One good example of such solutions is the Revolut banking alternative app that supports several options for payments, multi-currency international money transfers, and tools for personal wealth management. We can also see the growing popularity of the Curve Card app that enables users to manage all their banking accounts from one place by simply adding all the cards they possess to the Curve application. Users continue to receive benefits of their bank’s loyalty programs while enjoying the app’s bonuses in advance. Isn’t that called ‘an enhanced customer experience’?
3. Cashless economy
The cashless society trend has been enhanced by the Coronavirus crisis. Digital payments are now being seen as a commodity. In comparison with the 2008 crisis, Fintechs are now more free-standing and better prepared to meet the demand for cashless transactions. The COVID-19 crisis even changed the perspective of “golden billion societies’’, now older people, low-income, and less educated society members are adapting to e-banking. Now, world central banks are working on their own electronic currencies. The US’s draft of Coronavirus Aid, Relief, and Economic Security Act considers the digital dollar as a means of overcoming a cash-flow crisis. Swiss, Irish, and European Central banks established their own similar projects on e-currency development. The 20s still aren’t promising to become the decade we completely give up on cash. However, a stronger position by Fintechs, retailers who offer their own payment and lending infrastructures, and technologically-modernized banks providing payment activities under isolation circumstances, are making a significant shift in the direction of a visible cashless future.
4. Mobile Wallets increased popularity
A mobile wallet is an app that installs on smartphones (sometimes it belongs to pre-built features) and stores payment, debit, and credit card data with all rewards and coupons on it with the ability to process transactions digitally.
The mobile wallet app uses a technology called near-field communication (NFC) to enable payments between customers and merchants. NFC uses radio frequencies and the personal identification format created for the user to communicate between the user device and the POS terminal.
It is used interchangeably with digital wallets but possesses broader functions. For example, a PayPal account is traditionally a digital wallet, but when it is used with mobile payment services and mobile devices, it becomes a mobile wallet.
There is a trend for using the mobile wallet for in-store shopping.
5. Acceleration of B2B and B2C Embedded Payments
All industries work on the improvement of customer experience. It leads to a perception of payments not as a separate financial service but as an integrated part of the buying experience. Businesses see embedded payments as a key tool to create a seamless interaction during the customer journey, starting from the pre-sale stage and following with up-sale operations.
In the competitive market, merchants set a new level of requirements for payment technologies. Payment process simplification is no longer enough. They want solutions that cover all stages of customer interaction and need it to be embedded into a system they use to manage their businesses. Additionally, the use of this payment solution should not be limited to customer interactions, but also cover payments for B2B operations like marketing and supply chain.
6. Institutional use of Blockchain
The Bank of New York Mellon, MUFG, and Credit Agricole are now members of the Marco Polo blockchain trade finance network. Companies’ authorities recognize blockchain technology value and see it as a way to make trade finance processes more transparent, efficient, and secure. The ability to integrate with the ERP system creates significant value for the Marco Polo platform. Another blockchain-based platform, Digital Vault, is expecting to store 40% of $20 billion in assets of one of the world’s largest banking services organizations, according to its reports. The Jersey Financial Services Commission has recently approved in regulations a joint venture for cryptocurrency custody and depositary services, Konainu. With a goal to cut transaction costs for European businesses, SWIFT launched an initiative to explore the use of blockchain in trade finance and is now supported by major European banks (such as Deutsche Bank and UniCredit), which are partnering on a new blockchain-based trade finance platform to explore open account trade transactions.
7. Strict regulations for security and compliance
Digital payment solutions become more integrated into corporate software ecosystems. This fact triggers users and governments to set even more stringent requirements for data and payment processing security, KYC and AML policies, and privacy protection. For digital payment providers achieving compliance from the very beginning is critical. Otherwise, the size of penalties and loss of trust from the investors makes it nearly impossible for Fintechs to get back on track. The January 2020 Finextra report shows that penalties for anti-money laundering, know your customer, sanctions, and other compliance violations increased by 160% in the last fifteen months, reaching $36 billion. Twelve of top-ranked world banks received fines for such violations. Marc Murphy, CEO, Fenergo, says: “The rise in financial crime and increasing regulation is creating a tough battleground for financial institutions trying to stay on top of a multitude of regulatory rules across different jurisdictions. We are still seeing the ramifications from the financial crisis.” The raising and expanding trend in digital payment cybersecurity is a Biometric Authentication system with fingerprint scanning and facial recognition technologies applicable for verification. Usage of unique individual characteristics for identity verification enhance customer trust and general level of security.
Both individuals and modern businesses tend to perceive digital payments more as an integrated part of the buying process rather than a stand-alone service. PSD2 regulations create a friendly environment for bundled financial services while supporting traditional banks in providing better customer service. Coronavirus crisis circumstances speed up the adoption of a cashless society concept by less interested parties and create space for contactless payment innovation. The integration of payment systems with other software ecosystems triggers pressure from governmental regulations and compliance policies.
As a technical partner, S-PRO knows the FS industry from the inside. We help Fintech companies to shape a new economy with disruptive solutions in alternative banking, trading, P2P exchanges, and personal wealth management. We partner with European Blockchain Cluster and Financial and Security Advisory to provide a full spectrum of development and consultancy services and offer better care from a business perspective.
Explore more about our fintech development services and industry expertise here.
Author-Bio: Igor Izraylevych, Co-founder and CEO of S-PRO, Entrepreneur, Advisor & Expert in Mobility & IT Strategy. S-PRO is an innovative software development and consulting partner. We help technology-based startups companies to be flexible, adaptive and mobile in the fast-changing world. We carry businesses from concept to market-ready brand.