Technology is reimagining what customers can expect from payments: bringing services to those for whom they were previously out of reach; supporting the growth of innovation, efficiency and personalisation; and opening the market up to new entrants, from start-ups to technology giants.
As a result, the customer experience has improved significantly in a fairly short space of time, which itself is leading to greater and greater demand for progress. In this article, we explore how innovation is already addressing key customer needs, along with how products and services might evolve to serve the payment users of tomorrow.
According to the UN, there are 1.7 billion people1 in the world who do not have access to traditional banking services. Historically, being unbanked meant limited access to financial services, excluding people from payment methods such as credit and debit cards and restricting their ability to obtain credit, hindering entrepreneurialism. These barriers, however, are gradually disappearing, thanks to the ability of technology and smart phone ownership to subvert the traditional payments model.
When it comes to servicing the unbanked, the two countries with the largest unbanked populations, China and India, are leading the way. Fintech companies such as Ant Financial and Kyash have already developed innovative solutions to bring digital and mobile payments to their home markets, in a way which services the precise needs of their customers. For example, in India, a country where cash is still the most common payment method, Kyash allows customers to purchase goods online and then pay for them in cash at an authorised payment point2. In China, the lack of trust between consumers and online vendors necessitated the need for a payment intermediary. In stepped Alipay, an offshoot of the Alibaba e-commerce group, which holds the money in an escrow-like state before releasing it once the goods have been delivered to the customer.
Technology will continue to open up payments to the unbanked, allowing more customers to access the services they need – without ever opening a bank account or setting foot in a branch.
The Big Spender
As more customers gain access to payments services, the more value they will want from these services. No longer content with passive facilitators, they will seek out active partners, able to support them with financial management, budgeting and personalised reward.
In Europe, the revised Payment Services Directive (PDS2) and introduction of Open Banking has opened up the market, removing barriers to entry for smaller start-ups, and, most excitingly, democratising customer data. This has paved the way for a raft of new market entrants, such as MoneyHub and Yolt, who are offering customers consolidated views of their accounts, helping them to better understand their spending and budget their money. They’re even dragging incumbents, like HSBC, Lloyds and Nationwide, with them, and in some cases forming partnerships – resulting in better experiences for customers. What’s more, we’ve only scratched the surface of what Open Banking can potentially offer.
Advanced analytics also offers the chance for greater personalisation – something else customers are keen to receive. Perks used to be generic, but tomorrow’s customers want their rewards specifically tailored to the way they spend their money. This is well on its way, as Bank of America recently announced that it has started allowing customers to choose the category (e.g. gas, shopping, dining) on which they earn cash back, based on their spending habits3.
Expect payment products and services to continue to capitalise on the possibilities presented by Open Banking, interconnectivity and big data. After all, the payment user of tomorrow is an individual – and they want to be treated as one.
The popularity of foreign travel has grown significantly since Thomas Cook launched the package holiday in the 1950s, yet, until recently, the act of sending or spending overseas had been standing still – unnecessarily complicated and expensive.
Enter a group of nimble new innovators, who are taking on the big banks and proving to customers that payment service should not be adversely impacted by geographical boundaries. Revolut currently offers its customers the genuine exchange rate, with no fees, on 130 currencies4, whilst one of the key features of the recently announced Apple Credit Card was that customers can use it overseas without incurring foreign transaction fees.
Overseas payments will become even more frictionless for the customer of tomorrow, and presents an opportunity for providers to truly differentiate themselves. After all, as customers see international boundaries dissolving before their eyes in areas such as travel, communications and entertainment, it is perfectly natural that this expectation of transnational service will migrate to the world of payments.
Given that the recent developments in payments have resulted from technology, it is logical that both the world’s biggest technology companies – including Amazon, Google, Facebook and Apple – should want a piece of the pie and that customers should be willing to give it to them.
For evidence of this, look no further than Libra5, the recently-announced blockchain-based cryptocurrency spearheaded by Facebook. When functional, Libra will unite several payments innovations under one service, including access for the unbanked, global reach, and robust security. To achieve its objectives, however, it will need to overcome a number of regulatory hurdles, including intense scrutiny from regulators around the world, who are concerned by both Facebook’s dominance and its past treatment of data. As recently as July 2019, the US Congress asked Facebook to pause implementation of Libra to give regulators and legal bodies time to assess its implications6. This highlights an interesting dynamic: regulators must adapt to ensure new innovations are systemically safe and offer real benefits to customers, whilst technology firms must balance innovation with the need to operate inside regulatory frameworks that are only just beginning to catch up.
There are several reasons why big tech firms are strategically placed to pounce on payments. Firstly, they already hold significant amounts of user data, making the leap to financial data not as intimidating as it might otherwise seem (although recent scandals involving data could temper the trust consumers place in these firms). Secondly, they already form part of customers’ daily routines, for everything from shopping through to socialising. Why not managing money as well? Thirdly, they can leverage their existing products and services, such as Facebook’s Messenger and Apple’s iPhone, to offer something that’s genuinely appealing to customers.
For a blueprint of what the future might have in store, look to China, a country that is far outpacing Europe and North America when it comes to the enmeshing of payments and technology companies. Whilst Apple has launched a physical credit card, mobile wallets are already ubiquitous across China, thanks to the endeavours of some of its largest technology companies, including Alibaba Group and Tencent. These examples demonstrate the appeal of an integrated technology service, combining payments with social media (WeChat), and the willingness of consumers to trust big tech with their payments.
Innovation rarely comes without risk, and is often accompanied by an increased focus on security. As the payments landscape diversifies, customers will want continued assurance that their money is safe. Fortunately, biometric technology, which is rapidly replacing traditional, easier to forge, security measures, such as pin, signature and password, as the identity verification method of choice, offers some of that assurance.
This trend is enveloping start-ups and incumbents alike. Two of the big payment processors, Visa and Mastercard, are currently in an arms race to launch bank cards containing fingerprint scanners7, whilst voice, retina, facial and finger vein are becoming ever more prevalent. Although not flawless – cases of imitation have been reported – biometric technologies offer customers a stronger bulwark against increasingly sophisticated cybersecurity threats. (For more insight on biometric developments in banking, see our previous perspective.)
As mobile technology subsumes cash and card, there is also a risk that money loses its tangibility, causing customers to inadvertently spend more as a result. A number of psychological studies have shown that people spend more when transactions do not involve physical cash – a proclivity vendors are already starting to capitalise on. Festivals and theme parks are increasingly using RFID (radio-frequency identification) wristbands as a means of offering customers easy payment; wristbands that have also been shown to increase visitor spend by as much as 30%8. The payment user of tomorrow must therefore remain alert: as the act of paying becomes so seamless it barely registers, customers must ensure they remain cognisant of their spending and do not spend beyond their means.
Technology is already reshaping customer expectations in payments. Yet, innovation begets the desire for more innovation. Improved services will in turn increase customer demand for more innovation, forcing providers to continue innovating – perpetuating what has been referred to as the virtuous cycle of payments innovation9.
Although great strides have been made, there are challenges ahead for payment providers, who must continue to battle hard to win over customers. Many have global aspirations, and yet customer payment preferences are often regional, meaning products and operating models need to be agile enough to adapt to local conditions, including regulation. There’s also the challenge of differentiation – and how providers can stand out in an increasingly crowded field that already includes some of the biggest brands in the world, with deep resources at their disposal.
Finally, and perhaps most importantly, they must also figure out how to continue innovating, in order to keep up with evolving customer demands.
Moorhouse has a proven track record of turning customer strategy into action for major private and public sector organisations. Whether it’s identifying emerging customer trends, optimising the customer journey, or developing business models that meet customer needs – we help our clients understand and serve the Customer of Tomorrow.
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