2015 was a transformative year that forced the incumbent financial services industry to react to several developments in payments, including disruptive innovations from non-bank financial technology (FinTech) competitors, a frenzy of mobile wallet announcements from tech titans and continuing excitement over the blockchain as a threat to traditional finance models. So what’s next in payments? What will 2016 bring?
Mobile wallet wars. 2015 was the year of the Apple Pay “me too” mobile product launches from Android Pay and Samsung Pay. These were followed by surprise announcements of Walmart Pay, Chase Pay and LG Pay, which will debut in the U.S. this year.
Expect more of that. Greater merchant adoption of point-of-sale systems that can accept mobile payments, linked loyalty driven programs, combined with natural extensions into in-app purchases and peer-to-peer transactions, will better position mobile payments for takeoff. Given the nascent stage of industry development, expect to hear even more surprise announcements from retailers, tech companies and banks offering their own mobile wallet systems.
The unlocking and unlinking of the blockchain. 2015 was a game changer for blockchain, the technology that underpins bitcoin, the cryptocurrency often associated with fluctuating valuations and illicit activities. Attitudes at financial institutions transformed from caution to embracing a technology recognized for the potential to bring next-generation business applications and enable new business models. Realizing those goals, however, will be another challenge, given that most organizations don’t fully understand the technology.
In 2016, the focus will shift from hype to investigation as more emphasis and rigor is placed on exploring proof-of-concepts and development of actual working solutions. While some companies will see their initiatives eventually materialize, many others may not ever realize the promise for commercialization.
Push for faster payments and ISO 20022. The rise of instant communication and search is fueling consumer expectations of high-speed access in all facets of their lives, including the ability to make a payment quickly. In response, countries around the globe have launched major initiatives to modernize their national payments infrastructure to make payments faster – aka real-time payments, immediate payments and instant payments. In the U.S., with over 12,000 financial institutions, the challenge to march towards a ubiquitous faster payments system is a daunting one, but we’re getting a step closer.
Today, there are three major faster payment initiatives in the U.S. NACHA will be rolling out its same day ACH with the first implementation date set for September. Meanwhile The Clearing House is working together with VocaLink and FIS to roll out a real-time system, just as the Federal Reserve System continues to shepherd the industry in understanding the needs and challenges of all stakeholders moving towards the path of immediate payments and the new digital economy.
As more global actors design and update real-time payment infrastructures, we can anticipate more frenzied activity around ISO 20022 standards as a common building block for these projects. The harmonized set of ISO 20022 standards for real-time payments drafted from the collaborative effort of over 50 worldwide experts last year is a promising step towards global coherence and interoperability.
Fortifying security. 2015 brought a staggering number of high profile data breaches and other cyberattacks; 2016 is not likely to be any different. Cybercriminals will find even more creative and diverse means of gaining financial data, from traditional social engineering methods to attacks through mobile apps and commandeering Internet of Things devices. Recognizing the evolving threats, spending on cybersecurity budgets will soar as financial institutions work to deploy added layers of security to protect against vulnerabilities at different endpoints.
For example, 2016 will be the year EMV technology is rolled out more broadly, which provides security enhancements to card payments. Meanwhile, we saw more than a few attempts at biometric security in 2015, including the selfie, use of finger prints to even the iris and vein prints from the palm as a means to shield credentials and other sensitive financial data. Look to see many of these verification and authentication processes rolled out in 2016.
Digital platform design and data optimization. In an era of interconnected devices, technology is upending processes across all industries, including financial services. In 2016, forward-thinking organizations will continue to take steps to reengineer their bank architecture to transform their business while establishing consistent digital channels across the Internet, mobile and tablet. Open source application program interfaces (APIs) that allow plug and play will feature more heavily as part of bank offerings. Although still in early phase, some financial institutions will deliver contextual payments services personalized to the customer. These innovative organizations will create richer and dynamic product experiences with meaningful information to the consumer based on data insights and analytics mined from their digital footprint.
Ms. Quibria is managing director and founder of Boston-based Q insights, a payments research and consulting company. She can be reached at [email protected].
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