Payments, disrupted

Of all the changes in the Banking Industry in the past few years, the transformation in the Payments space has unarguably been the most dramatic. With the increased influence of technology and corresponding ability to break the shackles of traditional payment mechanisms, the industry has begun to make the payment process easier and more intuitive for the end user. This extreme focus on ease of use has begun to disrupt the payments industry, with technology players like Google and Square jumping into the fray. The rapid proliferation of cellular phones with all time internet access has proved to be the catalyst for this change and has created a whole new market that is now being tapped.

We now routinely hear terms like Mobile Banking, P2P payments, mobile wallets and more recently, Apple Pay. The new payment methods promise to be more convenient, safe and may also ‘reward’ their users in some cases, something that was unheard of previously. It is not uncommon to hear of cashbacks for using a mobile wallet or an upfront discount for using a mobile banking app to pay bills. These new offerings also offer customization and other value adds in terms of payment flexibility and loyalty benefits, which are hard to match by traditional payment options.

While the newer payment mechanisms improve the entire customer experience, they also bring with them a whole lot of advantages for the providers. These new technologies help streamline operations and reduce costs on the bank/provider side of things. It has been estimated that compared to a traditional bank based approach for depositing checks, which may cost up to $3, mobile check deposits cost just about 4 cents. This huge difference is further amplified by the sheer volume of transactions that take place at any point of time, and impacts the bottom line substantially.

What is truly disruptive about the newer payment methods is that many are being offered by organizations that are not banks, thereby cutting banks out of the picture. More radical methods like P2P payments require just a phone number or an email address and no participating bank. This segment has been dominated by players such as Square, Google Wallet and PayPal, companies which have no banking connections whatsoever. Even the Mobile Wallet space is dominated by some technology companies.

This has led to unrest in the banking institutions and they are trying hard to be competitive and coming up with innovative payment facilities. While some have tied up with innovative entrants to enhance the payment services, others have rolled out services of their own to combat the emerging trend. The only advantage that banks have is that they can leverage their existing customer bases and can drive adoption quicker, if the product is right.

That being said, the future seems to belong to the new generation of contactless payments and biometrics. Apple Pay was launched with much fanfare and has been widely accepted. Using watches or mobile phones to make payments cashless is very attractive indeed. The competition in this space is heating up with other companies joining the fray.

Biometric driven systems will also become more popular, given the inherent security that they provide. It would also make it easier for the consumer since they would not be required to carry devices in order to make payments, the ultimate convenience.

The future of payments will be dictated by new technologies which make the entire process less troublesome and innocuous. The process is still far from being completely inconspicuous and as technology evolves, we will see it becomes even more ‘natural’ with the biometric systems possibly leading the way.

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