Payments Industry: A disruption of landscape
Introduction
Gone are the days when people stood in the long ATM queues and bank queues to withdraw cash. Most shops, restaurants and other stores now accept digital payments. Various payment wallets offer these services extreme ease of use and convenience. Most banks now offer their own payments application. Payments apps provide services like a person to person cash transfer, prepaid mobile recharge, utility bill payments, and so on. The digitization of money has enabled a cashless economy. The outbreak of coronavirus has transitioned us to a whole new, one inclined towards a digital payments ecosystem. The agility of change will continue to rise in the years to come and the scale of disruption is likely to grow exponentially as customer behavior shifts due to COVID-19. The need and appetite of both customers and merchants for new alternatives to traditional payment options is top of mind and FinTechs, big tech companies, and other non-conventional entrants are driving the disruption in the market by offering customers lower prices and better user experiences. The continued displacement of cheques and cash over the coming years, facilitated by customers’ adoption of digital shopping and their need to avoid contact with physical objects and infrastructure, will lead to further disruptions and thus opportunities in the payments landscape.
The Disruption
The rates at which global payments revenues have been growing exceeding all expectations. Asia and China in particular are propelling the global revenue numbers. But even all the regions where the revenues are declining are still contributing to the surge which indicates that there is huge potential in payments industry and on the verge to become a global phenomenon.
There has been some significant disruptions and transformations in the payments landscape in recent years. Advancements in technology have led to steep changes in innovation, with payments becoming easier, faster and more convenient on both a local and global scale.
Manufacturers to big-technology firms, all such non-traditional players are coming into the market and are changing the whole payments ecosystem like never before by bringing in new applications and innovation with payments embedded in the real world economy.
On payment systems, transactional data rather than the transactions themselves are finding the greatest value exchange taking place In this new universe of APIs and digital banking. Such vast and important data will help in unlocking a great variety of opportunities, from sophisticated financial planning for consumers to combatting fraud with corporate clients benefitting too. Those companies or organizations will have a significant competitive advantage who will leverage the ability to use this data to the best effect. This implies that Artificial Intelligence (AI) and data analytics tools will become the most important technologies in the payments industry and skills in these areas will be of utmost importance to stay in relevance.
Distributed ledger technologies have the prospective to be the foremost means through which we deliver the payments system of the upcoming future. API Tools and Cloud computing will link blockchains to create high speed, cross-border networks through which payments flow unhampered, just as information currently flows around the worldwide web thus creating an ‘internet of value’. An increasingly huge number of payments operated by private sector organizations from the banking and nonbanking sectors will be made via these blockchains. Such blockchain networks has the potential to achieve and deliver more than transactional services. For example, using distributed ledger technologies to link payments to the supply chain will transform the supply chain management industry and tracking. As a key support to the global payments systems, the most visible consequence of the inception of distributed ledger technologies will be that real-time payments (RTP) become a standard commodity. As blockchains break down the boundaries between domestic payment settlement systems, the payments will be instantaneous, even when they are cross-border. This will start to have great fundamental impacts: for example, making large volume transfers of micro-payments viable to all scales of people; but the key challenge would remain with the banks who will have to manage their liquidity in real-time.
The way forward
The payments industry is experiencing a huge wave of technological advancements driven by customer desire for payment solutions & on-demand banking. As a result, the new unconventional market players are challenging the role of large long-held incumbents. Some clearly visible among these are new, non-bank competitors out of which a few are already established players in the market. Given that the traditional banks are the primary servers of the payments market, these new, innovative payments providers are causing disruption to the payments industry and driving rapid changes. This situation could quickly move to a tipping point if the traditional players do not act swiftly and position themselves decisively by offering value-added services and products to both corporate and individual customers. FinTechs, merchants, Technology giants, and social media giants have all created their own digital payment offerings. Payments infrastructure of banks will need a significant upgrade in the next three to five years as for the digital strategy the back-office functions would be an extremely essential part. Though it is unlikely that the large players will be entirely replaced by any one of these companies in the short term, they have undoubtedly put a lot of pressure on the large incumbents to transform and innovate their business models to meet consumer expectations of convenience, flexibility and speed. Payments leaders must make strong decisions today to win tomorrow
