2018 was another significant year for the payments industry, with technological innovation, shifts in consumer expectation, and new regulation all contributing to its evolution.
The pace of change over the next 12 months looks set to be no different; here is my list of developments to pay particular attention to in 2018.
Commitment to contactless in the US
It is well documented that the US has laboured behind other countries, particularly the UK, when it comes to adoption of EMV and contactless PoS technology. However, there is a strong indication that this will not be the case for much longer. According to the 300 US and Canadian merchants we spoke to for our Lost in Transaction: The future of payments for SMBs research back in September, there is a strong desire to revolutionise the in-store checkout. Our research predicts that adoption of contactless card acceptance will rise 74% within two years, to 60% of all merchants. And acceptance of mobile wallets will grow even further, rising from 29% to 62% in the same period.
Normalising cryptocurrencies: the role of stablecoins
Although the values of cryptocurrencies such as Bitcoin have fallen over the past 12 months, hype surrounding cryptocurrencies and their role as a factor in the payments ecosystem beyond being a store of wealth will continue to be a key topic of conversation in 2019. However, one of the key hurdles to overcome in order for cryptocurrencies to progress is managing their current levels of volatility.
Over the past 18 months, stablecoins have emerged as a potential solution. Backed by assets such as gold, traditional currency, or even a combination of several different assets for diversification, they arguably offer the best of both worlds. They have the benefits of the blockchain ecosystem but, because they’re backed by traditional assets, they’re less prone to wild fluctuations.
Security is now everything
The increased prioritisation of security for businesses when selecting an online payment services provider (PSP) is a trend that we have observed grow for a number of years, but we have reached the tipping point by which the ability to maintain a secure payments system is now the most significant factor when partnering with a PSP.
In our latest Lost in Transaction report, 59% of SMBs surveyed in the US, Canada, UK, Germany, and Austria named security as a critical differentiator when selecting a PSP, ahead of reliability (49%) and cost (47%). As online businesses continue to commit to offering not only more payment options, but a smoother user experience at the checkout, the need to do this in a secure manner that balances the competing priorities of security and convenience will become ever more critical.
Increase in automation
The drive to automation is evident almost everywhere, but simple unrestricted automation will result in users losing control over any process. For this reason, a compromise needs to be found by which the benefits of automation are realised, but without the operator relinquishing all of its power to oversee the process through checks and balances.
One solution that will become more prevalent in 2019 is a blockchain ‘smart contract’; resulting in the rapid data processing benefits of automation but with in-built checks and balances to spot anomalies and maintain control over the process.
Blockchain driving digital identity
Debates surrounding the use cases for blockchain will continue to be prevalent as the technology continues to evolve, but one area we might see a significant increase in adoption in 2019 is digital identity, a critical area for payments. Data breaches and privacy and fraud concerns, as well as online verification that provides an outdated user experience, are opening the door for a blockchain based alternative.
As consumers become increasingly familiar with in-app payments, we should expect to see this form of payment expand beyond single service apps such Uber. The creation of localised curated marketplaces, formed around a location such as a university campus, airport, or hotel, will enable users to purchase a variety of products from local vendors and have them delivered directly to them; a vastly more convenient upgrade on the current local shopping experience.
A clearer view for Open Banking and PSD2 implementation, and further roll out of APIs globally, including India and China
As discussed by Paysafe’s CEO of Merchant Acquiring, Europe Andrea Dunlop in a whitepaper earlier this year, the lack of a clear vision for PSD2 has hindered the expansion of Open Banking in the UK in 2018.
However, the deadline for banks’ implementation of the Regulatory Technical Standards of Strong Customer Authentication (SCA) is September 14 2019, and testing facilities for these new APIs must delivered to third parties by March 2019. There is a belief in the industry that these technical standards will help to standardise banks’ implementation of PSD2, and consequentially enable third party providers to have a much clearer vision for the products and services they can deliver in the Open Banking landscape.
In line with the SCA standards, EMVCo is also rolling out 3-D Secure 2.0 beginning with Europe in April, which will have a significant impact in online payment security.
But whilst the introduction of PSD2 in Europe has grabbed many of the Open Banking headlines, the desire to increase competition in financial services is global. Expect to see the continued rollout of API enabled Open Banking initiatives, particularly in rapidly evolving markets such as India and China; Open Banking strides have already been made in these markets but activity will increase in 2019.
Artificial intelligence (AI) is a continual key theme across business and will play a pivotal role in retail strategy in 2019. This is because whereas multinational retailers have scaled to a position of market dominance, customers have had to sacrifice the personalisation with local retailers that were able to provide them with an individual experience. AI has the potential to address this; retailers can offer a personal user experience including customised offers, but on a mass scale through AI technology.
Financial services for the unbanked
A clear focus for governments, banks, businesses, and technology companies is tackling the issue of financial inclusion via equal financial inclusion to the unbanked and underbanked. We have already spoken about the roles of cash and prepaid cards in delivering these services, but I expect to see the emergence of further technology initiatives to support these instruments in 2019.
The growth of alternative credit
We’re already seeing the adoption of alternative credit facilities to credit cards, such as payments by instalment and deferred payment by invoice, at the online checkout. Consumer preference is increasingly towards ‘buy now, pay later’, rather than save before making a purchase, and online merchants are more than happy to facilitate that trend.
Merchant adoption of alternative credit will continue to increase in 2019, in-store as well as online. As Open Banking finds a foothold in the UK, this may generate opportunities for banks and alternative lenders to compete at the point of sale for share of the consumer’s financial data and wallet.
The continued reinvention of cash
Whilst the adoption of new technology such as contactless cards and mobile wallets will continue to reduce the volume of cash consumers carry (and its usage in-store), the opposite is the case when it comes to eCommerce.
The growth of cash payment options at online checkouts has continued to develop as a trend over the past few years; in 2019 we will see even further adoption, particularly in less developed markets of these products such as the US where our SMB survey suggests there will be a 50% increase in the number of eCommerce businesses offering cash payments at the checkout.