I recently attended an annual event hosted by The Emerging Payments Association (EPA) called ‘The Pay360 Digital Payments Annual Conference’, which took place this year at the Coombe Abbey Hotel in Warwickshire. The EPA brought together commercial association of decision makers from around the world to share insights over two days, which also included a medieval banquet at the 11th century Abbey, about what is driving success in digital payments in local markets, and to share best practice.
With all these insights, technological disruption and overload of data to the market, what exactly is the future of global digital payments?
2017 will be the year of instant digital payment which does instantaneous validation, acknowledgement, and transmission of transaction data between the point of sale and merchants system as opposed to 2016, which was “near real time,” which refers to expedited batches that may range from minutes apart to an hour or even more, real time is truly instantaneous processing.
Today’s consumers are quickly coming to expect immediate processing of their payments. Technological constraints of mobile devices may impact upon how much information a consumer is provided with during m-commerce transaction. Security and liability as mobile devices are particularly vulnerable to theft and misuse it is important for consumers to understand what protections are available to them in the case of unauthorise transactions.
So how do consumers engage confidently with a market that is constantly changing? How do regulators identify failures when markets emerge, and then change equally as quickly? One way to address these challenges is to identify underlying principles that remain constant, despite technological change.
Payment systems are pivotal in any economy given their role to facilitate the intermediation process, which is key to achieve financial stability. Payments are a daily and routine activity carried out by people in most parts of the world. These payments cover daily human requirements from transportation, food and communication. Some people transact 2-5 times in a day while some more than 20 times making them heavy users of payment systems.
More than a billion people in emerging and developing markets have cellphones but no bank accounts yet they don’t stop their contribution to payment industries, they still do their contribution each day and many low-income people store and transfer money using informal networks, but these have high transaction costs and are prone to theft.
Mobile money is beginning to fill this gap by offering financial services over mobile phones, from simple person-to-person transfers to more complex banking services. To date, there have been more than 100 mobile-money deployments in emerging markets; at least 84 of them originated in the past three years. In markets with real-time payments infrastructures, banks have managed to fight back and actually have taken the lead in P2P payments.
For example, Swedish banks have developed an app called Swish, and in the UK, Barclays is leading with its popular PingIt app. Even in markets yet to move to real-time payments, such as the US, banks are trying to recapture their position in money transfers. Recent examples of activity include Early Warning acquiring clearXchange, BBVA partnering with Dwolla, and TD Bank exploring opportunities with Ripple.
The facts are fin-tech is changing the way we buy, sell and transfer money. It is creating an innovative worldwide marketplace in the face of shifting global politics.
Consumers, businesses and families are now starting to now enjoy a truly global financial network on the same fair terms, wherever they are. Inconsistencies can be ironed out and risks can be reduced. This is not just down to product features: fintech innovations that help international payments take place are actually behind some major shifts in how the world works.
Many fintech company’s have woken up to the potential of artificial intelligence (AI), and with investment ramping up, machines and algorithms will be an even more common sight in financial services.
Embracing AI in banking allows financial institutions to tap into the wealth of data at their fingertips. As well as collecting and sorting data, companies can use AI to make more accurate decisions, identify risks quicker, and better understand their customers, bringing the personal touch back to big business.
Chatbots are becoming more and more sophisticated, and their usefulness in customer services is becoming increasingly clear.
Instead of picking up the phone, making their way through menus, and then waiting on hold just to ask someone a few simple questions, customers could simply head to their favourite messaging app and speak to a chatbot. This lets customers connect using the channel of their choice; and gives them access to quick, easy answers to simple questions, so that staff are freed up to focus on the more complicated queries and building deeper customer relationships.
Chatbot interactions will also produce more accurate data on why our customers are getting in touch, which brands can use to better identify common problems and develop solutions.
As well as deepening customer relationships, AI in Fin-Tech also has the potential to improve security. Telephony services can make use of speech-recognition technology to verify the caller’s identity, but AI, in particular Machine Learning, can be used in real time to prevent fraud.
AI has been something of a hot topic in the world of sci-fi, with the themes ranging from the uncomfortable to the apocalyptic. The real world has not progressed that far. However, as AI becomes more capable, the onus is on the financial services industry indeed, on every business introducing AI into the workplace to make sure that they deploy AI in sustainable, intentional and responsible ways.
That means thinking carefully about the speed at which AI is deployed, the roles it takes on, and how employees can continue to add value. Where appropriate, that means putting measures in place to re-train or re-deploy employees. Businesses must be proactive when it comes to AI, as its impact will be as wide-ranging as it is inevitable.
And then there is cryptocurrency, that aspires to become a part of financial set-up and is making significant headway in 2017. Cryptocurrency may have heavily-regulated issues to deal with in the years ahead, if it has plans for an acceptance and a sustainable global future.
The emergence of Bitcoin has sparked a discussion concerning its future which of alternative cryptocurrencies. Despite Bitcoin’s recent problems, its success since its 2009 launch has impressed the creation of different cryptocurrencies like Litecoin, Ripple and MintChip. A cryptocurrency that aspires to become a part of the thought financial set-up would have to be compelled to satisfy terribly divergent criteria. whereas that chance appearance remote, there’s very little doubt that Bitcoin’s success or failure in handling the challenges it faces might verify the fortunes of alternative cryptocurrencies within the years ahead.
In summary and from the conference, here are five international payment points that are changing the world.
1. The power of mobile banking is being unleashed across borders
Mobile banking is nothing new, but its status in the developing world is being elevated thanks to ubiquity of mobile phones and cellular networks. But what happens when money needs to move across a national border and over to a different mobile network?
By developing smarter ways of integrating with, and crossing networks and borders, companies like Beyonic, for example, allow businesses to make two-way payments across borders and telecom networks with the security of a normal bank but over a mobile. This is leading to a growth opportunities in African nations, where smarter, more connected businesses can thrive with minimal infrastructure investment.
2. Payments are adapting to a global and migratory workforce
We’re living in a time of global migration, where workers are able to travel to meet demand for their services. They’re often far from the places where their earnings would do the most good; in many cases, they find it hard to transfer money back home, especially if it’s a rural area. Fintech is offering solutions to the growing need to send money to these kinds of places with services such as Valapay, which recruits local affiliates to work as ‘Human ATMs’ in places where infrastructure is weak and transfer fees are high.
Transferwise, the crowdsourced currency exchange service that grew out of the idea of ‘swapping’ currencies between consumers to lower the cost of exchanging money. It’s one of a number of fintech companies that have revolutionaied the way we make payments
Money from official development assistance is dwarfed in comparison to the amount of money being sent home by workers abroad. In 2016, three times more money was remitted internationally than was sent as aid. By giving the migrant workforce a chance to send money efficiently, and with lower fees, fintech can help raise standards of living where it’s needed most.
3. Cross-border e-commerce
By 2020, it’s expected that some 940 million online shoppers will spend almost $1 trillion on cross-border e-commerce transactions. The rising number of purchases made on devices like smartphones and tablets in particular will continue to help propel this growth, with shoppers taking advantage of being able to quickly and easily purchase goods whilst they’re on the go. World First, whose business is to facilitate cross-border payments and settlements, is helping this global boom by offering businesses and consumers a wider range of ways over how they get their money between countries in an efficient and cost effective way.
4. Lending in developing economies is growing
Companies like Oikocredit and Lendwithcare have made it easy and commercial to invest small amounts of money in small businesses in the developing world. The World Bank estimates that 2.7 billion people lack access to basic financial services, so by offering communities and businesses ‘microloans’ to buy materials or equipment, initiatives like these can support steady growth in poorer regions.
Although returns are modest, this process is risk-assessed and managed with oversight, and with interest rates low across the board in the West, the advantages of investing in these economies are clear.
5. We are seeing the emergence of real-time, anywhere payments
The emergence of national real-time payments systems such as Faster Payments in the UK, plus the development and uptake of mobile P2P services on top of them like paymare evolutionary steps show that a global, cheap and instant way to move money is possible. Instant payments mean more trust between people, with the benefits that will bring to the supply chain. Instant payments also mean more efficient, responsive business, less reliant on credit and with less exposure to risk. McKinsey’s latest Global Banking Report found that banks are likely to step into this space by merging or collaborating with fintech companies, so a future of traditional banking and fintech working together even more is already on the cards.
In conclusion, an innovative leap is currently taking place under the keywords of social media and Fin-Tech. Many banking services are being redefined. This includes technologies related to e-commerce, mobile payments, crowdlending, crowdinvesting and asset management. My belief is the result will be a future in which many services are only offered electronically.
Countless finance apps exist which generate added value for clients. These can be used to query master data, receive business news, create portfolios, enter payments, draw up charts, convert currencies, etc. These key challenges that banks and merchants need to know and have solutions ready when embarking on real-time payment processing.
See Arvind Sankaran’s quote: