With all the activity in the cards and payments space in 2019, 2020 promises to be even more interesting. The last 12 months saw several new fintech market entrants and digital commerce frameworks, continued expansion of the real-time payments infrastructure, investment in open-banking capabilities and heavy M&A by large incumbents. This made 2019 something of a doubling-down year by payments players as they look to diversify their offerings and differentiate their brand.
In 2020, these big bets will continue to play out amid broader and more fundamental changes to the payments ecosystem: the continued evolution of consumer preferences toward seamless transactions, nontraditional market entrants influencing the payments infrastructure and quickly evolving regulatory standards around new forms of payments.
With this in mind, here are our top 10 predictions for the cards and payments space, which we believe will influence how players invest in and build future capabilities.
#1 Traditional payment business models will continue to be challenged
The traditional business of money movement will continue to be commoditized, fueled by the rise of fintech entrants, competition from non-traditional payments players and continued globalization of the payments infrastructure. Traditional competitive differentiators such as processing speed, convenience and access are becoming marginalized, forcing incumbents to pursue new revenue streams and re-think decades-old business models.
#2 Government entities will play a larger role in shaping the ecosystem
This year, we saw a rash of non-commercial entities and governments entering the payment space, spurring a new dynamic that will reshape payments for years to come. It is yet to be seen whether government’s role in payments is meant to be an enabler of economic growth or an attempt to democratize a service that is quickly becoming ubiquitous. Public payment authorities such as the U.S. government’s recent establishment of the “FedNow” Real Time Payment system, as well as the move by China’s central bank to launch state-backed cryptocurrency, will play a growing role in shaping the payments ecosystem.
#3 Customer intelligence becomes a benchmark of future growth potential
With businesses able to access exponentially more data about what users do and want, no sector stands to gain more from this treasure trove of bits and bytes than financial institutions (FIs). Increasing consolidation of consumer financial services to a single touchpoint is positioning FIs at a tantalizing place: the intersection of earn-side and spend-side transactional data. With the looming influence of overseas data regulation standards, FIs that reach their data strategy goals first will win the race of acquiring, cross-selling and upselling customers. This data singularity will be one of the single most decisive competitive advantages for FIs in the digital battleground.
#4 AI moves from back-office utility to front-office hero
As much as artificial intelligence has promised to re-energize financial services, its primary gains have been in the back and middle offices rather than in consumer-facing applications. While many early AI use cases such as identity theft protection and fraud detection have become tried and true, 2020 will help shift these emerging technologies into more customer-centric roles. AI-powered customer service tools – personalization, targeting and digital sales enablement – will be tested and proved this coming year, helping drive topline growth for FIs that bought in early to AI’s ability to grow front-office value.
#5 ‘Alternate’ forms of payment become as mainstream as cash and cards
The king is dead; long live the alternate payment? Cash (the king) may never truly go away altogether, but 2020 will see one of its biggest threats continue to attempt the ultimate coup. Whether e-wallets or direct bank transfers, alternate forms of payment will continue to see aggressive growth, spurred by exponential use cases for non-traditional payment methods, as well as continued expansion of open payment networks. For evidence, look no further than AliPay’s dominance in the Asian payments market, where direct bank transfers are becoming mainstream – even unseating credit and debit transactions as the most popular form of payment.
#6 Strong customer authentication will soon be here
As the market for mobile and digital payments soars, regional authorities and payments bodies will attempt to keep pace with their own standards for governance and consumer protection. With the arrival of 2020 will come new standards with a focus on consumer identity protection and fraud. Most notable among these is the strong customer authentication (SCA) requirement of the EU’s PSD2. In parallel with the arrival of 3D Secure 2.1 and 2.2 next year, government bodies like the European Central Bank have set deadlines for full SCA compliance by the end of 2020, which will have implications for both Euro zone-governed entities and multinational players, alike. It will be critical to anticipate the influence of these frameworks on standards in the U.S. as domestic players assses their authentication roadmaps for 2020 and beyond.
#7 Competition between closed and open payments platforms will persist
To be, or not to be, open. Expect to see increased competition between established providers of closed and open payments platforms in 2020 as they vie for a larger share of consumer and business dollars and loyalty. This year saw large M&A activity between merchant and acquiring-side heavyweights (most notably FIS/WorldPay & Fiserv/FirstData); this begs the question of what these new payment behemoths will do now that they own both sides of the house. One guess: “on-us transactions.” As the payments landscape continues to evolve in 2020, the market will see more competition between open platforms (pay anywhere with us, because easy) and closed platforms (pay here with us, because value).
#8 New standards to govern money movement will arrive
As money movement increasingly becomes ubiquitous and more globalized, payments players will need to get their data houses in order and prepare for new standards in money movement governance. Sustained increases in cross-border transaction volume, as well as revisions to international standards such as PCI DSS and ISO 2022, will have an impact on how payments organizations are kept accountable for keeping up to date with industry guidelines and regulations. Given the growth of these new standards, payments organizations must consider their data/IT strategy, as well as organization structure and skillset alignment, to ensure they are prepared for these changing market demands.
#9 Paychecks will continue to unbundle
Much of the innovation in the financial services space has occurred in the post-deposits space, but a fast-growing sector is emerging with creative options for consumers to do more with their paycheck before it hits their bank account. Previously, banks could expect to receive 100% of a direct deposit customer’s paycheck. Today, fintechs are disrupting the traditional paycheck, allowing people to invest, save, donate, send or store their dollars in other first-stop destinations. In anticipation, FIs must learn these new customer needs and work to provide substitutes to stem the presumed erosion of deposit accounts that will come as a result.
#10 The rise of invisible payments
In 2020, merchants will continue to experiment with moving payments to the background and enhancing the overall customer experience with invisible payments. Leveraging the success of use cases such as Amazon Go Stores, Uber Pay and IoT transport payments, the market will see increased attempts to turn invisible payments into a mainstream offering. This will help disintermediate payment providers, relegating the industry to top-of-wallet competition while giving merchants the benefit of removing friction and focusing on deepening the customer relationship.
If the last few years were the market’s first attempt at testing the realm of possibilities in payments innovation, 2020 will see the battlefield lines being drawn for digital payments dominance. It will be a year of experimentation and bold moves as all players continue to carve out their role in the cards and payments landscape.
Saptarshi Mukherjee (Partner, Cognizant Consulting, Banking & Financial Services) and Madhusudan Ponnuveetil (Senior Principal, Cognizant Consulting, Banking & Financial Services) contributed to this blog.
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