How will card networks react to the rise of large techs in online payments? How will traditional FX solutions compete with fintechs? Will PSD2 drive innovation and will customers adapt? What are the key trends affecting the payments industry and how will it evolve in future? These are some of the questions discussed in the World Economic Forum's (WEF's) report on the disruptive potential of financial technology (fintech). CTMfile has already covered some of the report's predictions for how fintech will disrupt the banking sector. The report also goes into depth about the future of payments and how fintech will influence the development of our payments systems and payment habits.
Here are some of the report's insights into the payments industry:
- Payments have continued their migration to digital channels – but the report notes there has been declining profitability in the sector and varied adoption of mobile payments.
- The shift towards online and mobile channels is driven by consumer demand and particularly the growth in the global online shopping market, at the expense of in-person shopping. Use of mobile phones for payments is especially strong in emerging markets, where mobile phone use is almost ubiquitous. The WEF report also notes the role of large tech firms in developing online e‐commerce payment platforms, which have made payments 'less visible' to the customer (fewer authentication steps).
- There is also intense competition for payments businesses, as well as a challenging regulatory environment. The WEF report notes that several jurisdictions, including Europe, Canada and Australia, have either passed or are passing legislation limiting the fees charged on transactions, thus limiting profitability for all intermediaries. Credit card companies are also face stiff competition from alternative lenders. The development of faster payments schemes is also changing the industry and conditioning customers to expect low-fee payments.
- In terms of FX, the report says: “Technologically advanced fintechs are moving into both the retail and B2B areas, lowering revenues that financial institutions can earn on foreign exchange (FX). Several banks have decided to partner with a fintech solution to offer FX services instead of operating their own, forgoing that income entirely.”
- Despite the strong uptake of digital payment channels, they have not overtaken cards (the report notes this is because digital has not sufficiently exceeded the functionality of cards). It also notes that non-traditional payment schemes, such as cryptocurrencies, have not taken off with consumers.
7 questions for the future of payments:
- How will card networks react to the rising importance of large techs in online payments?
- Will dominant online payment processors (e.g. Amazon, Stripe) expand into in-person retail and if so, can they achieve scale?
- In emerging markets, can incumbents enter and overcome locally built solutions?
- Will traditional FX solutions compete or partner with new fintech-enabled solutions?
- Will PSD2 drive innovation at the merchant/intermediary level, and will customers adapt?
- How will major players in mobile payments convince customers to switch from cards?
- How will regulators regulate and support digital currency development in the future?
Click here for the full report - Beyond Fintech: A Pragmatic Assessment Of Disruptive Potential In Financial Services.
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