The payment industry has been experiencing fragmentation for some time, but 2016 will see even greater growth in digital payments and more non-banking players entering the market. Here we explore the payment trends that are expected to make waves this year.
1. Rise of the millennial consumer
As we enter 2016, the generation taking the reins of the workforce is the 18-34 year old digital natives. As consumers, millennials spend more time on their phones than any other age group and are leading the shift towards digitised financial services.
Millennials expect their financial transactions to be on par with everything else in their digital lives. They are experience-focused and demand seamless customer experiences. Their dissatisfaction with traditional banking systems and their love of new tech start-ups is a driving force behind digital payment disruption.
According to a study by financial services marketing research firm Synergistics, almost two-thirds of millennials have a PayPal account, and 4 in 10 said they would be likely to use Amazon and Google for banking and financial services.
For traditional providers to compete, they will need to evolve their products and services to appeal to this tech-savy crowd – aspects such as ease of access, immediacy, authenticity, reliability, competitive pricing and security will all be key.
2. The mobile movement
More and more customers are making purchases straight from their smartphones, and in 2016 retailers will be competing to reach shoppers on every platform. The demand for new retail services that lend themselves to multichannel commerce will drive innovations in this space. With the growing adoption of mobile payment systems like Apple Pay and Visa Checkout, the next milestone for retailers will be mobile conversions.
Google is making consumers’ shopping experience as frictionless as possible via Android Pay, expected to be available in Australia mid 2016. Android Pay allows users to pass their payment, shipping and other information stored within their Google account to a merchant, who uses this information to process the transaction via their existing payments infrastructure.
Even Facebook is testing a ‘local market’ feature that will allow Facebook users to browse through or post items to sell across a variety of product categories. In 2016, we will also see more platforms such as Pinterest and Instagram investigate how to combine social media with online shopping.
3. Marketplace banks
The extension of banking APIs to third-parties might make 2016 the year of the challenger bank.
The UK has already allowed new entrants to challenge existing banks. Digital native banks, such as Tandem Bank and Atom Bank, were granted licences by the Bank of England in 2015.
Last year, National Australia Bank opened up its API to cloud accounting software company Xero, while Westpac’s Retail Bank set up a taskforce with the federal government to explore alternative financing for small businesses.
This year, we will start to see these new marketplace banks offering customers digital wallets, credit and debit cards, and even bank accounts.
Software companies with banking licenses will reimagine what it means to be a bank and transform the current system into one that is efficient, effective and inclusive.
But that doesn’t mean it will be the old banks against new fintech firms. We will see a lot more collaboration between banks and start-ups. Through the API, marketplace banks will be able to consult with all of its third-parties, including traditional banks, financial institutions and fintech companies, and offer new products.
Two key security trends will impact the payment industry: biometric authentication and tokenisation.
Current methods to authenticate payments are passwords, PINs, and fingerprints. New biometric processes, such as voice recognition, keystroke detection, finger vein scanners and pulse recognition aim to increase both security and convenience.
In an interview with the ABC in January, Professor of Information Security at Deakin University, Matthew Warren said biometric authentication was becoming more common with mobile phones, but people were reluctant to take the extra step.
We predict biometrics will continue to advance in 2016 with greater adoption in mobile transactions including banking and shopping.
A new layer of security for digital payments, tokenisation removes the primary account number (PAN) from the payment environment, and replaces it with a randomly generated token ID. This means when a customer swipes their credit or debit card at the checkout or makes an online payment, their PAN isn’t stored in the merchant’s payment system. Tokenisation will be key to the next phase of digital payments.
One current stumbling block is the lack of widespread tokenisation standards. In 2016, however, we anticipate a shift in the market.
While the New Payment Platform (NPP) will not be operational until the second half of 2017, this year will be significant for everyone involved in the building, testing and implementation of the infrastructure. NPP is a new national infrastructure for flexible and scalable next-generation payments in Australia.
Indue will offer a number of services that use the NPP, including a simple API-based integration layer for ease of connectivity to the NPP, settlement services (potentially removing the need to build real-time settlement capabilities for ADIs), and stand-in capabilities to help our clients leverage the power of the NPP in delivering superior customer value propositions.
5. Peer-to-peer lending
New peer-to-peer (P2P) lenders are directly connecting borrowers to individual lenders, creating online marketplaces.
This year we will continue to see the P2P industry grow. Auckland-based Harmoney is expected to come to Australia in 2016. Harmoney has facilitated $NZ100 million in personal loans in its first year, out-performing its Australian competitors.
While P2P lending start-ups have also attracted an enormous amount of attention from venture capitalists, 2016 will be the year PTP will find its way to B2B and corporate sectors.
To find out more about digital payments and other leading-edge technologies, click here to contact a member of our expert team.