Payments Past (2015)… and Payments Ahead (2016)


Ron Mazursky

Director of Strategic Initiatives, Jack Henry & Associates and Founder and Board Member, NYPAY

We’ve seen payment innovation accelerating over the last few years, and 2015 is no different. Perhaps this year we have noted more changes in core payment offerings by the major payment networks, and this has triggered investments by online companies, payment companies and investment firms in new payment tech offerings.

In the world of payments, we’ve seen past years marked by regulatory change (2009 CARD Act, the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act, and the 2010 Durbin Amendment), years marked by marketing partnerships (American Express Statue of Liberty cause marketing program, MasterCard Choose to Make a Difference cause marketing program, World Cup sponsorships, Olympic sponsorships, cobrand and affinity card programs), and years marked by product innovation (ApplePay, Beacons, Square, Mobile Acceptance).

2015 is characterized by technology-based innovation as well as product and service creation. Here are 5 significant tech changes we’ve identified as disrupting to the payments ecosystem:

1. Mobile Wallets. Although mobile wallets became a disruptive innovation with the iPhone and its Apple Pay product in 2014, they’ve gained momentum when other mobile handset manufacturers introduced their own version of mobile payment functionality over the past year. We soon began to see Android Pay, Samsung Pay, and more. In the past few months, merchants began to enter the fray.

While we’ve all been waiting to see what MCX would ultimately deliver on behalf of 70+ merchants in the US with CurrentC, Target and Walmart decided to introduce their own digital wallets to their customers. We expect to see more large merchants follow suit, ultimately raising the question as to whether CurrentC will ever become a force in the payments market.

2016…Expect to see usage of mobile wallets increase, along with the number of merchant locations accepting NFC devices. We anticipate more market penetration with different mobile devices/wallets sponsored by different players, including large financial institutions, merchants, handset manufacturers, and select others. Still the wild west in mobile wallets will shake-out in the coming years.

2. Blockchain. The technology platform behind Bitcoins and other cryptocurrencies is the Blockchain. Although created several years back, financial institutions are just now beginning to appreciate the Blockchain and possible financial solutions it could provide.

We are seeing companies begin to develop, test and apply the Blockchain to specific payments situations, such as real-time payments, P2P payments, international remittances, and more.

Ripple, along with several other vendors, began to develop platforms and protocols to enable usage of the Blockchain for financial institutions. Last year, Payoneer morphed into an international payments company that relies on Ripple’s Blockchain platform to transfer funds between financial institutions and on behalf of merchants. This year, R3 has signed on 30 of the largest financial institutions to join in developing and testing new Blockchain-based products for the financial services industry. Blockchain is perhaps one of the more disruptive changes to impact payments in the coming few years.

2016…Expect to see more development, testing and implementation of new services, with many brought to market by networks or consortia. The Blockchain has the natural benefit of cryptographic design with built-in security. International remittances is the clear early winner using Blockchains to transfer money between two parties.

3. Real-time Payments. By real-time payments we mean movement of funds from sender to receiver, where receipt of funds occurs in 10 seconds or less. Settlement of funds does not necessarily need to occur immediately to be a real-time payment.

Real-time payments have existed outside the U.S. for decades but only existed in the US market over the last few years starting with FIS PayNet. Although PayNet is still evolving, and Fiserv’s NOW Network is beginning to grow, the hot spot in real-time payments is likely to be The ClearingHouse with FIS and VocaLink, and Early Warning/clearXchange. These two real-time payments initiatives, The ClearingHouse and Early Warning/clearXchange, have come together in 2015 with plans to become powerhouses in the real-time payments business. At the same time, The Federal Reserve Faster Payments Initiative is seeking to develop a vision and path to real-time payments in the US, but that development is likely to take another 5+ years.

2016…Expect to see a marketing plan initiated in 2016 focused on the larger financial institutions that are partners in both The ClearingHouse and Early Warning. Anticipate some early adopters of real-time payments from those financial institutions with international remittance interests – and with specific processors.

4. One-Click Checkout. Without a doubt, Amazon took a step ahead of the online competition with the development of One-Click checkout. A number of other online merchants have started to follow-suit. Anything that eliminates consumer friction in the buying process will reduce shopping cart abandonment – a figure that remains too high among online merchants.

One-Click was made popular by Amazon, copied by Google, and being adopted by Facebook and Twitter as products are being marketed on social media sites, blogs and elsewhere.

2016…Expect to see merchants, in the coming year, develop One-Click checkout options to a lot larger extent than what exists today. Large merchants with online businesses will do so during the year, followed by shopping cart software providers and acquiring processors.

5. “Uberization” of Payments. Started a few years ago, this metamorphosis of payment cards and merchant apps is accelerating and threatening to sideline the individual payment brands. Uber, Amazon, Fandango, and Apple iTunes are a few merchants that are prime examples where payments are becoming hidden within merchant apps.

Consumers are reacting positively to the merchant buying experience and the trend is likely to accelerate. Merchants are clearly taking a lead role in positioning merchandising as the primary consumer experience, with payments a mere sideline to that experience. The key question is what will become of payments in this environment?

2016…Expect to see a continued blending of online merchandising and payments in 2016 where a primary payment vehicle will be solicited by the merchant to embed in its digital wallet for purchase on a website. This is also where merchants will reward the consumer with incentives to steer the consumer to a specific payment device.

Key Take-Away

We’ve seen continued innovation in payments in 2015 that foreshadow changes that will impact the payments industry in 2016. The changes will reduce merchant costs, ease payment friction, facilitate international payments, blurring of merchant sales with payments and the continued evolution of mobile payments through mobile wallets.

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