Payments 2020 – Hindsight and Foresight

Author


Aditya Khurjekar

CEO & Co-Founder at Let’s Talk Payments – The Destination for Global FinTech
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Anand Ramakrishnan of Opus initiated these articles on Payments 2020, and Amit Goel invited me to continue the series. Thank you both for the opportunity! Obviously, the name reminds me of Money2020, the conference I co-founded in 2012; at the time, we debated whether we should have any deeper attributes to the brand, and decided against it. “2020” then, since modified to “20/20″, was simply part of a catchy name – nothing more, nothing less.

Now, while we apply some foresight for Payments in the year 2020, let’s also learn from 20/20 hindsight at least over the past 10-20 years. So, what do we see as we look backward and forward at the same time?

The NFC ecosystem is a perfect example of how we can be much better with our projections for the next 5 years after we have studied the past 10 years. I remember first looking into mobile payments and commerce in 2005, the year after NTT had launched Felica for contactless payments. What a ride it has been for contactless/NFC payments, and Payments/FinTech in general! The above infographic highlights some milestones from the first contactless deployment in Japan to the most recent one in Hong Kong. NFC, the technology, has enabled the maturation of the related ecosystem globally, which has come full circle over the past year and will continue to gain traction. The learning here is not that NFC finally works, but rather that for a new payments innovation to work, a complex and ever-changing concoction of disparate stakeholders have to work in tandem in the interest of a great consumer experience. What has led to the anticipated success of NFC is not the billions of dollars frittered away in single-industry joint ventures, but a technology leader bringing along everyone else without trying to disrupt the existing business model, at least yet.

So, to take a step back and look at Payments overall, what other broader trends should we expect to continue into 2020, those that we have seen on an uptick over the past decade? Here’s my quick list of current observations:

Payments has become less about Payments, and more about Commerce in general. FinTech is also more than FinTech.

With increasing price pressure, either because of regulation or market forces, and rising merchant leverage, the core payments revenue pie is shrinking/flat. Rising consumer expectations around rewards and loyalty have put additional cost pressure in the business model, but that also represents the exciting opportunity to expand the definition of what used to be called “Payments”.

In fact, even the definition of FinTech has evolved and expanded. When originally conceived, the “Fin” was more about back-end systems for transactions and the “Tech” was mostly about automating manual processes and adding internet connectivity. Now, FinTech is increasingly a mainstream, consumer space with experiences being designed for Gen M.

Yes, FinTech is sexy again!

Payments Innovation has lately been and will be driven by Technology players, and that’s OK!

This is obviously obvious, but let’s pause and reflect on what that means for the players involved. It used to be that most technology players were happy enough to be “mere vendors” to incumbent financial institutions; now, beginning with PayPal as the original inspiration, we are seeing full-stack disruption in FinTech. The big 4 (Google, Apple, Facebook, Amazon) and the 4 new ones popping up every day are far more comfortable speaking and executing the new vernacular of APIs and SDKs than the large FIs.

In fact, the financial institutions, specifically banks and payment networks, are being forced to catch up fast! In just the past year, we have seen new Open Innovation initiatives from the largest banks around the world, and the trend is unstoppable, expanding to retailers, payment networks and others. We will continue to see rising confidence amongst the newcomers that they can rebuild everything about payments, along with a pragmatic albeit reluctant acceptance by the large incumbents of the need to embrace external innovation. The rapid rise of blockchain and cryptocurrency in mainstream FI circles is another example of this trend.

Yes, the big and proud are being led by the fast and techie!

Payments is a Product, not just a Utility. Design is King!

This has been my favorite line: Nobody ever looks forward to making a payment! People would rather not pay for things if they didn’t have to (and of course, they also don;t pay to pay). So, how do we create a great experience for a payment product that the consumer will find enjoyable and not expect to pay for it? That’s exactly what Uber taught us how to do. Uber makes payments enjoyable by removing the payments component from your overall experience. That’s great payments product design, invisible but enjoyable!

Coupled with the fact that economic growth is being increasingly driven by the left-brain, it’s no surprise that financial services and Payments in particular are now also impacted. A bank like BBVA buying a creative studio like Spring is a telling example of how significant this trend is.

There is a design imperative in everything now, and FinTech will continue to become more beautiful, literally!

Millennials, Gen Z, Gen M…if you don’t do M, you are dooMed!

We, across various industries and in academia, have spent a lot of time trying to analyze and understand the millennial generation, and we are still not done. The latest is Gen Z, who are are also categorized by age and will be pursued by marketers in the coming years. However, if we take a more sublime view of how consumers are looking to experience new products and services, we are forced to look at an orthogonal segmentation that cuts across age groups, ethnicity, geography and income. Gen M is about Mobility being the greatest equalizer ever.

“Mobile-first” is about designing products and capabilities optimized for mobile use, perhaps even only for mobile use. To build upon this, innovation for Gen M implies designing products and services for this “generation” of people who are more homogenous in their expectations from their mobile experiences, and in fact from all their product and service experiences when the mobile phone can be involved in any way. Mobile-first thinking is reactive, while Gen M thinking, on the other hand, is far more pervasive: it needs you to understand how mobility is causing fundamental shifts in consumer behavior. All this is as applicable to Payments as any other industry.

Yes, software will eat the world, but Gen M will rule the world!

Data is the New Money!

We talk about cashless as a long term utopian objective, yet society creates value everyday through its actions and transactions that don’t necessarily result in monetary value. Increasingly, however, consumers’ actions and non-financial transactions are generating data that is being captured, stored, analyzed and is ready for monetization. There is a whole tsunami of unmeasured value, generated solely by data, that is waiting in the wings to augment the measured GDP.

Now this phenomenon is doubly relevant to payments and financial services. Not only do payments generate valuable data, but a better understanding of payment transactions can help create use cases that generate even more financial and non-financial transactions, all of which generate more data. The past decade has shown us that this is not just an academic argument. Companies such as Google run because data from your search transactions creates value for someone else. Payments might in fact get trapped in the “free” part of the data equation, but that does not make it any less important.

Yes, it’s going to be all about the data!

So, all together now for Payments in 2020:

Gen M will rule the world, in which the fastest techies will create beautiful enjoyable experiences, riding the waves of data, and make FinTech the coolest place to innovate!
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