InFocus: Payments trends 2019

1.

Shifting from a product to service focus. The greater prevalence of exponential technologies—distributed ledger technology (DLT) and cryptocurrencies, Internet of Things (IoT) as point of sale (POS), wallets, tokenization, and more—will expand consumers’ and merchants’ options for how to pay and receive payment. Further, as the value of traditional competitive differentiators decreases (e.g., transaction processing speed, convenience, and access), streams of traditional product revenue will likely become commoditized, resulting in decreased payment processing fees.

Future revenue, therefore, will need to come from other means; likely differentiated services or experiences. Delivering on this change demands a digitally savvy workforce aligned to a common goal: to be able to deliver a frictionless user experience and interface that is both convenient and accessible.

2.

Unlocking the full value of data. Payments providers will need to bring together disparate data across multiple functions and systems to create new services, as well as use big data and analytics to help improve the customer experience. Insights in payments industry data represent how consumers and businesses spend their capital and contain significant indications of various micro- and macroeconomic factors.

Key industry players that process large chunks of payments hold the key to most of the data and insights and are building analytics capabilities to harness them. Payments analytics architectures are increasingly evolving toward integration between mission-critical payments systems and analytical applications. Advanced analytics techniques are key to better understanding the customers and to help drive growth and assess financial risk (see figure 1).

3.

Modernizing the payments infrastructure. Modernization efforts in the form of new rails to process faster/real-time payments (RTP) continue to gather steam. These are large investments, which not every player will be able to afford. Some will invest across the board and become scale players, boosting capabilities in account management, processing, acquisition, and customer experience. Others will choose to make targeted investments and outsource some functions to the scale players. These operating and service delivery model transformations may have significant impact on payments firms, perhaps requiring reorganization or upskilling to enable teams to work in new ways.

4.

Increasing collaboration between incumbents and FinTechs. We expect to see increased levels of collaboration as a way for industry players to manage investments, increase speed to market, and/or use a partner to perform some functions on their behalf. Key issues to resolve will likely center on data sharing; who owns the customer; ease of integration; and data security. New governance models and decision rights will be required to effectively manage these modern collaborations and drive alignment around a shared vision and delivery on that vision.

While these partnerships can produce excellent business results, the potential remains for culture clash between flatter, more agile FinTechs and more traditional, hierarchically structured incumbents. Creating a new leadership structure with common accountability for product development and user experience will be critical to the success of these partnerships.

5.

Conducting targeted M&A to add capabilities and/or scale. Responding to pressures from nontraditional players, we expect payments industry incumbents to ramp up M&A transactions targeting the peskiest friction areas—such as cross-border payments, multipayment integration, and business-to-business (B2B) payments.

In general, M&A activity would be targeted and used as a method to create scale, provide competitive advantage, or acquire capabilities. In some cases, M&A targets offer the acquirer an opportunity to transform its business model by acquiring the talent and skills necessary to deliver on payments organizations’ digital ambitions and/or fill existing talent gaps.

6.

Building the next-generation organization to support the desired business outcomes. While all financial services organizations manage geopolitical, legal, and social forces bearing down on them, it is crucial for payments organizations to reconsider how and whether their workforce can keep pace in an ever-accelerating digital environment. Adding complexity, organizations face mounting pressure from an evolving workforce.

Data indicates that 47 percent of current jobs will be gone by 2028 due to advancements like robotics and cognitive capabilities, and 40 percent of the US workforce will consist of contingent workers by 2020.1 Further, engaging multigenerational employees who may have disparate values and backgrounds creates additional complexity. The 56-million-strong millennial workforce, with native digital capabilities, must work alongside the 41 million Baby Boomers that represented a quarter of all US employees in 2017.2

Payments organizations face the compound challenge of rightsizing engagement and employee value propositions in an effort to accommodate diverse demographic needs, while asking more of their employees to help keep pace with digital change. Ignoring these workforce transition needs is not an option. And as a result, some companies may need to restructure their organizations to become more agile by breaking down silos and organizing around customer solutions rather than individual offerings.