The future of online payments

3 December 2018

Traditionally, the growth of online payments has been firmly linked to developments in the world of e-commerce. Predictions are always risky, but five years from now the very term ‘online payments’ might seem baffling, as e-wallets and payment platforms accessible from a smartphone will come to dominate offline payments too. E-commerce, though, will remain a key source of innovation in payments, at least for the next couple of years.
Globally, e-commerce is a growing vertical that’s showing no signs of decline. Indeed, the impact of digital transformation in payments is rippling around the world as digital continues to increase its share of the economy.

Mobile banking takes on a new meaning

In the next five years we expect to see significant changes driven by fintech services being accessible from every smartphone. As fintech is largely consumer-driven, one has to examine the customer relationship and see what follows.

One area getting a lot of attention is mobile commerce using the mobile phone, whether it is payments via SMS (PSMS) or direct mobile carrier billing (PFI). Our key forecast for the near future is that mobile operators face either expanding into retail bank services or becoming irrelevant.

Money-wise, every fintech start-up’s customer-generated revenue must be greater than the customer acquisition cost. British online bank Monzo revealed earlier this year that each new customer had initially cost them £65 per year – but with mobile carriers, each subscriber already has their own account, meaning that financial infrastructure potentially worth billions is already in place. On top of that, a mobile phone is the most convenient and common interface for making payments at a time when cash payments are in decline.

Payments innovations that go global
North America, Asia and Europe will remain the three key regions for growth over the next five years and will make up 70% of all non-cash transaction growth by 2023.
In the US, P2P and retail payments combined will still be less than a quarter of the size of the B2B payments market by 2023 ($6.3 trillion vs. $27.3 trillion), according to Business Insider.

Elsewhere, the Chinese market is expanding. Vasyl Mayor, commercial director of Maxpay, forecasts that the country will be the dominant force in the financial market within five years – China UnionPay, once China’s local payment system, is already outperforming Mastercard in terms of the number of cards it has issued. China invests in the development of payment systems at state level, with its main goal being to develop the country’s export potential. Previously, the most competitive export sector had been consumer goods, but today the focus is on services, financial and payments services included.

In Europe, meanwhile, PayPal and Visa’s dominance will wane. In five years’ time ‘alternative’ payments will account for 20-30% of the market, driven by high smartphone penetration and new online banking start-ups.

AI and machine learning

According to research company Gartner, by 2023 more than 80% of all customer interactions will be handled by AI. In the payments vertical, machine learning already helps to prevent fraud, analyse transaction data and segment customers, so this will continue to be the primary risk management solution going forward.

Voice recognition and automated personalised voice services should improve in quality with the likes of Alibaba and Amazon, who are already investing in Al for chatbots, product recommendations and fake reviews detection, pushing the entire ecosystem forward. By acquiring successful start-ups they will encourage further entrants. Here, several companies such as anti-fraud solution platform Covery have been especially successful.

Banks Innovate or Die

In the near future we can expect a lot of examples of financial services combining in new and unusual ways beyond classical banking. These will be based on meeting daily business needs and offering more personalisation around the tasks of each customer segment currently seen as niche. As an example of this, e-wallets serving a specific client base are even now bypassing traditional banks.

One such product, Genome, a European e-wallet and online merchant service provider for business owners who sell online, will be launching in early 2019. Services that combine a full-cycle approach to customer pain points (opening MIDs, paying salaries, currency exchange, instant cross-border transfers to bank accounts and wallets, accepting payments, etc.) via an app will elevate the customer experience to a different level.

So to consumer banking, where customer experience is of paramount importance. Any traditional bank that is aiming to stay competitive will need to use tools to allow customers to make their own financial decisions digitally and to maintain more control over their accounts.

Surprisingly, most banks still don’t do anything with the data available to them. For banks to succeed in the run-up to 2023, one thing that needs to change is for them to start using data to personalise product offerings and to continue expanding self-service options.

Artem Tymoshenko is CEO of Maxpay, an international payment service provider with extensive risk management and fraud prevention expertise. Tymoshenko is a fintech sector professional with experience in payment systems, processing systems, e-money, risk management, network and system security, digital self-service and e-billing.