The year ahead for payments is awash in uncertainty as more untraditional entities—including retail giants Walmart and Target—enter the fray.
And then there is the projected rise of "contextual commerce." Once the realm of science fiction movies, the ability to personalize advertising is already here.
Those are some of the predictions from a trio of payments experts: Brian Day, director of digital strategy for The Members Group, Des Moines, Iowa; Lois Hansen, VP-product development for CO-OP Financial Services in Rancho Cucamonga, Calif., and Mark Sievewright, president of credit union solutions at Fiserv, Brookfield, Wis.
"We're seeing 2016 as the Year of Digital Engagement," Sievewright said. "The focus will be on frictionless, experiential banking. We expect to see an increase in spending on payments technology, with a focus on security, chip and mobile."
Day noted 2015 generated a great deal of discussion about Apple Pay and Samsung Pay, and expects more fragmentation in 2016, with recent developments involving Walmart Pay and Chase Pay.
"Now there is speculation Target will announce its own payment system in 2016," he said. "Will there be an appetite by consumers to load more and more payment systems on their phones?"
The next 12 months will bring a further expansion of digital wallets, according to Hansen. She said CO-OP has decided to participate in as many of these wallets as it can, so CUs can offer them to their members.
These are trends that were ongoing in 2015, as well, Sievewright noted, but are expected to keep growing this year. "We're seeing a substantial uptick in payments flowing through the mobile payment channel," he said, "and a sharp rise in the amount of shopping being done on digital devices."
Sievewright pointed to previous predictions that by 2020, 20% of spending will occur via digital channels, but noted, "we're already seeing that trajectory today. To avoid the disintermediation of credit unions, we have to remember that members are looking for simplicity, security and convenience, and then we have to demonstrate we can deliver."
And then there's the advent of contextual commerce.
"Contextual commerce feeds you the incentive to buy when you want it," Hansen explained. "Amazon already sends prompts that promote sales on products people have searched for. Someone might be traveling through an airport and get a notice that the coffeemaker they were searching for a few weeks ago now is on sale. They then can buy it with very few keystrokes."
People are getting tired of waiting in line, Hansen noted, so she expects the traditional checkout experience is going to change.
"Checking out at a cash register will not die in 2016, but for most participants what happens when they purchase something will evolve," she predicted. "Checkout will occur on a person's device—a mobile phone or a tablet. You already see it with Starbucks and it is happening with Taco Bell. People can pre-stage their order and go pick it up."
Loyalty Programs Also Changing
Plastic card loyalty programs will evolve beyond traditional points-based systems to instant redemption, Hansen said. Instead of saving points or coupons, she said the redemption will be pushed to the consumer at the time of purchase. "No longer will someone have to search for a coupon, or receive coupons that do not matter to them, such as baby diaper coupons being sent to an elderly person," Hansen said.
According to TMG's Day, the very face of incentives will change thanks to the increasing reach of digital wallets. Merchants will fight to drive people to their own payments products, such as how Target offers 5% discounts for using the Target RED Card.
"With payment apps—Walmart Pay, for example—how will the technology be used holistically," asked Day. "If someone is in the store, how does the store engage with the consumer throughout the store visit to get the consumer to use the app at the point of sale? Walmart says 22 million people use its app every month. Walmart will get smarter with those consumers each month. Will they offer incentives?
"It is a good idea for credit unions to get out front and encourage people to use their credit union credit cards," Day advised. "Once people load a card into a payment system or a payment app, it is difficult to get them to change."
Defining 'Table Stakes'
CO-OP's Hansen said members now "expect" to have data analytics and fraud protection with any payments product or system. "Those are table stakes. Neither one is glitzy or glamorous, but both are necessary. There will not be big developments in either area in 2016, but there will be strengthening."
Person-to-person payments is rapidly changing from an innovation to an expectation, Hansen continued, noting CO-OP is seeking to leverage that trend with its own P2P product. "It is an umbrella product. What makes it different is it is not exclusive to one vendor," Hansen noted. "It is account-based now, and we are looking to extend it to card-based and a possible relationship with ClearXchange, a big consortium of banks that would give credit union members the ability to pay a large number of people."
Hansen expects consolidation in the payments space as small companies continue to be acquired by large ones.
Tokenization infrastructure was introduced with Apple Pay and further used with Samsung Pay. TMG's Day said CUs need to think through the implications and how they will manage token use.
The Members Group currently is working with its clients on what next steps to take and how to manage activity. Day said there will be situations where cardholders will have multiple tokens in multiple locations, which will need to be dealt with.
"Today with Apple Pay, a person has an account number associated with their physical card and a token on their phone associated with Apple Pay. If there are more tokens issued by other entities it adds complexity," he explained. "As we talk with our clients today, there is not a focus on where tokens could go. Today there is one use case—Apple Pay. But in time there is a potential for multiple tokens to be generated for every cardholder, which will lead to complexity in management."
CU's should not be "fearful" about how payments technology shakes out in 2016, according to Day, but they should be aware.
"Looking at all the different payments systems as they come to market, the challenge is to get their cards into the system as soon as possible," he said. "It is important to get your card into that top-of-wallet position."
—Lisa Freeman contributed to this article.
