Payment innovation quickened its pace from technology to strategic partnerships last year, setting the stage for some dominant trends in 2012.
New technologies related to data security, payments businesses making better use of available data and the development of faster payment systems likely will take center stage this year, according to Celent’s “Top Trends in Payments” report released Jan. 3.
In addition, the payments industry will continue to grapple with government intervention in the wake of the Durbin amendment to the Dodd-Frank Act, which regulated debit card interchange and network-routing exclusivity in the U.S., and with ongoing preparations in Europe for the Single Euro Payments Area, the Boston-based research and consulting firm’s report indicates.
In the past year, the payments industry possibly forever shed the notion that it is slow to change, report co-author Gareth Lodge, a London-based Celent analyst, tells PaymentsSource.
“For an industry that perhaps is sometimes considered somewhat slow-moving, an awful lot seemed to happen last year,” Lodge says. From regulation to industry consolidation, the industry looks different now and moves at a pace not likely to slow, he adds.
“Indeed, the uncertain economic outlook applies yet more pressure on payments to change,” Lodge suggests.
A quickly changing payments landscape inevitably leads to more government regulation¬–and confusion, report co-author Zil Bareisis, also a London-based analyst for Celent, tells PaymentsSource.
The Durbin amendment saga reaffirmed the challenges of payment regulation and the difficulty predicting the consequences of legislation, Bareisis says.
“What did surprise me about Durbin was how nobody seemed to be happy about the final rule, not least the merchants, which implies we haven't really achieved closure yet on interchange issues in the U.S.,” Bareisis contends.
Mobile payments represent a rapidly changing facet of the industry, but it won’t reach mass adoption in 2012. Instead, the year will see more experimentation and new launches, Bareisis says.
“Actually seeing commercial rollouts of mobile payments at the retail point-of-sale, such as Google Wallet, was a pleasant surprise,” he adds.
The technology for mobile payments has been in place for nearly 10 years, but the past year saw various competing visions for its use at the point of sale start to take shape, Bareisis says. For example, PayPal Inc. envisions a number of options to exchange mobile-wallet account credentials with a retailer’s point-of-sale terminal, including in-aisle purchases with sales clerks carrying devices accepting mobile payments, the report states.
Meanwhile, companies such as Square Inc. relied on software applications instead of Near Field Communication chips to accept payments to set themselves apart (
On the security front, increased connectivity between mobile devices and payment terminals and the emergence of new online or cloud-based payment systems set the bar higher for security requirements, the report states. These changes created new roles in the payments ecosystem, such as a trusted service manager who generally understands the banking business and mobile phone security systems, the report adds.
The effectiveness of security in cloud-based payment systems already has become a hot topic (
Security issues in the U.S. will garner much attention as the country moves into a “when-and-how” mode instead of “if and why” regarding adoption of EMV chip cards, the report suggests.
The flood of customer and payments data available to financial institutions and processors will trigger what Celent calls “enterprise intelligence,” or a more effective application of customer, business and transactional data, the report states.
That payments businesses took so long to understand the value of enterprise intelligence is surprising, Lodge says.
“I’ve spoken for at least five years about how the information about a payment is often as important or valuable as the payment itself,” Lodge says. “Data in itself is just data, but knowing how and when to use it creates the value.”
Banks should look beyond using data to predict a customer’s potential behavior and instead seek to influence customer decisions, the report suggests. In addition, banks would benefit from having a better understanding of its business-clients’ needs and operational tendencies.
Most importantly, banks must understand the flow of data in a payments chain, the report asserts.
“It may sound simple, but in a multiplatform environment most banks would consider payments a tunnel,” the report states. “Things go in and things come out, but quite where things are in between is difficult to track.”
Banks could benefit by focusing on how to leverage payment data, such as invoicing and trade-finance information, that could help a corporate customer. As such, offering free electronic invoicing to corporations should be high on banks’ agendas in the coming year, the report notes.
Electronic invoicing positions the bank to gain insight about the financial health of a business and to identify opportunities to suggest trade finance or to determine how a company could use its assets in international trade, the report adds.
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