In the latest in our series of blogs on the BPC annual client conference, we look at developments in retail payments and e-commerce from the perspective of Aite-Novarica Group strategic advisor Ron van Wezel.
As in any other sector, identifying the next big thing in retail payments and e-commerce is no easy task. Luckily, van Wezel has a wealth of experience in payments to draw on when discussing the main drivers behind the industry as it is today and the major disruptive trends.
He began by discussing what is behind the disruptive change in the financial service industry. The first factor he highlighted was empowered customers, a new age of consumer used to having real life at their fingertips, tailored to their needs and their personal experience.
The next driver is customers having access to their own data. Customers are now able to decide who is using their data and for what purposes and this is creating new competition within the industry, which means that traditional players - such as banks and large enterprises - have to match these new players with better, newer infrastructures.
Van Wezel says this competition is made possible by the experimental development of new technologies. For example, until relatively recently artificial intelligence was the preserve of research facilities, but it is now used by many major banks on a daily basis.
He explained that new channels are being created every day, creating new rails that can be used for payments by applying them to technologies such as blockchain or distributed ledgers.
For the largest corporations, being able to respond to a changing market is essential as demand is constantly shifting. According to van Wezel, being able to make the shift from personal to digital experience - as well as developing new platforms - is imperative to the success of established businesses in this evolving market.
Products can no longer be developed every six months or every year, but have to be introduced every month to keep up with competition. Banks are able to partner with fintechs to deliver exceptional customer service, using the banks’ data and services to integrate financial service into the customer offering.
This results in an open banking environment where we see the walls between banks and other parties breaking down. He suggests this is already happening in Europe and many other parts of the world and that disruption by these trends is becoming the new normal for payment methods.
Payment evolution has been accelerated by the pandemic, with an increase in digital payments and cross-border commerce being expanded, meaning companies and customers need new payment instruments for the cross-border commerce experience.
Next, van Wezel moved on to look at disruptive trends in payment methods, the first being the shift to digital. During the pandemic e-commerce sales have grown rapidly worldwide, driven by conversion of cash to digital payments, new acceptance points and the introduction of products such as buy now pay later.
The use of cash is declining, creating the need for new acceptance points as customers require more options to spend money online, utilising the internet in a beneficial way. Buy now pay later, van Wezel suggests, is the most influential trend changing the way consumers make payments since it has led to increased repeat purchases, and customers reportedly enjoy being able to pay at their leisure rather than at the point of redirection.
van Wezel pointed out that this was prompted by customer demand for security, convenience and real time experiences.
AI banking was another trend he discussed, stating that it will facilitate improvements in finance and better integration of financial services into a customer platform, although this will also lead to pressures on the developer community.
Van Wezel suggested that what banks have to start doing is providing banking as a service to fintechs and other enterprises. The former won’t typically have a banking licence, so to be able to provide financial services they have to partner with banks that are already able to provide services including loans and payments.
By partnering with fintechs and other financial institutions to provide specialist banking-as-a-platform, a bank would only need to provide its licence to operate and possibly some administrative activities - everything else would be provided by the banking service platform.
In conclusion, van Wezel stressed that the payment space is dynamic and that accelerated digitisation of e-commerce is down to empowered customers who want immediate, frictionless and personalised banking experiences.
Banks must invest in modernisation to protect their market share as new competitors develop their businesses. Without adapting to change, banks are exposed to loss of revenue, payments and income, so a move away from traditional pricing methods and increasing conversion of payments from cash to digital is essential.