The Future of Payments at the Secure Technology Alliance
March 29, 2017 - This week, the Secure Technology Alliance (erstwhile Smartcard Alliance) is organizing its annual Payments Summit in Orlando and UL is sponsoring the ‘Future of Payments’ Track on Thursday, March 30. Here, UL's Principal Advisor, Srinath Sitaraman shares his thoughts on the trends shaping up the future of payments.
This week, the Secure Technology Alliance (erstwhile Smartcard Alliance) is organizing its annual Payments Summit in Orlando and UL is sponsoring the ‘Future of Payments’ Track on Thursday, March 30. I encourage whoever is attending the event to attend this track for good reason and partake in some very interesting conversations on the enablement of Future of Payments. Yours truly is kicking off the track proceedings on Thursday with a panel discussion on ‘Future of Digital Payments’. The rest of the track has panels on ‘Future of Mobile Wallets’, ‘Future of Fast Secure Payments’, and to close things off ‘The Future of the Consumer Payment Experience’.
I wanted to use this opportunity to share my thoughts on the trends shaping up the future of payments. Talking about predictions with future of payments, back in 2000, one Mr. James Van Dyke shared his thoughts on the future of payments at a US Congress hearing (on “The future of electronic payments: Roadblocks and Emerging Practices”), in which he boldly said the mobile phone “will have with it something like biometric security, where it reads your fingerprint or voice scan to prove that you are who you say you are. Everything that's in your physical wallet, from the family pictures to forms of payment can be in this device.” The first large scale implementation of this vision happened on September 9, 2014 when Apple introduced Apple Pay – combining contactless payments with on-device biometric security. To provide some context for that prediction – in retrospect, some of the leading mobile market share holders of that day barely have a market presence today. Phones had just started to get a color display and the 1st generation of Apple iPod had not even released, and least of all no one would have expected that Financial Institutions might one day outsource card holder verification to the consumer’s own mobile device.
In my opinion, the future of payments is one where there are no cash payments i.e. a cashless economy. As of End of year 2015, 32% of retail purchase transaction transactions here in the United States were still cash-based, and we have a long way to go before we become a cashless society (and this is even truer for the rest of the world than it is for the US). However, displacing cash in itself should not be the goal, while it is a critical milestone for going in the right direction. This is not just a zero-sum game where cash loses and the rest of us win. For me, the future of payments is also one where payments, banking and commerce are all tightly knit and as a result of increasing digitization there is an overall increase in economic opportunity and access to credit and to create a more economically vibrant society.
In the short term, there are a few critical trends that will help us get to this goal:
- In the short term, we will see a continued focus on digital and mobile transformation of payment credentials from both an issuance and acceptance perspective. And that means continued and robust adoption of mobile in-app payments as well as gradual roll out of more Issuer Pay and Merchant Pay mobile wallets (NFC/QR codes). We’ll also see a continued API-zation of banking platforms (in Europe this is already spurred by the PSD2 regulations, but similar initiatives are on-going also in the US and Canada).
- A second key trend is the continued pursuit of Omni-channel and Omni-presence strategies. For merchants, it is about getting their goods sold through as many sales channels as they can, and for Issuers it is about getting their cardholders to make payments wherever and however they want. As an example, we are already seeing a spurt of IOT Payments use cases, and will continue to see the development of new use cases for IOT commerce (and payments thereof). The Omni-presence and Omni-channel pursuit will also bring newer forms of identification and authentication to the fore (heart rate, device authentication). On a related note, I will have the opportunity to share my thoughts on ‘Enabling end-to-end IOT payments security’ and my colleague Kevin is also speaking on the ‘Future of Authentication’ at the Payments summit event this week.
- As we are seeing with mobile payments, if you don’t engage with your consumers, the technology or even the vision doesn’t matter. The consumer will ultimately make or break the future of payments as we envision it. After all they are the most critical stake holder. Are innovative use cases and loyalty programs going to be able to do it? So, the 3rd key trend is an all-of-the-above plus more strategy that will help engage the customer further. This engagement will also be aided by data analytics and artificial intelligence to deliver context driven experiences to the consumer. When the consumer experience and engagement takes the forefront, payment (as a verb) will start to fade to the background.
- Fourth, retailers and tech enablers will make payments (again, as a verb) non-existent. Uber has gotten a lot of praise for a seamless invisible payment experience. While the jury is still out on the success of Amazon Go, we can expect to see a variety of innovative use cases around making payments invisible. Perhaps when the consumer is engaged enough and payments is not something you do, it just happens by itself, perhaps we’ll see the elimination of cash as a payments instrument (i.e. a cashless economy). After all, there’s no one to ask if you want to pay by cash.
- I believe there is also plenty of room and opportunity for crypto-currencies to find its way into mainstream payments arena. May be that’s the cash equivalent of the future. The technology and the protocol exists. There’s already some big names backing the concept with their own money. Creating trust in the ecosystem (perhaps through regulations) and widespread acceptance of crypto-currencies will be vital for it to become main stream.
For those who are interested to know more, UL is also developing a Payments of the Future training program where we will go into the nitty-gritty of achieving this vision - stay tuned for that. For now, for this week, it is about bringing the industry together and putting our heads down while taking the next step in the payment digitization journey.