Future of Payments: A Five Step Vision of the Future of Payments
Regional Cross Border Payments Head, APAC Treasury and Trade Solutions, Citi
Head of Innovation, APAC Client Co-creation Lead, Global Treasury and Trade Solutions, Citi
When we look ahead at what the payments industry could look like in the future, we inevitably do so in the context of the COVID-19, a human tragedy that has fundamentally changed the way we work, we consume, we engage – and also how we pay.
The crisis will fade, but many of the experiences and lessons we have learned along the way will remain. On one hand, we’ve been reminded of the value of human contact. On the other, however resistant individuals and organizations may have been to change in the past, the benefit of human contact does not extend to payments. Rather, as we explored in the earlier chapter on Harnessing Technology to Enhance Client Experience in Asia Pacific, digital done right delights.
1. Digital payments transformation will accelerate as a result of the crisis
The crisis catalyst on payments
Digital payments have kept communities safe and economies moving during the crisis. From a consumer and small business perspective, the use of cash and checks plummeted during lockdowns around the world, to be superseded by digital payments, both online and at points-of-sale. At the same time, organizations of all sizes, including public sector and government, have rapidly transitioned to new ways of working, where every paper-based and manual process, including payments and accompanying documentation, was exposed as a vulnerability.
The question for finance and business leaders has been how to digitize their activities quickly. While in some cases, this has been a relatively straightforward process, in other cases, the scale of the task has been enormous. For example, in 11 of the 14 markets in Asia in which Citi operates, cross-border payments need accompanying documentation, mostly paper-based. Fuelled by the crisis, there is significant momentum behind digitization and dematerialization.
2. Governments and public sector bodies will create new momentum behind payments digitization
The crisis has also made people think differently in terms of the customer experience they expect, which again has an impact on payments.
Consumers increasingly enjoy an excellent experience when purchasing products and services, with a closely integrated payment process. From a corporate perspective, however, while there have been significant developments in the automation, integration and security of payments, there remains a considerable mismatch between an individual in their consumer vs corporate roles, even when working with the same bank.
3. The experience of corporate and consumer payments will coalesce
As consumers, we expect 24/7, real-time payments, but achieving this in a corporate domain is more challenging given security and regulatory considerations, such as sanctions screening, beneficiary validation and fraud detection considerations.
Providing sufficient liquidity when markets close at 6pm and managing FX implications when FX transactions are settled in one or two days, are also essential issues to overcome when trying to extend corporate and institutional payments processing 24/7.
One question is whether corporations, as opposed to individuals, need 24/7 real-time payments. After all, many corporations have refined their payments processing over many years to meet normal payment obligations. 24/7 real-time collections offer more apparent benefits, by increasing predictability of payment, enhancing working capital and minimizing credit risk. As digital business models evolve and accelerate, as we saw in the first chapter, ecosystems are becoming more integrated, the flow of goods, data and cash flows are accelerating. Realtime payments are essential to this.
Despite the rapid growth of real-time payment schemes across Asia, there remain four issues to address to fully achieve the vision of real-time, 24/7 payments:
24/7, real-time payments and collections processing requires has an impact not only on processes and people, but also systems. The growing use of APIs is already facilitating real-time or ‘on demand’ flow of data and transactions, and solutions to further accelerate and add transparency cross-border payments, support open banking initiatives, prevent fraud, and facilitate real-time liquidity will continue to evolve. For example, we have seen a surge in adoption of Citi’s Payment Outlier Detection solution, which uses artificial intelligence and machine learning to flag exceptions to normal payment patterns. Blockchain solutions are looking promising in overcoming issues of traceability and reliability, and creating trust across industry ecosystems.
4. Payments will become integrated into our daily experience
Challenging the payment concept
Historically, however integrated the physical and financial supply chains, these two remained separate flows. Increasingly, however, payments are becoming indistinguishable from the transaction itself.
5G and the internet of things (IoT) will be a major driver of this. With road tolls, parking and fuel payments initiated directly from cars, medical services paid at the point of prescription or treatment, component orders initiated and paid for automatically, existing subscription models are set to develop further in their reach and sophistication. Increasingly, therefore, the payment process will become invisible and interconnected into our normal lives, not only as consumers but increasingly as businesses too.
5. Customer experience will be the primary competitive driver for payments
Supporting evolving customer priorities
Ultimately, the success of any payments strategy is determined by the experience of payment participants.
Automation, convenience and security are a given, but in what other ways could customer priorities evolve? Sustainability is increasingly a factor in consumer buying behavior and intrinsic to corporate culture. The shift to digital payments to eliminate paper and cost, and reduce the carbon impact of shipping checks and cash play an important role in increasing sustainability.
However, there are also wider environmental and social aspects to consider. Does a payment method increase financial inclusion and accessibility? What are the environmental credentials? For example, a single blockchain powered bitcoin transaction uses the same amount of electricity as two months’ usage by an average household.1 Consequently, the impact of new business models, and the payments that support them, on social and environmental sustainability, is likely to come under increasing scrutiny from all types of stakeholder. The more that corporations, governments and regulators, banks and other industry participants look ahead to the evolving needs of customers, and the social and environmental context in which they operate, the more likely that the future of payments will be the realization of a vision of trust, efficiency, transparency and sustainability.