The Year in Review: How the Payments Ecosystem Evolved – by Jim Johnson

This year was predicted to be a time of focused transition in the payments arena. FIS’ EVP of payments, Bruce Lowthers, said he expected companies would change direction from chasing the latest technology trend to focusing on connecting innovation to consumer value propositions.

How much progress did we see in convenience, safety, ease of use and financial inclusion in making payments?

1. Innovations that make payments safer

Progress is picking up on deployment of tokenization. Tokenization is going mainstream in response to growing CNP fraud since the rollout of EMV. A critical tool in securing online and digital transactions, tokenization is expected to grow at a compound annual rate of 22 to 24 percent over the next five years.

Issuers enlist consumers in the fight against fraud. Cardholders now have more control than ever over their payments. They can dictate how, when and where their cards are used. Issuers send real-time fraud alerts to consumers to question transactions when fraud is suspected.

Real-time fraud monitoring adds another security layer. Institutions are using machine learning to look at fraud analytics results and adjust scoring models daily, thereby better differentiating fraudulent transactions from non-fraudulent ones. This process of continuous updating allows global fraud trends to be identified and incorporated into scoring models.

Recently launched technology verifies consumers’ identities without passwords. Research shows that nearly three quarters of consumers reuse passwords across multiple accounts. To eliminate the problem, online authentication and fraud detection tools enable consumers to authenticate their digital identities without using passwords. Consumers enter their information once, then create a personalized identification that can be used across participating financial institutions, businesses, and retailers.

2. Loyalty solutions boost consumer value

Consumers reap more relevant rewards. Real-time rewards programs let consumers earn rewards on everyday transactions and enable redemption at the point-of-sale. This represents a fundamental shift in how consumers are rewarded, integrating redemption with routine activities and making rewards easy to attain.

Artificial intelligence applications drive greater usage. With AI, institutions can transform their data into actionable information that increases the relevancy of rewards programs. For cardholders who fit a certain profile identified through AI, institutions can employ targeted incentives such as broader rewards choices that encourage top-of-wallet status.

3. Smart technologies up the ante on consumer convenience

Smart mobile technologies enable consumer convenience. The customer experience is taking center stage while payments recede into the background. Here’s how “invisible payments” are affecting different types of consumers:

• Minor league baseball fans can use their mobile phone to pay for parking, buy tickets and make concession stand purchases while they gain loyalty points that incentivize their return to the park.
• Chinese consumers can use Alipay to shop at airports around the globe.
• In more than 20 countries, consumers can use Apple Pay to send money to and receive money from friends and family members quickly and securely.
• EBT recipients in the United States can use their mobile phones to make payments from their cash accounts. This eliminates expensive ATM fees that unbanked EBT recipients typically have to pay to get cash, while also broadening where they can spend their money.
• Consumers can use mobile order to save time, especially in places they often frequent, such as quick-service restaurants, grocery stores, and drugstores. Adoption of these apps is high as is usage among adopters.

4. Financial institutions advocate for consumers

Advocacy delivers what consumers want and need, but it comes at a price. More financial institutions are bearing the burden of advocating for consumers. That often translates to expanding offers beyond the institution’s comfort zone into areas such as prepaid cards that promote financial inclusion, and mobile payment apps that meet new digital expectations.

These are just a few of the many innovations that drove forward progress in payments during 2017, especially strengthening consumer value propositions that resonate with consumers. For the look ahead, stay tuned for Bruce Lowthers’ upcoming blog on how the industry will further transform in 2018.