Emerging payment trends and technologies are transforming the financial services sector making it easier for businesses and consumers to send and receive funds.
Three major trends in this space are: the continued penetration of digital payments, the rise of instant payments, and the influence of fintech on the sector.
1. The continued penetration of digital payments
Where once it was only possible to pay for goods and services with cash or, later, cheques and cards, consumers can now choose to make payments via a range of different devices. These include phones, watches and perhaps even spectacles in the future, with the recent re-invention of Google Glass.
According to the latest Australian Payments Network Milestones Report, Australia is leading the world in some aspects of digital payments.
With almost one million (954,174) electronic point-of-sale (POS) terminals around the country, Australia has the highest number of POS terminals per million inhabitants of all Bank of International Settlements (BIS) member countries.
The report also found more people using wearable devices. An estimated 14 per cent of Australians already have a smart wearable device and that figure is predicted to rise to 37 per cent by 2020.
Aside from consumer preference to make payments electronically, there are other factors driving the widespread preference for digital payments.
Banks, regulators and governments are encouraging the switch to digital payments according to Capgemini's Top 10 trends in payment – 2017 report.
A key reason is that digital payments reduce the volume of payments that go through the black economy as cash. This makes the financial system more robust.
Digital payments could become even more widespread with Australia's industry-developed, New Payments Platform. This new infrastructure is likely to facilitate faster data-rich digital payments when it goes live later this year.
2. Instant payments
Instant payments are a related trend to the digital payments push. Instant payments rely on underlying digital technologies to facilitate real-time payments.
Where once it was accepted that it takes time to receive a payment - with banks acting as intermediaries - now technologies are emerging that facilitate instant payments.
The rise of instant payments is a trend for CFOs to watch because of its potential to fundamentally affect a business' cash flow and change its payment terms.
While it may mean cash comes into the business faster, it could also mean cash leaves the business quicker.
The trend offers other key business benefits, allowing CFOs to reduce credit risk and improve treasury management.
But there are several issues to be resolved before there can be widespread adoption of instant payments.
One of the main considerations is how to facilitate instant cross-border payments, as Capgemini's research indicates.
This is likely to involve co-operation and collaboration across different jurisdictions, at least to facilitate instant payments made through the traditional banking system.
Traditional financial services businesses are already moving to compete with new fintech startups that exist to directly connect individuals and businesses to make payments.
The emergence of peer-to-peer payment platforms is likely to see a shake-up in product offerings from new players and from the established financial system.
CFOs are well advised to do their research before deciding which way to jump as these new platforms continue to emerge.
3. The influence of fintech on payments
An emerging cohort of fintechs, are developing a huge range of new payments technologies.
The traditional banking sector is keeping a close eye on developments. Some banks have set up in-house capabilities to develop their own fintechs, or have built-up internal resources to let them partner with fintechs.
Other fintechs could be acquired by large financial services businesses to enhance their offering to consumers.
These changes all point to the continual innovation of the payments system, as new payments technologies are tested and marketed.
CFOs may benefit from having systems in place to ensure they are systematically evaluating opportunities to improve their payment systems.
Three key steps to implement this:
- An assessment of the technology to work out how easy it will be to use in the business. New systems should be intuitive to use and simple to implement.
- A review of the right solutions for the business' size. The correct technologies are size-dependent, so the right tools for a $10 million business may be different to those required for a $50 million business.
- Focus on ensuring the business has the right change management systems in place to help finance and other staff accept the introduction of new payment tools in the business.
For most finance teams, there should be an ongoing appraisal process to make sure the business is across emerging developments in the payments space.
By putting systems in place to help manage decision making in this fast-changing environment, businesses can see real-time benefits in effective cash flow management.
- The volume of digital payments made through the financial system may continue to rise with the proliferation of new technologies like wearable devices.
- Instant payments may become increasingly commonplace, as consumers and businesses progressively demand to be paid in real-time.
- New technologies developed by fintechs (new financial technologies) can appeal to businesses across the financial system and may drive further streamlining of payment systems.