Some of the drivers for change in payments include the switch to contactless systems, as well as the broader economic recovery. Here, we explore five of the major themes set to drive change in the payments sector in 2016.
1. War on cash
We live in a world where cash is becoming less popular as a payment method and it’s likely this trend will continue for the foreseeable future.
According to the Reserve Bank of Australia’s 2015 Payments System Board Annual Report, consumer use of cash continues to decline, a trend that has been recorded since 2007, when the board started collecting this data.
In the report, it found the number of ATM withdrawals – which is the main way consumers get cash – fell by five per cent in the 2014/2015 financial year.
The report states, “the continued decline in ATM withdrawals is likely to reflect a number of factors, including consumers' adoption of new technologies such as contactless card payments that, like cash, provide for relatively quick transaction times. Growth in online commerce is most likely also a factor, with everyday transactions increasingly occurring online rather than in person.”
In contrast, the volume of non-cash payments is increasing. The same RBA report found card payments comprised two thirds of all non-cash payments in 2014/15. Across the period personal and business cardholders completed about 6.2 billion card payments worth $503 billion, up by 11 per cent and 7 per cent respectively from the previous year.It’s not known when these trends will stabilise. With it now costing seven cents to make a five-cent piece, the role of cash in our society must continue to evolve.
With Apple and Samsung making up the majority of the smart phone population in Australia, American Express is the only card issuer currently in the market to offer both Apple Pay, and soon Samsung Pay, options to their customers. American Express recognises it is important to be at the forefront of seamless and innovative payment solutions, as that is what customers want.
2. The shift to mobile and digital
One of the reasons why our reliance on cash is reducing is developments in the payments sector involving digital technologies.
With so much opportunity in this area, it’s possible new players could emerge, from places not yet anticipated . The rise of social media payments – for instance TwitterPay – will also change the balance of power in this area.
Mobile payments are, however, only part of the changes that new technologies are prompting. Business’ increasing use of payments data to better understand customer buying behaviour is an increasing focus for companies. It’s likely this will become much more sophisticated as the use of big data matures.
Expect further developments in this area to continue evolving the payments landscape.
3. Security drives customer loyalty
Both the public’s and regulators’ expectations about the right way to maintain customers’ private information continues to advance. At the end of 2015 the federal government released the Privacy Amendment (Notification of Serious Data Breaches) Bill 2015. Community consultation on this is continuing. The draft version of the bill requires mandatory notification of serious customer data privacy breaches for businesses that reach a certain revenue hurdle, which is yet to be finalised.
Aside from changing regulations in this area, it’s important to understand that consumers value businesses that successfully keep their data safe, and that this helps to drive customer loyalty.
According to a survey conducted by SafeNet of 4500 adults across five countries including Australia, 65 per cent of respondents “would never, or were very unlikely to, shop or do business again with a company that had experienced a data breach where financial data (credit card information, bank account number, or associated login details) was stolen.”
This demonstrates how central security remains to the success of the sector.
One of the major innovations likely to prompt further changes in payments is technology known as blockchain, which can be defined as “a distributed transaction ledger of immutable transactions.”
It’s a highly complex algorithm, chiefly known for its use in crypto-currencies such as bitcoin. It has much wider applications than simply this, however.
Many financial institutions are exploring how this technology, which is a new way of recording and validating transactions, could underpin many future developments in payments. That said, it is early days for blockchain and it’s likely it will take a number of years, if not longer, for its full potential to be known.
5. Continuing market disruption
Until the rise of digital technologies, the payments sector was considered a relatively stable part of financial services. But that’s all changed; some of the most interesting commercial advances are happening in payments. This is also a trend that can be expected to continue.
Innovations such as peer-to-peer payments, as well as novel ways of credit scoring customers, are allowing new market entrants to challenge the ‘business as usual’ approach of many of the established payments businesses and forcing these established businesses to constantly innovate.
It’s likely there will be ongoing volatility in the sector as it adjusts to the dynamics mentioned above.
- Increasing use of customer payment data to drive forward planning.
- Increasing use of digital payment techniques, while the use of cash continues to decline.
- Continuing innovation in the payments industry