Today’s digital payments: Renew the old, ring in the new

Without question, the rise of electronic payment mechanisms has profoundly impacted on the ways that millions of people conduct commerce. Furthermore, it has shifted the financial power base away from analogue payment methods – not just cash but also cheques, a form that has been all but killed-off by electronic payments.

In the UK alone, there were just over 18bn cash payments in 2014 and cash was used by consumers for 53% of transactions, according to Payments UK. However, while cash is still the primary payment mechanism it retains only a slender majority, with electronic payments set to eventually overtake it.

The volume of electronic payment methods out there is already vast, from credit and debit cards with contactless payments to digital wallets and mobile payment apps. At the institutional banking end, the advent of the Faster Payments scheme in 2008 has overhauled the UK banking sector. Substantial funds now move between banks in hours, minutes or, often, instantly rather than in days. At the same time, payments services organisations and platforms need to augment other legacy payment systems. Enhancements are introduced in response to the challenge of reducing maintenance costs, while meeting customer expectations and keeping up with constant changes in the marketplace.

Digital payment technologies are disrupting and transforming the landscape of the payments ecosystem, by opening the market to new competitors far outside of the traditional banking hierarchy. With this comes the need for regulation and standardisation, so that digital payments can establish a happy medium alongside cash, and so that users can benefit from improved speed, convenience, security and a uniform approach across all commerce and payment channels.

Listening to the marketplace

In an effort to understand where the payments industry currently stands and where change needs to be implemented, Infosys commissioned a study that sought to identify how payments providers can remain competitive in the new world of electronic payments.

Canvassing insights from a group made up of payment services providers (31%), banks (27%), payments networks (23%) and merchant services providers (20%), the study addressed a broad cross-section of the payments services ecosystem, delivering some stark findings in the process.

Over two-thirds (69%) of respondents are focused on customer growth as the primary digital strategy objective in the coming financial year. Just over a third (35%) are looking to improve customer satisfaction while 40% want to deliver a single unified digital customer experience. The same number also pointed to the need to deliver faster transactions, as well as digital omni-channel payment services. Meanwhile, 41% are simply looking for competitive advantage over traditional financial services competitors.

However, funding investment in digital payment services is problematic for some organisations surveyed. Just over one in three (35%) of the organisations interviewed are hampered by the current operational and maintenance costs of legacy payment systems, holding back investment in new technologies and services.

Thirty-one percent question whether their legacy systems can handle being reworked or otherwise adapted to handle fast digital transactions, while 22% of organisations struggle with a shortage of skilled staff to help leverage new digital technologies.

Fraud and compliance

The EMV card – also known as chip-and-PIN credit and debit cards, are still among the leading responses to electronic payment fraud prevention. Based on a standard created by card issuers EuroPay, MasterCard and Visa, EMV has begun to make inroads into North America after becoming commonplace in the UK and across Europe.

Introducing chip-and-PIN in North America not only improves security and enables more electronic payments, it also starts the process of an eventual global phasing out of magnetic strips on credit and debit cards. Over a third (37%) of survey respondents identified phasing out card magnetic stripes in favour of EMV chips as critical to long-term fraud prevention.

As such, 46% of those surveyed are investing more in EMV technology and other forms of tokenisation in order to reduce online banking and payment fraud. Not only does EMV enable additional benefits such as one-time authentication, the refresh of cards is also allowing for widespread rollout of contactless near-field communication (NFC) payment technology in the same cards.

In addition to increased global investment in EMV, 31% have either invested in or plan to invest in biometric authentication such as fingerprint scanning or voice authentication to improve customer security. A further 37% are taking advantage of the faster data-gathering associated with digital payments, by investing in data-driven analytics and predictive analysis in an effort to detect fraud faster and even pre-empt some fraud before it happens.

Investment in authentication is an important decision as 51% of those surveyed highlighted authentication controls as critical to reduce mobile electronic payment fraud. By contrast, 45% said the same for conventional Internet-based payments and banking.

As a result, security confidence is high in the industry. Six out of 10 respondents are confident or extremely confident that they are prepared to handle digital security threats.

Security aside, the role of regulation in the emerging digital payments space is garnering an equally strong level of preparedness from those organisations surveyed; 46% of respondents are either prepared or very prepared for the advent of existing and new digital payments regulation.

Customer experience-related payments technology trends

The march to digital payments is, of course, more than just an act of increased security and fraud prevention. One of the biggest benefits than can be unlocked from this is improved customer experience, engagement and loyalty.

When asked how digital can influence the customer experience, the survey sample highlighted several things that together fall into three clear headings.

• Speed: Forty per cent said customers benefit from faster transaction speeds. In addition, 37% said digital enables more customer self-service opportunities. Self- service not only speeds up the customer experience, but liberalises when it takes place.
• Broader engagement: Omni-channel customer engagement via digital is being leveraged by close to 40% of those questioned, with 36% citing improvements to cross-selling and up-selling. Using digital to improve the initial customer acquisition and on-boarding process is also key for 28%. However, only 24% said had improved their social media offering and platform engagement. Of particular interest is the area of personalisation. A third of those surveyed highlighted that digital not only allows for better customer self-service, but also customer personalisation of their relationship and transaction experience. Customers can control themselves everything from how digital services greet them, to how often they are emailed and how they receive critical communications.
• New products and services: Perhaps the most obvious aspect, but critical nonetheless is the improved time to market that a digital product or service can take advantage of, and in turn that customers can benefit from. Digital-only savings and current accounts are already commonplace and growing, as shifting the entire customer experience online cuts costs dramatically and removes geographical boundaries such as the reach of branch networks. Of those surveyed, 28% highlighted the faster time-to-market for digital products as a customer benefit. Furthermore, 38% cited a better understanding of digital customer dynamics.

While being digital is essential today and in the future of the payments sector, organisations need to be able to scale as well as deliver fast transaction speeds in order to meet customer expectations. Doing so will also ensure traditional operators such as banks and credit card issuers can compete on a level playing field.

Digital wallet services and a new generation of technology-driven payments-on-behalf-of (POBO) and collections-on-behalf-of (COBO) providers have little or no banking heritage and are free from the restrictions of legacy systems.

Teaming up with experienced and creative multinational partners with payments industry expertise will be essential to successfully navigate the “new and renew” transformation process while maintaining legacy.

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