The payments industry is continuously evolving. Despite the dominant use of debit cards, credit cards, and cash, rapidly advancing innovations and technology draw in consumers for reasons of convenience and security. Which begs the question: what’s next for the payments industry? From new technology to integrated services, the future of payment processing will meet the growing needs of consumers and businesses alike.
We consulted two of the industry’s top experts to get a deeper look into the future of payment processing. Our first expert is Jason Oxman, the CEO of the Electronic Transactions Association (ETA), the global trade association of the payments technology industry. As a member of the ETA and winner of this year’s “Best Payment Facilitator Integration” at the TRANSACT Conference, Payline invited Oxman to our offices for a visit earlier this year.
One of the most influential people in banking, Jim Marous also offered his opinions about the future of payment processing. Jim releases his annual predictions on the industry and has been heralded as a top FinTech influencer for the payments and banking industries.
As our industry continues to evolve, understanding the needs of consumers and business is critical to our growth. What’s ahead in the future of payment processing? Our experts weigh in below.
We live in an increasingly digital age, particularly with payments. Despite this, cash is sometimes hailed as “king” of payments in the United States. With all of the digital options available nowadays, why is this still said, and is there really any truth to it? Who still relies on cash?
Jim Marous: The power of cash is in its convenience. While there are a number of reasons the use of cash should have diminished over the years, consumers still rely on using cash most often for small purchases. In addition, for some consumers and in some economies, there is a lack of trust in the banking system or the consumer wants privacy with their payment activity. Cash provides a level of privacy and does not require the traditional banking system to facilitate these transactions.
Jason Oxman: Cash is still popular for a number of transactions. Peer-to-peer transactions tend to be cash-based, although there are a number of great companies out there — services like Venmo, Google, and the like — that are advancing peer-to-peer products. We know that close to 70-percent of all spending at retail in the United States, by consumers both online and brick-and-mortar, is electronic. The rest is cash and checks. Certainly, the checks number is going down. You don’t see a lot of people writing checks these days. The cash numbers are relatively constant, but as it has been mentioned, debit cards are slowly replacing cash in a lot of consumers’ minds. ETA (Electronic Transactions Association) members processed about $5.5 trillion dollars’ worth of payments last year in the United States. The vast majority of those payments were commercial transactions — people shopping online and in stores. So, credit and debit cards, and increasingly new payments technologies — like mobile payments and wearables— are really starting to push cash and checks out of the system.
All this talk about a reliance upon electronic payments and payment technology makes us wonder: How do you define FinTech and where does this fall into the future of payment processing? What are some of its defining features?
Oxman: FinTech at its most basic definition stands for “financial technology”. It really is the intersection of financial services and technology that supports the industry. Merchants are taking advantage of software solutions that they’ve never had access to before because the point-of-sale technology is so advanced now.
For the first 50 years in our industry’s existence, it was a magnetic stripe-reader that sat on the desk, or the POS, as we call it — the point-of-sale. It had no capabilities other than to swipe a magnetic-stripe card to accept credit card payment. Now, those POS technologies are integrated with software solutions and other platforms and services. So, FinTech refers to that intersection of the traditional financial services and the technologies that make it much more rewarding for both merchants and consumers.
Marous: While FinTech once was used to describe smaller start-up firms that used digital technology and consumer insight to compete with the banking industry in specific segments of the business, the term is now used much more broadly to describe any firm (large or small) that has built financial solutions as well as referencing the solutions themselves. In most cases, however, FinTech is used to describe firms or solutions that combine financial services and digital technology to improve the customer experience. Beyond just “challenger banks” like Moven or Simple, FinTech now is used to describe the positioning and financial solutions from firms like PayPal, Google, Facebook, Alibaba, Tencent, Amazon, and Apple.
From what we understand, FinTech innovations and disruptions are sometimes met with hesitation and are slow to be adopted as the norm. What is it about tech disruption that causes this hesitation, and how will platform payments reduce that hesitation in the FinTech landscape moving into the future of payment processing?
Oxman: Unlike many other industries that technology companies seek to disrupt, financial services is very heavily regulated. Banks are probably more heavily regulated than almost any other service provider in the world. Banks face regulation at the federal level, from the OCC to the FDIC and the Federal Reserve. They’re also subject to anti-money laundering and policy requirements from the Treasury Department and are also regulated at the state level as money transmitters and state-regulated and chartered banks. When you’re talking about people’s money, there are a lot more protections and safeguards than there are in many other industries. That’s why, for a disruptive, FinTech-focused startup, very often we see partnerships with financial institutions, as opposed to just straight disruption of financial institutions.
Marous: The biggest hurdles with the adoption of FinTech innovations are trust, size of existing customer base, ability to navigate regulations, and capital. This is why the view of FinTech firms has transitioned from a “competitor” to more of a collaboration opportunity. While legacy financial institutions have the benefits of trust, large customer bases, capital, and so on, they lack the ability to innovate, be agile, and build APIs. So, as we move forward, and as Jason mentioned about partnerships as opposed to disruptions, we will see much more collaboration that will integrate the benefits that both traditional banks and FinTechs can bring to the table. As these collaborations mature, the hesitation to engagement will diminish as it has for mobile deposit capture, P2P mobile payments, and so on.
The Electronic Transactions Association (ETA) has said that nearly two-thirds of the payments industry is forecasted to expect faster payment volume growth during 2017. What is the reason for this, and what role are platform payments playing in this growth?
Marous: Plain and simple: consumers and businesses are demanding faster, real-time payments. As consumers and businesses become more accustomed to the benefits of digital technology, they have come to expect immediate gratification and their expectations for payments are no different. This transformation is not driven as much by competitive pressures as it is from market realities and expectations.
What will be the continued impact of technological innovation on payment processing?
Marous: The biggest impact technology will have on the future of payment processing will be the elimination of payments as “something you do” and the emergence of payments as “something that happens”… automatically. Consumers and businesses will no longer need to take a piece of plastic out of their wallet or use a phone to make a mobile payment. Instead, locational tracking and biometric identification will allow payments to occur without consumer interaction. We are already seeing this in early Amazon grocery store tests. In these prototype stores, consumers select what they want to buy and walk out of the store without needing a checkout. A similar program is being tested by Barclays with their ‘Grab and Go’ program for ready-made meals in fast food restaurants in London. Another technological innovation that will greatly impact payments will be the integration of voice as a payment mechanism. Voice-first payments is already being tested, with this market due for an explosion in the near future of payment processing as more consumers purchase digital voice devices for their home, their car, and more.
With that being said, what are the biggest challenges facing the growth of the industry today?
Marous: I don’t believe there is a challenge in the growth of payments per se, but challenges in how payments are processed. In the United States, without a well-defined value proposition for merchants, consumers, businesses and even banking organizations, the transition to mobile or digital payments will continue to lag. That said, I believe it is possible that some existing and recently introduced technologies (such as EMV) may become outdated before acceptance reaches a tipping point because of the potential for mobile and voice payments. Another significant challenge is security. This challenge can possibly be reduced with advanced biometric and even blockchain solutions.
Oxman: I would say that it’s clearly cybersecurity issues that threaten the future of payment processing. There are constant attacks on networks of all kinds, so our industry is certainly unique in facing this cyber threat. What is unique about our industry, and one of the reasons consumers choose electronic payments, is that we protect them against any fraud. In almost any other industry, if you’re a consumer — a customer of a payments provider — you have 100-percent protection against any liability for fraud. That’s a primary driving force behind consumers choosing electronic payments. The same goes for merchants — merchants also have that protection against fraud. The system is all about insulating its customers against fraud.
In the future of payment processing, these types of attacks will get more sophisticated. We know that mobile technology — mobile payments in particular — is the most secure implementation of payments ever. When you factor in the tokenization technology for mobile users, so that your actual account number is never transmitted when you tap on your phone to pay, the biometrics — you’re paying with the validation of your finger, instead of a signature — it’s much more secure. The entire ecosystem, really, is more secure than ever. Does that mean there will never be any successful fraudulent attempts in the future of payment processing? Probably not, but we know two things. One, it’s the best technology out there right now, and two, even if something goes wrong, customers are protected.
We’ve covered the growth of the industry, but what’s the next change our industry is facing? What holds up in the future of payment processing?
Oxman: Consider the advent of mobile payment technology. It’s something that’s just come on the scene in the last few years. What’s most exciting about payments technology is that we’ve built, over the course of the last few decades, an incredibly robust, safe and secure payments infrastructure that’s ready for the next generation of technology to be appended to it, if you will.
I would analogize it to the early days of broadband. We were all excited to have broadband lifelines coming into our home from telecom providers and cable companies. The question was, “We’ve got this data pipe coming into our houses. What do we do with it?” The answer is that all of the innovation that has taken place and continues to take place around the edge — the Netflix, the Amazon Prime, the content-delivery services that we all enjoy over those broadband pipes.
We can think of the payments ecosystem in the same way. We think of payments almost as a commodity. It’s something that we don’t even really consciously think about. It’s so rote, but all of the innovation that’s taken place around it, all the deployment of software capabilities, so that merchants can incorporate into those payments transactions things like loyalty, and other programs — electronic couponing, location-based offers, all the things you do with mobile devices — are built around the core of the secure-payments network.
Marous: Beyond the movement to faster payment processing, I believe the two largest changes we will see in the future of payment processing will be in the competitive environment and the way the payment process is viewed by the consumer. We are already seeing the major impact of firms like PayPal, Venmo, Square and even Amazon on how people transact. The marketplace will be getting even more crowded as solutions enter the marketplace that bypass traditional payment rails altogether. The ability to use Apple iTunes credit as a payment vehicle and the exploding use of P2P payments will change the way consumers view making payments. And we can ignore what the potential entry of both Alipay and Tencent (WeChat) will have on the industry. Finally, as digital technology combines with AI and big data, we will see recommendation engines that anticipate payment needs before the consumer even gets involved. Instead of Alexa or Siri being asked questions or given commands, these devices will be able to anticipate needs and conduct transactions with only a simple approval required by the consumer.
So, what are the biggest influencers driving these changes and the introduction of new payments technology? Is it people or the actual tech that drive innovation and development?
Marous: Right now, it is a combination of the digital consumer as a user group and the large FinTech firms such as Amazon, Facebook, Google, and PayPal. The digital consumer is demanding a seamless and transparent payments process and the larger FinTech players are the first to provide the digital solutions desired.
Oxman: There are also a lot of technology companies that are deploying wallets. I think it’s important to talk about two different kinds. One is a hosted wallet, where you may store other credentials in it. The other is the kind of wallet is where it’s actually the service provider itself that’s doing the wallet transaction. I think it’s the latter that’s going to be more popular, like Android Pay and Samsung Pay. I think the benefit of those kinds of services, as we’ve been talking about, is that it replaces a physical wallet with the same capability that you have on your mobile device. Rather than carrying around plastic cards, they’re all stored digitally. That can be true for credit cards, debit cards, prepaid cards, loyalty cards, and anything carried in a physical wallet. That convenience and that security factor make digital wallets very consumer-friendly.
The use of tech in payments definitely meets the customer wants of immediacy and efficiency, but security is still a large issue with payments technology. Do the benefits really outweigh the risks? As we look toward the future of payment processing, do you think that security will improve as payments technology improves, or will there always be holes?
Marous: There is an ongoing battle between the consumer desire for simplicity and security. If providers require too much engagement from a security perspective, the consumer will find a way to make their transaction easier even if there is higher risk. Cash may become an option again. With the increased use of biometric security and the potential of blockchain as a unique identifier, security will continue to improve. The $6M question will always be whether the providers can stay ahead of the hackers? In the end, those organizations that do not update their back office technologies will be the most vulnerable.
ETA’s Transaction Trends recently published that approximately 80% of Americans doubt the ability of traditional payment methods to stand up against “futuristic” payments technology like blockchain, sensor fingerprinting, facial recognition, and voice control. What do you think of this? Will traditional payment methods still hold up in the future of payment processing as we know it?
Marous: The entire industry will eventually become digital. While the U.S. may be one of the last bastions of paper, it will not be the case forever. I was just in the Nordic region, where there is talk of the elimination of cash altogether. The region has already have embraced mobile payments as the preferred way to conduct business at the POS, and our use of checks are laughed at everywhere in the world. While the transformation has already proven to be slower than many predicted, it will happen. All of the current layers of the payments process want better ways to pay, but changing behavior is never easy.
If that were to happen (traditional payment methods becoming “figureheads”), would there be negative ramifications?
Marous: Not that I can see. Some of the most ‘primitive’ banking systems are illustrating the power of simple digital transfers of funds. mPesa and similar banking structures actually are more advanced in terms of transparency, ease of use, engagement and acceptance. In these situations, everyone is a bank and payment processor.
Oxman: At the core, there is a lot of excitement about, for example, crypto-currency. There was a lot of enthusiasm about BitCoin. People would say, “BitCoin is going to replace not only traditional currency; it’s going to replace the credit cards and debit cards, and everybody’s going to be paying with BitCoin.” It’s pretty clear now that that’s not going to happen. It hasn’t happened, and one of the reasons for that is that it’s really hard to build and operate a safe, secure and reliable and ubiquitous payments infrastructure, and the systems that we have, the networks that have done that in the last 40 or 50 years are really hard to replace, and they work very well.
Right. We can’t build the infrastructure that took 40 years to build — we can’t build it in four.
Oxman: The question is, why would you? You look at a great company, like with what Payline is doing, in building an infrastructure around payments. Who would have thought, even five or 10 years ago, that you could deploy software solutions with payments integrated into them? Those are different worlds. You accepted payments over here, and then you had your software stack over here that did all the other functions that you cared about. Today, you integrate those technologies together, and you do it in a way that’s very beneficial to merchants and consumers, all while keeping the future of payment processing in mind.
What advice do you have for businesses and the payments industry as we look to 2018 and beyond in the future of payment processing?
Marous: We can’t use the present as a guide to the future of payment processing. While payments usage has remained relatively consistent during the past three years, aside from an increase in debit cards and mobile wallet apps aligned to retailers, such as Starbucks, the demand for better solutions is already seen with the most digitally engaged consumers.Complacency is the biggest enemy that faces the future of payment processing and the payments industry. Just because change has been slow in the past does not mean it will remain that way. And, as was found with mobile banking, when the transition of consumer preferences changes, the transition will be quick.
Oxman: Businesses have a lot of great options in payments, and I think one of the things that’s most exciting — and we certainly see Payline Data, they’re great members of the ETA ecosystem, getting into this business. It’s not just payments anymore. It’s about what, in addition, can a business get from their service provider?
So, we go in and integrate those payments together with other software solutions, together with other products and services that in the past, businesses may have received from a number of different providers — the ability to integrate payments into those, to make it a seamless customer experience.
I think that’s the biggest benefit to businesses across any size, particularly small businesses who haven’t had that range of options as the medium-sized or large enterprises. They all have that ability to buy those integrated services — to integrate payments capability into standalone services that are seamless and beneficial for the customer.
We’ve already seen the future of payment processing at work in everyday transactions. From mobile wallets to payments integrating with software, the industry continues to be driven by convenience, security, and meeting the real-time needs of both consumers and businesses.
Give yourself the advantage of understanding the future of payment processing with Payline. We are committed to helping businesses experience payments differently by helping navigate through the fast-moving world of the payments ecosystem.
About Jim Marous
One of the most influential people in banking, and a top 5 Fintech influencer, Jim Marous is the co-publisher of The Financial Brand, and owner and publisher of the Digital Banking Report. Marous speaks on innovation, customer experience, marketing strategies, channel distribution, payments and digital transformation.
Jim has been featured by CNBC, CNN, The Wall Street Journal, New York Times, The Financial Times, The Economist, The American Banker, Accenture and Forbes and has spoken to audiences worldwide.
Marous has also advised the White House on banking policy and is a regular contributor and guest host for the Breaking Banks radio show.
About Jason Oxman
Jason Oxman is the CEO of the Electronic Transactions Association (ETA), the global trade association of the payments technology industry. Since joining in 2012, Oxman has led ETA and its membership through unprecedented technological transformations, and ETA now represents more than 500 global financial and technology companies. ETA also owns and produces TRANSACT, the premier annual event for the payments technology industry, and is the voice of the payments industry on Capitol Hill.
Before joining ETA, Oxman was Senior Vice President of Industry Affairs of the Consumer Electronics Association, prior to which he served as general counsel of a technology industry trade association and vice president of a Silicon Valley-based technology company. He worked at the Federal Communications Commission to develop and implement technology policy. He began his legal career as a law clerk for the Maine Supreme Court, and he is also a former broadcast journalist. Oxman received his B.A. cum laude from Amherst College, and his M.S. and J.D. from Boston University.
Payline Data Services LLC is an industry-shaping payments company that powers killer payment experiences for a wide range of merchants. Established in 2011, Payline has rapidly ascended in the highly competitive payment processing industry. Today, Payline serves nearly 10,000 merchants and processes $2 Billion in annual volume. In 2017, Payline was honored with a second-consecutive year on Inc. Magazine’s 500 Fastest Growing Companies list. Headquartered in Chicago, IL, Payline is built on a foundation of providing opportunities for employees and customers to achieve their greatest potential and giving to those in need. For more information about Payline, please visit www.paylinedata.com.
About the Author
Mary Kate Mack is the Content Manager for Payline and has been with the company since January 2015.