A few weeks ago, I attended the Merchant Payments Ecosystem in Berlin and since then I’ve reflected on a few of the key trends that were discussed over the three day event. MPE is the leading European payments conference focusing on merchant acceptance, with dozens of keynote speeches and panel sessions discussing a range of topics, given by over 150 speakers. The discussions provided some invaluable insight into the changing world of retail payments and I considered to what extent the future of payments will be impacted (as well as merchant acquiring and the transaction processing) by some of these trends (shown below) over the next few years.
An increasing number of digital touch-points
Although cash still accounts for a significant proportion of payment transactions in Europe, the proportion of digital transactions continues to grow rapidly. A cashless society could happen within the next 10 years in some countries. For example, Sweden is at the forefront of this trend, with shops clearly displaying ‘we don’t accept cash’ signs and P2P services such as Swish growing in popularity. The consumer appetite for and adoption of mobile payment services, like that particularly witnessed within the Nordic region, is expected to rise further.
There will be a growing number of connected devices, from wearables to home appliances and cars, and sooner or later these devices are likely to have the capability to be used as, or to include, a payment instrument.
Consumer behaviour is changing rapidly with consumers using smartphone devices and tablets to purchase and pay through various ways (including NFC contactless, mobile wallets, through standard mobile browsers, via in-app payments) and soon a growing number of other connected devices will be able to conduct/perform a payment transaction (from intelligent fridges to connected cars).
With this in mind, the payment ecosystem will become increasingly sophisticated, complex and also more challenging to secure against fraud, with millions of connected devices that can transact and multiple ways for consumers to pay and merchants to receive payments.
An increasingly sophisticated ecosystem will still call for frictionless payments, for example, if a connected car has the capability to automatically pay at the pump without any intervention from the driver, this has to work without any hiccups for the consumer and the provider.
The supermarket of the future may well be modelled on the recently trialled check-out free ‘Amazon Go’ store in Seattle. Thanks to a vast amount of AI, consumers just take products from the shelves and walk out of the store without a standard check-out process, and receive automatic mobile notifications confirming the total purchase amount that has been debited from their account. If in future this does become a reality, frictionless payments will be very important, and the underlying technology needs to be optimal.
Despite this, not all payment transactions have to be frictionless in the strongest sense of the word. For example, some consumer segments may prefer to have an input and/or additional level of authentication in the transaction process to ensure that they are in control of their spend.
A new role for acquirers
As a result of this proliferation of payment touch-points, the role of payment companies (networks, processors, acquirers PSPs, etc.) is changing. Traditional bank acquirers may not be the better placed in this more complex and fragmented environment and we could see an acceleration of bank acquirers looking for new partnerships or exiting acquiring altogether.
Acquirers will need to become more focused on being ‘merchant servicers’, and put merchant (and consumer) needs first, and support conducting business through multiple channels, while offering a seamless customer experience where necessary.
Impact of regulation and the role of FinTech
The PSD2 was mentioned many times at MPE Berlin, with very few comments regarding the interchange regulation and the impact it has had on merchant acquiring in Europe so far, but mostly regarding APIs and the wider impact that APIs can have on the payments ecosystem. We will witness the emergence of more FinTech players, with third-party providers creating new payment services using data from banks thanks to the PSD2, and aggregating services to offer better products to consumers and merchants.
There will undoubtedly be an increasing focus on mobile payments over the next five years and the ecosystem is already far more complex than hitherto, due to the large number of alternative payment methods and providers. According to Worldpay, alternative payment methods already account for 51% of global ecommerce turnover and merchants have to be able to accept a wider number of payment methods if they want to better serve consumers.
These are exciting times for the industry, presenting merchants and providers with a great deal of challenges but also some great opportunities in terms of innovations and the pace of change. In the years to follow, we will see the emergence of payment instruments being catapulted forwarded through further applications of tech. Customers will still choose those methods that are fast, convenient and easy to use – and ultimately those that are frictionless – but we anticipate an increasing number of digital touchpoints along the way. Acquirers and other payment service providers will need to respond and adapt, innovate and develop new sets of propositions to better support merchants in this ever-changing environment.