The digital turning point: Payments past, present and future
Over the past decade, the world of payments has witnessed an explosion of new technologies, marking faster and more efficient processes for individuals and businesses alike. While consumers have openly embraced and benefitted from digital channels, technology adoption has not always simplified the payment lifecycle for businesses.
A look back on two decades of payment evolution can give us an idea of what to expect in the future.
Following Two Decades of Advancements in Consumer Payments
If the first decade of the new millennium represented the era of online payments, then the second decade easily became the era of mobile. Apple released its first iPhone in 2007. Over the next four years, annual device sales skyrocketed from 1.39 million to nearly 40 million.
As consumers embraced the pocket computer, mobile payment options emerged. In 2011, for example, Google wallet was introduced, offering consumers the ability to store and pay with credit cards on a mobile device.
Soon, retailers began to recognize the mobile revolution. In 2011, Starbucks became one of the first retailers to support mobile payments, offering consumers the option to purchase their morning cup of joe using their smartphone.
In 2014, as Apple followed in Google’s footsteps with Apple Pay, the number of mobile payments skyrocketed, surpassing desktop transactions for the first time, according to Visa.
Over the remainder of the decade, other vendors arrived on the mobile scene. According to Pew Research, by 2019, over half of consumers reported making at least one mobile payment.
Mobile also accelerated peer-to-peer payments. Community banks and credit unions are also entering this P2P space, once dominated by big banks with Zelle, and emerging fintechs, like Venmo. By partnering with agile fintech developers, services can be provided from within the secure digital banking interface. “Community financial institutions are often hampered by legacy infrastructure, a lack of capital, and limited IT bandwidth, are clamoring for innovative money-movement technology that helps them keep pace with larger institutions and non-bank competitors. Fintech partners can help them control the experience, rather than simply becoming invisible pipes for money to flow through. Consumers are far better protected by choosing technology delivered through the security and relationship only a financial institution can provide,” said Kelli Schultz, president of Allied Payment Network (Allied), a fintech company specializing in bill payment technology.
The Challenges of Business Digital Payment Adoption
Gradually, the digital payment services infiltrated corporate payment processes. However, while businesses were adding digital channels, it was still necessary to support traditional payment methods, even as usage declined.
In 2015, the Federal Reserve Payments Study reported that 13.4% of noncash payments were still initiated through checks, down from 57% in 2000. As a result, many businesses were accommodating six or more payment channels, each with an independent system and workflow. The lack of visibility between these channels created bottlenecks in the process, often challenging an organization’s cash flow.
Unfortunately, the integration problems have persisted into the present day. For instance, it isn’t uncommon for electronic payments to arrive separately from remittance information, requiring manual matching.
Inefficiencies like these can create friction, making it difficult to determine when a payment has been made and to track overdue invoices. According to research conducted by Tungsten Network, American business organizations spend over $170,000 a year resolving issues related to P2P payments alone.
Currently, only 16% of corporations are capable of straight-through processing at a rate of 97% and above, according to Aite Group. Reaching this critical metric is essential as digital capabilities continue to expand and offer opportunities for faster and more efficient payment processes.
Looking to the Future of Payments
The biggest challenge for businesses is ensuring that all payment processes work together. Without a seamless relay of information, delays in processing can result as well as a lack of transparency that inhibits efficiency.
Another issue for corporations is a continued reliance on paper invoices, despite technologies that allow for digitization of the payments. The Tungsten Network survey reveals that businesses spend as many as 55 hours per week on paper-based processes, such as investigating invoice exceptions, discrepancies and errors.
Imagine the time saved and inaccuracies avoided if payment technology were more ubiquitous. Allied, for instance, pioneered the technology behind PicturePay®, its photo pay platform allows users to take a photo of an invoice, enter an amount and click to pay instantly. Even if the invoice is handwritten or a photo of an electronic invoice on a computer screen, the technology “reads” the invoice details necessary for processing the payment.
Fortunately, emerging technologies promise to turn the next decade of payments into the era for commercial excellence as banks and credit unions support business clients with the tools they need to improve accounts receivables and accounts payables processes. Artificial intelligence (AI), machine learning and robotic process automation (RPA) will be the big hitters over the next ten years.
Artificial intelligence refers to computer systems that are able to perform tasks that have traditionally required human thought and intervention. Robo-advisors or chat-bots used to answer common questions and offer guidance on a predetermined set of topics are examples of artificial intelligence in action.
Machine learning takes AI to a new level as complex computers learn from inputs received to adapt and improve without human intervention. When Amazon offers additional products based on recent searches and purchases, that is an example of machine learning at work.
Putting both AI and machine learning together, RPA is able to take on simple, repeatable human tasks and perform them faster and with fewer errors. With payments, RPA can rapidly extract data from invoices or account details. Reducing the need for manual entry not only speeds the process but also reduces the risk of error.
The biggest benefit is that businesses will be able to capture data from various channels and integrate legacy payment systems and core banking environments to automate the entire payment lifecycle.
The Race to Real-Time Payments
From buying shoes to finding a date, consumers turn to their digital devices to conduct everyday tasks. Payments are no different. In fact, real-time payments according to Schultz, are likely to become the norm by 2025. “I foresee a change in the system of rails used to make payments that will result in enhanced data exchange and support real-time cash movement using a myriad of payment choices. We’re already seeing these new-age rails in use, albeit on a limited scale. Which path makes the most sense will be use-case dependent,” she said.
With the development of a new system of payment rails, consumers can expect to have greater choices of payment method. They can choose based on ease-of-use, their cash flow management needs, credit accessibility and rewards programs. Artificial Intelligence will help consumers decide which option will work best for them at that point in time.
Consumers also win as technology advancements continue to make it easier and more secure to make purchases and transfer funds. Think about how simple and efficient it is to order, ride, and pay for an Uber. This is the future of consumer payments as RPA quietly takes care of paying the tab, boosting invisible payments into the forefront of consumer transactions.
The next decade will also be one of security, as consumers and businesses alike strike back against cybercrime and identity theft. Advents such as biometric authentication will replace frustrating and time-consuming multi-factor authentication processes by the decade’s end, securing financial data and systems for a more integrated and safe payments tomorrow.
This blog post is a reprint of an article that ran in Credit Union Times. You can view the original content here.
i https://www.statista.com/statistics/276306/global-apple-iphone-sales-since-fiscal-year-2007/
ii https://usa.visa.com/dam/VCOM/Visa%20Everywhere/infographic/Visa%20-%202020%20-%20buyingintomobile_infographic_web.jpg
iii https://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2019/10/are-americans-embracing-mobile-payments
iv https://www.federalreserve.gov/newsevents/pressreleases/files/2016-payments-study-recent-developments-20170630.pdf
