March 14, 2023

The next big payments disruptors may surprise you

At the recent Money 20/20 conference, I spoke with The Fintech Times about which potential disruptors banks and payments players are most concerned about.

Adapting to changing customer behaviors and expectations

The huge change in customer behaviors and expectations during the pandemic has made this the number one driver of disruption in payments for banks around the world. In our survey, 48% of North American banks and 39% of all banks considered it one of their top two disruption factors.

The baseline for what customers expect from their banks has moved: they now demand seamless digital shopping and payment experiences, the ability to pay from any device, and advanced levels of data protection and fraud prevention.

This expectation applies to all types of customers, including consumer, SME and wholesale. The changes banks have made to personal banking and payments platforms need to be brought into business banking as well, because the new behaviors and expectations are migrating across these lines.

Meeting these new expectations will require banks to use data and cloud technology to analyze and predict customer behavior and smooth their payments journey.

Central bank digital currencies (CBDCs)

Surveys reveal that CBDCs are considered by banks to be the top driver of crypto-related disruption in payments, making them an even bigger concern than the adoption of cryptocurrency itself.

In North America, more than twice as many banks said CBDCs were a major disruptive force they need to deal with, than those that were concerned about cryptocurrencies. Globally, the number was 50% higher for CBDCs than for cryptocurrencies.

As these new digital currencies emerge, banks need to have plans in place to accept payments using CBDCs. Also, they will have to address how they deal with CBDCs from other countries, as a new type of foreign exchange. This is likely to require faster adjustments than banks are used to, because governments are moving quickly to introduce CBDCs.

Security and identity

The bad actors are always investing heavily in new ways to defraud customers, businesses and banks. Customers are looking for assurances that their investments, purchases, data and identities are safe. Business clients want assurances that their payments partners will protect their data, and therefore their reputation.

Banks should be looking at value-added services that help them stay ahead of the fraudsters—identity protection, security and fraud prevention will help banks maintain the trust of the customers and businesses that use their payments systems. Banks have a lot to gain by demonstrating that they remain one of the most secure options for payments.

Identification technology is developing quickly in areas like facial recognition, voice recognition and other biometric tools. Purchasers are also becoming less tolerant of needing to remember complicated passwords or punching in long strings of numbers for every transaction, while businesses are looking for seamless back-end integration and reliable protection from fraudsters and hackers. The challenges of balancing security with a satisfactory user experience should be a priority for banks and legacy providers.

Moving payments to the cloud

Cloud technology is adding value to traditional payment capabilities in the form of flexibility, efficiency, scalability and speed. Areas that have been affected include card issuing, international payments, and accounts payable and receivable.

Incumbent banks and payments providers need to learn more about how cloud technology can enhance their existing services through better use of data, stronger security and greater agility, in addition to the use of artificial intelligence to improve service and fraud detection.

Banks differ widely in terms of their progress in adopting cloud technology. Those lagging behind will need to accelerate their cloud strategies to stay competitive.