In the payments ecosystem, sometimes there's a nagging feeling that for all the talk about change, the more things stay the same. After all, the card networks and ACH are still the main rails for payments with consumers. We still use ATMs, albeit less frequently, to get cash. And mobile wallets still represent a fraction of traffic at the point of sale (POS).
Yet over time, things do change in payments, even though it is more often occurring at the pace of an evolution rather than a revolution. With that in mind, we spoke with a few experts to see what struck them most in terms of significant developments this year in the payments space.
The list is hardly exhaustive, but these five hot topics resonated among payment experts, serving as reminder that change is afoot – even if it's sometimes hard to see.
01 Apple Card
Apple rolled out the Apple Card in summer 2019, and it's since seen rapid adoption due to its appeal. The product bundles instant issuance, loyalty, person-to-person (P2P) transfers, credit and contactless payments with Apple Pay. Another attractive feature is its no-hassle cash back. Users get 3% back daily at Apple and other select merchants, 2% when using Apple Pay and 1% everywhere else.
For the card issuer, Goldman Sachs, it's been a coup of sorts in the consumer market. That's because Apple delivered a large trove of new customers directly to Goldman. Those customers came already vetted, since they are Apple Pay users. They are multi-factor authenticated and "Know your customer" compliant, notes Richard Crone, chief executive officer of Crone Consulting. Customers can sign up in less than three minutes.
Just the onboarding ease should give issuers something to think about, he says. "Apple Card has set a new standard by which all other account provisioning schemes will be judged, not just for credit cards, but all new account openings in every industry."
The card is off to a fast start. David Solomon, Goldman's CEO, characterized the debut as "the most successful credit card launch ever." That's hard to know without the numbers, but a number of other payments observers describe it as a game changer.
Facebook announced in June 2019 its proposal for Libra, a global blockchain digital currency designed for cross-border payments. At minimum, it's a sign that digital currency adoption on a large scale might not be far off.
It's a new distribution channel for P2P and a social payment with the utility of a bank account, Crone says. "Think of it as an international, interoperable, private label prepaid gift card or general-purpose-reloadable card," he says. Facebook, with 2.45 billion active users daily, offers a connection point to 90 million businesses and 1.7 billion unbanked, Crone estimates. Libra would be centralized and backed to a number of fiat currencies, such as the dollar and euro, part of a new breed of stablecoins.
Since its announcement, Facebook has been subject to backlash by the U.S. Treasury, lawmakers and government regulators. Yet Libra won't likely go away any time soon. Facebook has testified to Congress it will not launch the currency anywhere in the world without the approval of U.S. regulators.
"The first ones to leverage Libra will be the big winners, since it will be the first truly globally accessible payment network from day one," Crone says.
03 Challenger banks
While brick-and-mortar financial institutions still hold the lion's share of demand deposit accounts, the recent success of challenger banks (also called neobanks) should stiffen the backs of industry executives.
A host of new mobile players have made inroads in part by offering no-fee accounts and products that avoid the 'gotcha' game played by traditional players with overdrafts. Some offer features that even lend cash-strapped consumers a nominal amount to 'float' them the difference. Meanwhile, other challenger banks are hitting the market first with a particular product, then following up with a debit account. Goldman Sach's Marcus did this with loans and now has a prepaid offering.
Look for more players to come on the scene with similar approaches. "They'll all go after different niches," says Kevin Grieve, head of Accenture's North America payments practice. "You'll see some specialized apps around home equity lines of credit, a mortgage or an auto loan."
04 Cloud POS ubiquity
Cloud-based POS systems have been on the market for years, carving out a niche in the small-merchant market. Yet 2019 marked a turning point, with scores of competitors vying in the space as part of an arms race of sorts.
"This is the year of an explosion of smart terminals and cloud-based POS systems," says Jared Drieling, senior director of business intelligence at The Strawhecker Group, a consulting firm. "It was gaining momentum, but now, clearly everybody has to offer one of those types of solutions to remain competitive."
The systems come packed with deeper functionality, such as business analytics, appointment scheduling, loyalty programs, customer reviews, web design — and that's on top of the standard payments processing.
"You can no longer compete on pricing," Drieling says. "You need to provide additional value add."
05 FedNow and ISO 20022
The Federal Reserve's announcement of the still-developing FedNow system wasn't exactly a solution to speed up payments any time soon. (It's slated to debut, at the earliest, in 2023.)
But what it did do is give another big backing to vendors supporting the ISO 20022 format – a standard for interchange of electronic data that supports additional descriptive information related to payments, such as receiving confirmation of payment and rich details needed for remittances or invoices.
With processing becoming commoditized and the resulting price compression that has followed, being able to provide robust data along with the transaction has become the Holy Grail of payments. Data will become a product that merchants will want to pay for, Accenture's Grieve says. "The data could eventually be more valuable than the individual transactions."
In the years to come, look for more reaction to these five developments, along with new innovation in its own right. The legacy systems aren't going anywhere just yet, but change is in the air.