From digital commerce to omnichannel commerce, the tides continue to turn in the payments space. The key for retailers and financial institutions alike will be to hone in on consumer preferences and make payment options as smart as possible.
The recent Global Mobile Payment Market report notes that the mobile payments market is on track to grow at an annual rate of 33% between now and 2026, topping out at $457 billion in 2026. People who have a mobile device (96%) outnumber those that have a bank account (89%), making this explosive growth understandable.
Digital payments have been on a sharp uptick, though traditional banking providers are lagging behind. While traditional payment methods in the west have deeper roots than they have in places like China, where emerging payment options sweep through like wildfire, challengers are quickly gaining traction. Both banks and credit unions need to consider these trends as disruption continues to shake things up in payments.
A number of trends have popped up over the past several years, namely person-to-person (P2P) payments, mobile wallets, and faster payments, though the mobile space has been particularly ripe for growth. The mobile payment market is expected to grow to $457.4 billion by 2026, at a CAGR of +33% between now and then. Incumbents must have an eye towards this future and take the necessary steps to take on upcoming challenges.
Omnichannel is no longer a buzzword but a way of doing payments. Consumers have adapted to device-enabled payments, which enable them to pay on whatever channel is most convenient at any given time and place. These payment options will continue to expand alongside the Internet of Things (IoT), as more devices become equipped for commerce.
Younger generations are leading the charge with online payments, specifically via social channels. Compared to the average consumer, Gen Zspends 2X-3X more shopping on social channels, especially Instagram and Snapchat. For all generations, the top three places consumers make purchases are Amazon, branded ecommerce websites and brick-and-mortar stores. Each caters to something different, whether it be convenience, variety, or the ability to touch a physical product before purchase. The reality is that each of those factors may play a role, depending on the day, making payments options that accommodate each a necessity.
Contextual payments - This is perhaps the clearest example of meeting the consumer where they are. This method allows consumers to bypass direct interaction with a merchant in favor of purchasing directly within the channel or platform they already are. Uber is one example, where consumers pay from the app rather than dealing directly with the driver to complete a transaction. Social buy buttons are another example where consumers can purchase from their favorite retailers without leaving Facebook or whatever social channel they are browsing on.
Loyalty Apps - Loyalty apps get consumer buy-in by offering rewards in exchange for taking a desired action. Starbucks is a good example; their app awards points per dollar spent and also offers members special perks. The app also has an exceptional user experience, enabling members to order/pay ahead and even create Spotify playlists.
Biometrics for Security - Biometric authentication has played a significant role in increasing consumer interest in emerging payments technologies. The assurance that sensitive data is secured by one’s unique fingerprint or facial characteristics has led to an increase in mobile wallets and payments adoption. As part of a multifactor authentication strategy, it adds peace-of-mind to every digital transaction.
Wearables - The ability to pay from something you’re wearing (wearable tech) has caught the attention of consumers. The wearables market has marched upward, growing by more than 30% in Q4 of 2018. It’s convenient, easy, and fashionable. As the technology improves and more big names get in the game, it’s a trend that will likely continue on its upward trajectory.
As ecommerce, mcommerce, P2P and other payment methods continue to grow, retailers and financial institutions will need to maintain pace with dynamic consumer preferences to see success. Mobile payments will sharply increase and all payments types will continue to get smarter, merging convenience, security, and ease-of-use. Payments strategies need to be smart, too. Businesses and banks both need to consider the needs of consumers and how to best meet them in a streamlined, secure way