The evolution within payments along with the push toward digital shows no signs of slowing down. Here are some key drivers of the payments industry transformation.

The payments industry is no stranger to technical innovation, but the last two years have prompted a global transformation in the way we spend and manage money. The restrictions and opportunities presented by the COVID-19 pandemic have caused unforeseen market changes, ones that continue to impact how consumers engage. This behavioral shift, combined with the increasing accessibility of new digital tools, has changed the stakes for payments companies.

The convenience and efficiency of digital commerce have led to the emergence of new and disruptive payment methods — from mobile wallets to contactless purchasing. Companies are also embracing payment infrastructure upgrades that are underpinning most digital transformation strategies today.

Digital investment is no longer optional — and those that delay will likely find themselves falling behind the competition. But what exactly is driving this widespread transformation?

The Drivers Behind the Payments Industry’s Transformation

Changing Consumer Expectations

The first key driver of payments transformation is the shift to digital payments and the new consumer expectations that accompany that change. It’s easier than ever to do everything from viewing bank statements to transferring money and making payments digitally — especially on mobile devices.

The result is increasing pressure for organizations to enable mobile payments and facilitate digital-first services. Those that don’t, will likely see customers growing dissatisfied and seeking alternate providers. Customers now expect these online tools and it is this demand that is prompting widespread digital investment.

The Path to Digital

The payments industry is not the only space experiencing a technological evolution. The broader digital evolution means payments companies now have access to a wide array of technical partners and infrastructure service providers that they can tap for digital transformation. Providing innovative payments services no longer requires bespoke tech stacks and massive capital investments. Organizations can partner with third parties and leverage APIs to modernize and innovate quickly and cost-effectively.

The ability to launch new digital services is more accessible than ever. As regulations continue to evolve in line with emerging technology, it will be critical for payments organizations to ensure internal systems are compliant. This will be an important consideration for those operating on legacy systems as they may have a harder time adapting to changing requirements.

Embedded FinTech

One new challenge for the payments industry is that other markets are using digitization to embed financial tools within their own platforms, thereby, ramping up the competition. Fortunately, payments companies can also leverage other services to grow and enhance their offering, using embedded FinTech. By integrating the latest technical tools from FinTech partners, it is possible for businesses to better serve their customers within a single ecosystem.

Financial institutions are quickly catching onto this opportunity to boost revenue and grow customer loyalty. The latest Technology Capabilities Assessment from Jack Henry & Associates found that 75% of surveyed bank and credit union CEOs plan to increase FinTech investments in the next two years, with 30% preparing to spend $1 billion – $5 billion. This mass move towards embedded FinTech represents a clear digital transformation for the industry.

The Convergence of Fraud Prevention, Security and CX

Online purchasing environments are just as vulnerable to fraud as their physical counterparts — if not more so. The absence of a physical card or cash payment means that merchants must validate other payment information to approve a purchase, or risk authorizing a fraudulent charge. Yet adding additional security steps can add friction to the checkout experience. It may even cause customers to abandon their purchases altogether.

With such high stakes at play, payments companies are increasingly discovering the need to balance customer experience with fraud prevention and security. In order to achieve this, they are turning to digital tools and security vendors that can conduct payment validation on the backend without disrupting the customer journey. This is transforming the online checkout experience on a global scale.

Speed

The final driver of digital transformation is simply the need for speed. More than anything else, customers turn to digital tools for the ability to get immediate access and service — if a provider cannot serve its customers in a timely fashion, this undermines its entire value offering. This makes it imperative for each company to have sufficient infrastructure and bandwidth to always process its transaction volume, as well as the flexibility to pivot and meet new consumer demands as they occur.

This may involve overhauling the entire system infrastructure, in order to better support integrations and data management. The quickest solution to new market demand is to leverage existing products and implement them within your platform, rather than internally develop this functionality. Therefore, smart companies are embracing payments infrastructures that can support new integrations and this, in turn, is driving industry-wide transformation.

A Transformed Future

Not only do consumers want digital services, but companies are recognizing that the right technology can help them provide superior customer experiences. This is prompting digital transformation both on the front-end and the back-end. Payments companies are adding specific new features and introducing entirely new management systems. Each business may be making individual choices, but everyone is transforming — or falling behind.

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