In A Tale of Two Cities, Dickens describes a time marked with light and darkness as “the best of times and the worst of times,” which seemingly describes the past couple of years as we come out of the throes of a deadly pandemic. COVID-19 has changed the world in ways (and at speed) one could not fathom. How we think about and use money, for one. Challenges in the financial services industry for banks, payment services providers, governments, and other organizations include staying current in these turbulent times. Here are some key trends that can prove to change the payments industry.
An evolving theme in the payments arena is how regulatory bodies want the financial services industry to have a fairer outlook and increase transparency. Consequently, a data-driven payments landscape is now under construction to drive a new open economy. The European Commission, recognising the potential of open finance, is currently reviewing its PSD2 to propose a third Payment Services Directive (PSD3) focused on the regulatory aspects of open finance and its potential impact on the European payment space.
Now, noting that transaction data will emerge as headwaters of multiple revenue streams, many of our clients have seen how ISO 20022 enables the adoption of a universal format of structured data. But there are increased fraud and privacy concerns. Debates over what standards should apply globally, who should control data and how the rules are enforced will have to be conducted. To that end, one can foresee stringent regulatory requirements imposed by governing authorities. For instance, we are working with clients in the U.K. to adopt the Confirmation of Payee (CoP), which aims to address the growing number of Authorized Push Payment frauds.
The future of payments is digital, and millennials stand at the forefront of this movement. Nearly three in four millennials are confident in using technology to manage money versus just over half of non-millennials. However, a significant portion of the population remains miles away from digitisation. The coming decade will see financial inclusion as a regulatory-driven initiative and a decisive move to tap into the potential market with innovations, including feature-phone-based payments, QR-based payments, and digital ID, to fight the barrier of heavy documentation. FinTech can help democratise access to finance for the world’s 1.7 billion unbanked population.
As the move to digital accelerates and the pressure to have a secure digital currency to combat the speculative nature of cryptocurrency increases, the coming decade will see Central Bank Digital Currencies (CBDCs) emerge. Among the developments is India’s recent pilot (November 2022) for its wholesale CBDC, with a retail version to start soon. Launching a digital currency will expedite the establishment of regional payment hubs that are not just limited to government actions. Banks will also proactively reach out to their counterparts in neighbouring countries, forming alliances, and facilitating easier and cheaper transactions.
With the payments landscape changing constantly, regulators must work to standardise new technologies while building a universally accessible payments infrastructure. As an example, India’s Unified Payments Interface (UPI) and Brazil’s Pagamento Instantâneo Brasileiro (Pix) may each prove to be an impetus to the digital economy — and a great enhancer.
Vice President, International Consulting, NTT DATA Services
To a great extent, the customer experience and users’ needs decide the scope of any digital transformation. The pragmatic shift from a product-centric to a customer-centric approach has many in the financial services industry thinking outside the box and designing use cases for a new banking era — invisible banking.
Adopting a reactive approach to innovations will no longer suffice as the banking world becomes increasingly digitised. Instead, we must keep abreast of the changes in the financial services competitive market and proactively analyse where the industry is heading.
