Payments 2020: It Will Be A "Leap" Year for All of Us. 

Thanks to Anand Ramakrishnan for inviting me to write about this topic in a fashion synonymous to the ice-bucket challenge. I certainly enjoy expressing my views in this chain reaction format and I will be inviting some people as well towards the end.

Let me start with a question. When you meet an old college friend after several years, do you ask him to enter a login/password to authenticate and confirm that he is in fact who he says he is? I am quite certain you don’t. Do you enter a PIN every time you make a phone call? No, you simply dial the number. Can we make paying for stuff everywhere as simple, and as invisible as that by 2020?

I don't know the answer, but I think about this all the time. I am in a role where I get to talk to 15-20 folks from the industry every week (globally) and I can tell you that the uber-ization of payments is the ultimate goal.

The question I have been asked here is: What will happen by 2020? Bill Gates once said that forecasts are almost always wrong. I don't have a crystal ball, but I don’t fear being proven wrong. It should be fine as long as we are moving in the right direction as an industry. So, with this goal in mind, let’s see what is certainly going to happen:

Mobile Is the Center Stage

The impact of mobility on financial services innovation around the world is unprecedented. Mobility will be at the center stage of payments in 2020. It’s going to be mobile (and perhaps tablets, wearables and IoT) all the way. I don’t want to say much as this picture we prepared at Let’s Talk Payments says it all.

Millennials Will Demand Change

It’s commonplace these days to question and doubt digital money & mobile commerce initiatives. With the billions of dollars worth of investments flown into this sector, are consumers really using new payment tech? Year-on-year, we’re witnessing radically new solutions from payment firms, startups and even banks who wish consumers would pay for things differently. But hey, there’s a higher bar in satisfying the hyper-connected generation.

Some players are enabling millennials, or the “Gen Y-ers,” to do what they do best—use their mobile phones. Millennials and digital natives are habitual users of mobile apps for literally everything. If they start doing a lot of mobile payments at some places, they would expect other merchants to do so as well. They would start questioning the non-availability of alternate payment methods. This could escalate to a level where millennials would start asking what the need is to carry cash to pay at a corner store or a newspaper stand or a falafel/hot dog vendor. This kind of change in consumer behavior will drive everything. As more merchants start accepting mobile payments, consumer behavior is bound to change. The good news is that this cycle has already started.

Monoliths Vs. Networks

It will be extremely difficult for the monoliths to survive the onslaught of lean and frugal innovation. There is no match for the breathtaking pace at which some really smart techies (must read this piece by Aditya) are going after solving the money industry’s problems. There will be a network of specialist firms—each having their SDKs and APIs exposed—that will compete with the monoliths (banks and FIs). Firms/startups in this network will use the good stuff that each specialist has to offer and focus on their strengths. Vertical integration will fall.

Other More Granular Things

Nothing is certain in this list, but I sure could place some bets on these:

• A large part of *Europe will be contactless by 2020 and all new POS terminals are expected to adhere to this new standard starting January 2016. Large parts of Africa/Asia will be driven by mobile money when it comes to payments. And the US and South America could end up being a mixed bag.
• Towards lower interchange fee: Use of smart techniques, transforming a lot of CNP transactions to card-present transactions (in a certain way, like Apple Pay) and other good stuff. Let’s take an example. LevelUp’s zero interchange fee effort involves analyzing repeat purchases by consumers. If the consumer visits the same store again within 30 days, the purchases are bundled together and would incur one combined charge. In my discussion with Seth earlier, he told me that monetization can happen through value-added services like promotions and analytics. Their aim is zero interchange fees. As we have seen with alternative payment systems, merchants hold the key to the kingdom. So, FinTech has to work for the merchants by lowering the interchange fees; we have seen that in Hong Kong with the highly popular Octopus card (interchange rate on Octopus for merchants is sub 1%).
• APIs will become even more important. Earlier, APIs were built for networks which were slower and far more expensive. Also, they were designed more from the perspective of data storage than as an active ingredient of coding, which would be called over and over again. Leading APIs are now constructed keeping in mind the reduction in price for network bandwidth and the ability of the cloud ecosystem to provide fast access to massive amounts of information. Most FinTech companies now float their products on cloud services so that they can access API data like an on-premise database. If it’s on the cloud, it’s on their fingertips.
• Blockchain will go mainstream. New blockchain-based business models are arriving every month. I am very excited to say that at LTP, we are going very deep into this subject. A lot of banks, FIs and others (NASDAQ, trade finance, lending, accounting ledgers to reduce corporate fraud, medical and corporate materials, IoT and others) are trying to figure out how to use the blockchain in traditional banking.
• Data will be everything; analytics will put the meaning into it. Increasingly, data analytics is connecting, calibrating and creating new opportunities not only for realizing the full potential of the data wave but also for unleashing new experiences that have not yet been articulated.
• Design will be another force behind mobile payments acceptance. Design studios and agencies will be very busy over the next five years. If you don't trust me, just ask Capital One. In this over-communicated society with thousands of apps, what are the ways of getting an app to stand out? How many billion-dollar ideas can you get and what is the guarantee? It’s difficult to answer this question. So companies are focusing on creative design and simplification to differentiate.
• Banks might be able to get out of the buy vs. build dilemma; they can't change their legacy systems fast enough. So, in the buy vs build debate, I see that the "buy" approach is winning for the first time in the history of banking. Outsourcing of large transformation projects will give way to smaller product integrations brought from outside. Power will shift from generic IT/ITeS vendors to payment tech specialists when it comes to working with banks. As an example, many banks have faced a challenge in remittance business in the past. I think banks will look at remittance again by buying innovative and lean startups or working closely with them. FIs and banks will get into automated online investments or robo-advising through JVs, vendor relationships or by buying startups, and into algorithmic/analytics-based lending on their own or by buying solutions.

​However, let me say this as well. In general, the issues we have in the payments/money ecosystem are big and fairly complex. Also, the problems in the same segment can differ a lot by regions and countries. The value chain is complex with too many parties involved, and scaling is difficult ​for the same reason. In short, all the problems we have in payments might not get solved by 2020. I say this even though I am a believer. But the good news is that we have covered more ground in last five years than the immediately preceding 40. So in next five, we should cover a whole lot of ground (theoretically). I am hopeful that we will be able to at least define the new contours of consumer utility (mobile payments) in the next few years for the connected digital age.

I would like to keep the chain going that Anand started and would like to invite Milos Dunjic, Aditya Khurjekar ​and Brian Roemmele. These people are much more informed than I am and you will enjoy their opinions. Over to you guys!

#Payments2020 @letstalkpaymnts

*Note: Contactless payments are steadily increasing in Europe—there are some 110 million+ contactless cards already in users’ hands, representing more than 25% of all payment cards. There are around 2 million Visa contactless terminals in Europe, and MasterCard has announced that by 2020, European retailers must have equipped their payments terminals to support contactless cards and NFC.