Whether it be televisions, cars, computers or mobile phones, consumers have come to expect constant advancements in the technology they use every day. Consumers rely on technology to make their lives easier, and banking technology is no exception.
Payments industry leaders Early Warning and JAVELIN Strategy recently discussed the financial services industry shift toward faster payments during The Future of Payments: Join the Real-Time Revolution.
As an industry, we understand the benefits faster payments provide to consumers, businesses, government and financial institutions, but where is consumer demand for faster payments coming from? Below are some of the trends impacting the faster payments revolution.
1. Mobile Penetration and Increased Time Spent on Smartphones
Increasing usage and sophistication in smartphone technology continue to influence mobile banking and payments. In the U.S., comScore reports that 68 percent of adults in the United States currently own a smartphone, up from 35 percent four years ago. In addition, people are spending more time on their phones each day. According to a recent study by Digital Trends, Americans spend nearly 4.7 hours each day on their phones – more than half the average work day! This increased smartphone usage supports the emergence of new services such as mobile wallets, P2P (person-to-person) payments, mobile bill payments and mobile remote deposit capture. One in four bank customers now self-identifies as a ‘mobile first’ user, primarily accessing his or her checking account through mobile banking.
“While banks and NACHA have been talking about delivering real-time payment functionality for the past several years, the demand for real-time funds availability from mobile P2P transactions is going to be the killer app that finally delivers. More than 82 million adult consumers will make a mobile P2P transaction in 2016, increasing to 126 million by 2020 — representing almost half of all adults,” according to the JAVELIN 2016 Trends and Banking and Payments Report.
2. Social Network Growth and the Shift to Monetize and Commercialize
Americans spend more time on social media than any other online activity, including email. Social media is one of the key drivers contributing to consumer demand for convenience and immediacy in an always-connected world. For instance, Facebook and Instagram are now introducing “buy buttons” within the ads on their sites so that users can make faster, real-time purchases directly within the platform. Venmo capitalized on consumers’ interest in sharing, creating a network around its P2P functionality, and some social networks are even offering mobile P2P payment services. For example, Facebook offers payments through its Messenger application, and Snapchat partnered with Square Cash to offer a feature called Snapcash, which allows users to send money directly to their friends with the Snapchat app. Money is transferred directly to the bank account linked to a user’s debit card.
3. Consumers Demand Immediacy
In today’s connected world, we have 24/7/365 access to information, communication, and payment capabilities through our smartphones. We are now busier than ever and our personal time is shrinking as is our patience. We receive information and responses from colleagues in seconds, so, it’s no surprise that we want to send and receive payments in seconds as well. It is no longer feasible to wait two or three days for ACH payments to process – we want payments immediately.
4. The Rise of the Internet of Things (IoT)
The Internet of Things (IoT) is a term people have been hearing, but many aren’t really sure how to define the term. Techopedia describes The Internet of Things as a “computing concept that describes a future where every day physical objects will be connected to the Internet and be able to identify themselves to other devices.” IoT is sophisticated software, artificial intelligence or Big Data all working to automate processes, spot trends, provide insights or connect some type of service or product through intelligence.
Russ Jones from PaymentsView provided an example of IoT as it relates to payments in his explanation of a printer being able to reorder ink when a cartridge is getting low. Through IoT intelligence, a process is automated whereby an order is placed, payment is issued, and the new ink cartridge is then shipped to the respective location of the printer. Gartner estimates IoT devices will account for 6.4 billion connected objects in 2016, and expects this number to increase to 20.8 billion by 2020. That’s a huge increase in both IoT devices and potential payments.
IoT provides consumers with seamless, personalized experiences that make their lives easier. In many cases, these experiences include a payment that is invisibly conducted in the background, driving a new consumer expectation of how frictionless and fast payments should be.
5. Increased Security Through Advanced Authentication Capabilities
Faster payments require an immediate risk decision for nearly all transactions, and banks are leveraging new, innovative technology to make this happen. With biometrics data, we can now identify, authenticate and authorize transactions through an automated, real-time and frictionless decisioning process. All fraud, risk management and compliance activities can be integrated into one network to provide a greater level of visibility into potential risks, which has helped to enable faster payments. These new advancements make payments increasingly secure and convenient for consumers, therefore contributing to consumer interest in utilizing faster payments.
6. The Influence of FinTech and Silicon Valley
A new wave of start-ups aimed at reshaping the financial services industry have emerged from Silicon Valley. These FinTech firms have attracted billions of dollars in investments and continue to grow user bases heavily comprised of millennials who prefer digital money management. Many FinTech companies are bringing multi-media (think emojis and video) and social elements into apps to make the banking experience more fun. These firms are innovating in P2P payments, crowdfunding, wealth management and lending, but there are still questions about safety and security when it comes to third party applications. Regardless, the growth in FinTech has spurred innovation, and increased consumer awareness of new advancements in financial services. As awareness and interest in these new options grows, so does interest in new advancements in payments.
With faster payments, we are moving into a period where we can securely transfer funds in real-time and have the ability to use those funds immediately. Faster payments have to work for all payment types: deposits, bill payment, P2P transactions, and getting paid by businesses or government entities. As consumer habits continue to shift to mobile, we will continue to see evolving technologies and apps influencing real-time payments.
For more information on faster payments, contact an Early Warning Account Manager at [email protected] or call 855-589-7541.