At this time of year my colleague, Dave Birch looks forward, his annual “Live Five” started as a bit of fun, but over the years has become a thought provoking look at what might impact our industry in the coming year, if you haven’t read it yet, please follow this link.
As we come to the holiday season, we know that we will be bombarded with reviews of 2020 on television, in our newspapers and online. A conversation with some colleagues about how long they had worked in the payments industry, prompted my own review when I realised that on the 8th December, I clocked up 40 years in the industry, how technology has changed our lives in that time.
Well, however superficial they might be, there’s no doubting the popularity of the end of year roundup and predictions for the coming year. We don’t argue with the box office down at CHYP End, so here we go with our now-traditional “live five” transaction technology trends for 2016. But, first of all, I think we need to take a look at how we did with our live five for 2015 before you can decide whether to pay any attention at all to this live five! Let’s see how we did!
- In-App Payments. This was a good shout. The discussions around payments becoming invisible and vanishing into apps are now common currency and the trend toward retailers wanting to shift payments inside their app so that they can deliver the best service to customers was well established before Walmart Pay came on the scene.
Target is reportedly developing a mobile wallet that customers can use to pay for goods with their smartphones, according to three unnamed sources who spoke to Reuters… also confirmed that Kohl’s plans to release a payment service called Kohl’s Pay in the fall of 2016 that would be part of the retailer’s existing app.
It seems natural to me that retailers will take advantage of mobile technology to get closer to customers and there are plenty of opportunities to provide services into their apps. Just recently, McKinsey called in-app “the new battleground” for shopping (McKinsey on Payments, October 2015) and noted that what they called “repetitive interaction” (what we call “relationship” in the Consult Hyperion “3Rs” model) is way to generate more value for customers.
- The Three Party Party. I think we scored a bullseye here, with ChasePay the surprise announcement of Money2020. We knew nothing about the ChasePay plans when we predicted big moves away from the traditional four-party model in retail payments, we based the prediction on work that had been underway for some other clients, particularly in the field of mobile options for domestic schemes.
Gordon Smith, CEO of Consumer & Community Banking at JPMC Chase Cards, introduced Chase Pay as a mobile payments solution that provides a “true omnichannel” payments experience – in-store, in-app and online purchases – and built the case for why he believes Chase Pay will be a formidable force in payments… Chase Pay will not support NFC.
In a world of mobile phones there just isn’t the same pressure for global solutions as there has been in the past and if you look around the world you can see a clear resurgence in bank-centric three-party schemes: Russia, Turkey, India and so on.
- Privacy as a Proposition. This didn’t develop as we’d expected, despite the increased pressure because of massive, continuous and damaging data breaches throughout the year. I’m not entirely sure why (e.g.) banks didn’t develop more privacy-centric propositions — a good example being tokens for adult services — but I suppose they have decided that there are other more strategically important parts of the identity business to focus on.
- Blockchain. Wow, Another bullseye. It was definitely the year of the replicated distributed shared ledger formerly known as the blockchain, although I must agree with this commentator on the Innotribe conference that it is not wholly clear to many people exactly why:
In front of a large group of finance professionals, “blockchain experts” and audience alike agreed that blockchains were the wave of the future – despite a complete lack of consensus on what a blockchain is. Or even why one is needed.
We are a small company, and statistically insignificant in the great sea of IT spending. But the nature of our work makes us a useful weathervane for clients and I can tell you that we have had way more blockchain-specific consulting work this year than even a reckless hypemerchant like me would have predicted (and not only in financial services). Luckily for us, being early into this space allowed us time to develop a more general approach to thinking about shared ledgers from a business perspective that has worked well in helping our customers to evolve their positions.
- ID for the Internet of Things. I think we can claim that there is widespread recognition of the problem now and a first few steps towards a solution with the major chip platforms working to bring secure hardware (e.g., Intel’s Enhanced Privacy ID) to devices. Given some of the work that Consult Hyperion has been doing for clients in this area, I think I might go so far as to say that I finished the year more optimistic about the possibilities here although I still think we have a long, long way to go to make the thingternet as safe and productive space.
Having looked back, then, and established that our live five does indeed have some value for organisations looking to establish their strategic priorities, I’ve had a look at the projects that Consult Hyperion has been working on around the world and identified what I think are five key transaction technology trends for our clients in the coming year.
Now, of course, I’m playing a game here. I don’t want to give away any of the really cool stuff that our teams are working on for clients in business, NGO and government sectors right now, but I do want to make predictions that I already sort-of know will come true because we are already working with the technologies so that I can look clever! So, with that in mind, here’s the new live five that you can expect to see organisations focus on in the coming year:
- Amazonisation. Now that everyone is agreed that APIs are the right away to deliver services into the marketplace, some organisations are going further and structuring themselves around APIs, helping not only external customers but internal functions to benefit from a more flexible and functional mechanism for co-operating. Now, in 2016 it will be PSD2 that will undoubtedly spur many of our clients to develop strategies for either providing or consuming bank APIs.
Successful internet giants, like Salesforce, Amazon, Google, Twitter, and Facebook, have been active to offer APIs to third parties. Salesforce has earned more than half of its revenue through APIs, not from its own user interface. Twitter, Netflix, and Google handle billions of transactions through APIs daily. And we can say Amazon has been a pioneer with open APIs – the online retail giant already had an Amazon Store API back in the early 2000’s.
It is really interesting to try and think what this kind of restructuring around APIs will be mean for financial services organisations, and I’m looking forward to working with our teams to find ideas for transforming their businesses.
- Mobile ID and Authentication. The focus for solving “identity problems” is shifting to the mobile device. Whether it is in payments, ticketing, inclusion or in straight identity applications, the mobile phone will be the mass market solution to the problems of recognition, relationships and reputation (those “3Rs” again). We have said repeatedly that a model based on strong authentication against a local revocable token held in tamper-resistant memory deliver the right platform. The announcement of Google’s scheme for replacing passwords with mobile phones is sure to be followed by a similar announcement of an “Apple Smart ID” or something similar, the mobile operator’s Mobile ID Connect service is being deployed and I’m sure that other schemes will be launched.
- EMV Next Generation. You might be thinking that it’s all quiet on the EMV front now that the US roll-out is under way, but some of our clients have started to develop their strategies and tactics around the EMV Next Generation specifications and I expect to see momentum grow throughout the year. There are, as far as I can see, three strands to strategy for them to consider: first is that we are reaching the limits of the cryptography currently employed and must look at replacing it long before it becomes a vulnerability in the marketplace, second is that there is pressure for value-added merchant propositions (e.g., coupons, loyalty and so on) within the standard and the third is that “legacy” EMV (which still hasn’t been fully rolled out in the US) will be with us for another fifteen years or so. For each organisation, looking at the drivers and blocks around each of these is central to its retail payment strategy.
- The Push for Push. In the UK, the faster payment service (FPS), is well established, has been fantastically successful and has enabled things on top of it already, like Pingit and Paym and so on, and there’s more to come. That is also happening in other countries have started to go down that route. The one great exception was always the US because the Federal Reserve has no regulatory mandate to make the banks there implement an instant payment system, and so we all thought it would be some time before instant payments appeared in the US. Actually, however, in the last couple of months there has been raft of announcements coming out of the US: The Clearing House (TCH) is working with VocaLink, Dwolla are experimenting with APIs, NACHA is moving to same day and so on. Even in the US instant payments will feature heavily across the next year and as they spread they will shift industry focus to push payments. As Tom Noyes said earlier this month,
As I’ve stated before, no engineer would design a payment system to operate the way we do today (see Push Payments).
I agree. There are good reasons for thinking that pull payments are a hack to get around the dumb payment networks of the past and, personally, I see push dominating in the long run.
- Transparency as the “win-win-win. Given the considerable confusion about what shared ledgers are, how they work and what the impact of different architectural choices on business models is, you might be forgiven for thinking that the technology will stall. But we think that there has been a focus on the wrong drivers. Blockchains are only one form of shared ledger and they aren’t automatically cheaper or even more efficient than (for example) databases. Shared ledgers do, however, have a couple of interesting characteristics that will reshape some markets. One of them is transparency and, in the short term, this can be the core of a win-win-win involving customers, institutions and regulators.
I’m naturally very curious what you all think about these choices so please do not be shy in the comments below! Along with our other consultants, I’ll be speaking on these themes at a number of events across the coming year and really look forward to discussing them with you.