bankingciooutlook

Emerging Payment and Card Trends Shaping the European Banking Sector

By Banking CIO Outlook | Thursday, June 27, 2019

Payment and CardFREMONT, CA: As the technologies are shaping consumer lifestyle and behaviour, there has been a cultural shift away from the conventional payment methods that have ruled the banking industry for a long time. In recent years, the online shopping industry has significantly influenced the way consumers buy their products. For the first time, UK debit card payment landscape has surpassed the traditional cash payment methods. The trend clearly expresses the inherent shift towards electronic payment gateways. Thus it paved the way for global giants like Google and Apple to announce their payment apps in the largest EU market, Germany.

Further, the increasing shift towards adapting along the lines of mobile devices such as smartphones and tablets has created tremendous possibilities in the payment sphere. The migration towards cashless transaction is expected to rise in the future.

According to the World Payments Report published by Capgemini in conjunction with BNP Paribas:

• The volume growth for Global digital payments is estimated to escalate up to an average of 12.7 percent until 2021. The developing markets, such as Asia, are projected to grow with compound annual growth rate (CAGR) of 21.6 percent. The emerging markets are expected to overtake mature markets in non-cash transactions by 2021.

• Key Regulatory and Industry Initiatives (KRIIs) are enhancing security for consumers as they continue to encourage innovation. However, alignment efforts and interpretation are cutting down the benefits from the latest payments ecosystems.

• Development of new payments ecosystems is the way to align the needs for innovation and for scaling. The financial services community together with regulators, public-sector organisations and third parties need to determine their respective roles and complement each other to ensure a balance, smooth and robust ecosystem.

Following are the payment and card trends transforming the European banking landscape:

One-Time Passcodes

With the rapid transformation in the payment transaction methods, security has emerged as a critical consideration among the innovators, regulators and the consumers. The businesses are also focusing on increased prioritisation of security, which has been a trend for the last few years.

According to a Paysafe’s Lost in Transaction report, 59 percent of the small and medium-sized businesses (SMBs) in the UK, Germany, Austria, Canada and the U.S. considered security as the crucial differentiator while choosing an online payment service provider (PSP).

With a few months left for the EU banks to implement their Strong Customer Authentication (SCA) solutions, project teams have to decide upon the most critical aspect of the business- customer payment processes. Most of the banks are not prepared enough to achieve SCA compliance and are banking upon ideas like one-time passcodes.

Some of the banks are relying heavily on sending one-time passcodes so that they can achieve SCA compliance. While the idea may be suitable for a few customers, according to consumer research in October 2018 across the EU, 60 percent of the consumers do not like a one-time passcode by SMS. Further, 30 percent of customers said that they would complain if they do not get an option to select their preferred mode to enable SCA.

As per the current trend, banks are implementing point solutions to meet compliance regulations. The current programme managers who are executing the immediate solutions will move on. Due to lack of consumer acceptance, up-to-date contact details and other issues, these point solutions will result in numerous complaints and inefficient consumer payments.

Omnichannel Banking

Omnichannel is gaining traction as numerous banks are getting adept in providing the customers with multiple ways to transact. However, omnichannel banking is not limited to multiple transaction channels. It also refers to seamless and consistent interaction between the customers and the banks across the channels. Omnichannel banking aims to provide the consumers with a better and more personalized shopping experience by blurring the lines among various transaction channels.

For instance, powered by cutting-edge technology and an integrated payment process, Computop is on the path to accelerate the global payment transformation.

Blockchain Enabling Digital Transactions

Debates regarding the use cases of blockchain may persist as the technology evolves, but one area that is ready to incorporate it in 2019 is digital identity. Privacy and fraud concerns, data breaches and online verification challenges are the major limitations of the conventional transaction methods that have opened the gateway for a blockchain based alternative.

Collaboration among the Banks and the Fintechs

With regulations influencing the market, Fintech industry is witnessing growth. Banks are planning to connect with the Fintech industry, which will result in a powerful mutual dependency. The rise in payment gateways and online banks has a transformational impact on financial services. The collaboration will also minimise credit card frauds.

The emergence of technologies has resulted in meteoric growth in the use of payment card and thus, card processing centres. However, in Eastern and Central European countries, the process has been slow. Slovakia-based Regional Card Processing Centre (RPC) brings the required expertise to bridge this gap and supports various financial institutions.

Personalization with Artificial Intelligence (AI) and Machine Learning (ML)

The relevancy of online personalization can be customized even for an audience of one using the latest AI and ML models. Further, the personalized models can be linked with products and contents for relevant and engaging brand experiences. The models can also be scaled to suit larger audiences categorized to suit the personalized models. Again AI can play a significant role for customer segregation based on several factors such as personality, past purchasing behaviours, and other factors relevant to the business.

The Rise in Alternative Credit

The incorporation of alternative credit facilities to credit cards has influenced consumer behaviour significantly. The change is explicit as the consumers are moving towards ‘buy now, pay later,’ rather than the conventional ‘save before purchase’ mindset. As a result, online merchants are readily facilitating the trend with a ‘consumer-centric’ approach. Open Banking in the UK will generate opportunities for banks as well as the lenders to compete to gain a share of consumer’s wallet and financial data.

Concerning volumes, Europe is expected to have a faster growth rate than the United States in the coming years. The regulatory authorities are also fostering innovation and interoperability. Essentially the intention to move towards a cashless economy has been reflected by the nations such as Denmark, Sweden and Finland are shaping most of the recent trends.

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