As new technologies change the payment space, the payments ecosystem finds itself at a key moment in its history. The explosion of mobile wallets, pay-by-bank, and pay-later (BNPL) solutions, alongside Open Banking and artificial intelligence technologies, is making checkout ever more seamless for consumers and frictionless for merchants.
As a result, consumers are bombarded with cashback, preferential rates, and loyalty programs from the banks, payment providers, and merchants that operate in this complex web of payment ecosystems. Meanwhile, alternative payment methods are growing in prominence, stepping in for credit and debit cards.
On 21 March 2024, in partnership with FStech, Ciklum hosted a Payments Innovation Breakfast in London, which aimed to take an in-depth look at where payments are at in terms of strategy, leaving a legacy of getting it right, despite the challenges of changing consumer habits and expectations, while also exploring the foundational shifts that Open Banking and Artificial Intelligence bring about. They discussed the full spectrum of change at the checkout and beyond, what drives new needs and innovation from risk and regulations to a new level of customer-centricity, cost-efficiency, a post-globalization world, and empowering the underbanked.
1. The Era of Open Banking
Imran Gulamhuseinwala’s keynote speech began by emphasizing the scale of growth in Open Banking. While recognizing the opportunity and challenges associated with it, he identified it as a differentiating factor between the vision for personal and commercial banking of today and tomorrow. He also mentioned that it’s facing headwinds due to consumer adoption and regulatory hurdles.
Despite all the hype about Open Banking, problems such as low adoption rates and public trust persist and need to be helped by the absence of adequate consumer protection. The idea of Open Finance was also on the agenda. With more people wanting to know how to manage their financial lives, the development of Open Finance, built on the foundations of Open Banking, is expected by some to be a central part of how the industry will evolve.
2. Addressing Cybersecurity in an Open Ecosystem
The panel also debated the new culture of fraud and cybersecurity that was brought on by an ever more payments frictionless, split-second world. It also emphasizes the importance of strong encryption, intelligent AI, machine learning-based fraud-detection systems, and other security measures to build and maintain trust and confidence with consumers in an increasingly open world. Given how important trust and security are to Generation Z, the more experienced users prioritize security over speed and convenience. Applying these aspects of AI to protect and prevent fraud is essential, especially as it relates to the protection of Authorised Push Payments.
3. Learning from Global Innovators
The panelists then covered innovations in consumer payments worldwide, referencing the widespread use of mobile wallets in India, Finland’s quest for cashlessness through direct banking, and the opening of bank accounts in Nigeria. It underscored the need for institutions in our home markets to catch up with the wave of innovation and become more competitive. Drawing on these international examples illustrated what successful strategies have looked like in other markets, the potential for them to work in our markets and the usefulness of cross-market learning and borrowing for us to move the payments industry forward.
4. The Future Shaped by Emerging Technologies
The briefing addressed the challenges of emerging technologies in terms of what consumer payments will look at in three to five years and ahead. The futurology session analyzed the rise of cryptocurrencies and central bank digital currencies (CBDCs), including their impacts on financial institutions and how banks and financial service providers could remain relevant while meeting and anticipating the needs and habits of customers. The consensus was that CBDCs would likely be the new norm within the financial system as complementary to fiat money. An increasing number of payments that will also be integrated into social media are expected.
5. Future-proofing Financial Institutions
One of the constant takeaways from the event was how financial institutions can prepare for the next wave of innovations and reinvent technologies and cultures. Panelists, for example, recommended allocating resources toward developing digital infrastructure and ensuring their culture is conducive to supporting relentless innovation and adaptation. Institutions must take all these approaches to remain relevant to their environment.
In Summary: An Open Future
Indeed, the day's discussions vividly captured the image of payments soon entering exciting times of change. Newer innovations, such as mobile wallets and buy-now-pay-later schemes, were repaving the frontiers of expectations for convenience, security, and engagement with consumers. Yet, to support a growing age of digital innovation, the financial sector also needs to learn to coexist with new risks brought about by cybersecurity vulnerabilities, alongside finding the right balance of inclusion and trust in digital finance.
Even as we prepare for challenges, the path ahead remains largely transparent, led by innovation, cooperation, and a closer understanding of customers’ needs. With this new way forward, the future of payments is more integrated, more efficient, and better attuned to the needs of tomorrow’s consumers.