We expect 2019 to bring continued advancement in certain sectors of the payments industry as consumers, banks and businesses embrace new technology that provide alternative and easier ways to transact. For better or worse, these technology advancements will also likely lead to an increase government oversight. Here are our top picks to watch in 2019 (in addition to our prediction that the Patriots will win Superbowl LIII in Atlanta on Feb 3.)
Mobile payments (m-payment), mobile commerce (m-commerce) and digital wallets continue to grow in popularity and ease of use and expect to see more of each of these in 2019. Mobile payment adoption has been swift, particularly in countries where obtaining a bank account is challenging, and because of the worldwide adoption of smartphones and expansion of faster network speeds. Near Field Communications (NFC) payment options are available on newer phone models and tout a quicker and easier checkout process in store with contactless payments (see more on this below.) NFC technology allows your phone and the merchant’s POS to communicate over the air when they are in close contact. Mobile commerce can incorporate additional loyalty and convenience features like order ahead and skip the line, often with only 1-click needed vs. manually entering in the full credit card number. Businesses are banking on the belief that easier transactions lead to more transactions. Person to person payment (P2P) platforms like Zelle and Venmo have shown consumers how easy it can be to send money using your cell phone. Look for more companies to follow the successful mobile payment strategies of Starbucks, Apple, Amazon and Samsung Pay in 2019.
Amazon has changed consumer expectations for ecommerce and beyond, and we continue to want things faster and easier than ever. For payments, this means for everything from onboarding new merchants to the consumer payment experience. The growth of payment facilitator models over the last few years is a great example – a few quick questions and you can be approved for a merchant account in minutes. And while many are jumping on the payment facilitation bandwagon for this rapid and instant onboarding capability, they are often unknowingly taking on much greater risk without the experience and infrastructure to mitigate it. We predict this will lead processors to develop and offer a hybrid model that allows instant onboarding without the risk factors, a “fake payfac” so to speak. (Which we’ve decided should be coined the “fee-fi-faux-fac” model.)
Companies running primarily business to business transactions have been slower to adopt new payment options, but that’s changing. Business to business digital transactions are growing year over year as businesses discover the benefits, led by a pretty sizable uptick in virtual cards which are a natural fit within the mobile payment’s ecosystem. Virtual cards are typically linked to an existing bank account or credit card and can be used to make purchases as would normally be done with a check, ACH or your credit card. Virtual payments cards can be used anywhere credit cards are accepted and have other cool features like spending limits and auto-replenish of funds. Because a new virtual number is generated each time a purchase is made, virtual cards offer increased levels of transaction security. Dominating news headlines about latest company that’s been hacked and exposed their customer’s personal information continue to drive adoption for both businesses and consumers.
In addition to mobile phone capabilities of contactless payment using NFC technology, this technology can also be embedded within an actual credit card. While US banks have been slower than the rest of the world to issue “contactless cards,” keep an eye on this in 2019. A contactless card has both a chip and an NFC (near field communication) antennae that communicates with a retail POS system and lets a consumer make a payment without ever swiping or dipping their card. Since it’s estimated that 70% of merchants have hardware currently capable of accepting contactless payments (and almost all new terminals shipped are contactless-enabled,) watch for more US banks to issue contactless cards and tout its security benefits over chip/EMV technology to help drive consumer use.
Independent software vendors (ISV) provide specific solutions to almost every type of business and vertical, and by integrating a payments engine the software becomes more valuable to their customer. First, it makes the accounting and sales reconciliation process a whole lot easier for the merchant and allows them to focus on growing their business. Second, it helps the software companies create retention within their customer base, as switching software platforms is a heavy lift and most businesses will stay put if the cost is reasonable for value and services the software provides. Further, savvy software companies know that integrating payments not only enhances the value of their software but provides an additional ongoing revenue stream that can help offset their overall costs and create bundled pricing options for more services than their competition. Take Mindbody, a software company founded in 2000 that focuses on the wellness, beauty and fitness industries and offers integrated payments within their software solution. They recently announced they would be acquired by a private equity firm in a deal valued at $1.9 billion. Buckle up for the wave of more integration of payments and software in 2019.
Corporate and rewards-rich credit cards continue to drive up the interchange fees merchants pay to accept those cards, and those costs have led to alternative processing options. Zipline, a company that offers a private labeled debit/ACH and loyalty solution, has seen rapid adoption in the petroleum and convenience store space – with some partners now generating more customer transactions on Zipline’s ACH platform than from Visa and MasterCard. The savings from the reduction in processing costs can be funneled back into a consumer loyalty program, providing members with an easy to use mobile app to pay which generates cash back on purchases and free items. Statistics show that millennials are less inclined to use credit cards and prefer these types of alternative payment methods, and we predict ACH solutions like Zipline will continue to expand into other sectors, including healthcare, grocery and business to business.
Alexa, we need help. More and more things in our offices, homes and lives are connected to the Internet – our televisions, lights, cars, refrigerators, watches, kid’s toys, thermostats, washing machines, beds, even toilets. You name it – if it isn’t connected to the Internet today it will be soon. Many of these connected items have enabled payments within them – for buying music, groceries, ordering pizza – all to help make our lives easier. However, companies big and small are prone to security issues – look no further than the list of large players in the last 12 months that have announced security breaches: Macy’s, Delta, Sears, Best Buy, Panera Bread, Whole Foods, Arby’s, California DMV, and on and on. Our homes will soon have more things that connected to the Internet than things that don’t, and we expect the government will start taking a more active role in tightening up the security required to help keep consumer data safe.
Social media has turned the corner from what was a communal platform for people to connect with friends, family and like-minded groups to a treasure trove for marketers selling their wares. Companies like Zoomph have helped large brands like Coca-Cola, Hershey, The New England Patriots and other sports franchises home in on exactly who their customers are and use social media data to find others with similar profiles. Taking that one step further, Zoomph provides a platform for those companies to use that data to engage and market directly to their target audiences. This laser precision marketing approach will continue in 2019 as more companies recognize its cost-effectiveness and embrace digital consumer engagement platforms, but we can also anticipate that more government oversight is likely in the way data is shared.