Innovating Payments- A 2021 Outlook

The COVID-19 pandemic has delivered industry changes faster than many anticipated. The pandemic has also managed to highlight various processes that are ripe for innovation.

As a result, new technology is solving payment pain points that can be the bane of workers and small businesses. We are going to see a rapid shift to digital as being accelerated by the pandemic

Across the globe, consumers and small businesses are migrating from cash in favor of safer ways to transact, such as using contactless cards or smartphone payments. Although stores and restaurants have been closed, e-commerce has increased massively.

If there was no pandemic?

The need and yearn for personalization are ever-growing, users want payment experiences that are customized to their needs. Unfortunately, most payment services are standardized when they can be tailored to fit the user’s needs.

The pandemic has created an urgency around digitization unlike anything seen before. Digital processes have become a matter of survival as against being that competitive edge for forward-thinking organizations. 

We’re seeing organizations move more quickly to automate more of their front-end and back-end processes (like payments and receivables) to facilitate remote work requirements, meet changing customer needs and gain new operational efficiencies.

None of these things are new, but they highlight existing issues and trends.

What are our Digital Expectations?

Instant, digital, always-available, low-cost payment solutions for both businesses and their customers are top of the pile. Unless payments are brought in line with digital-native services, organizations face customer experience, retention and acquisition challenges.

Full (End-To-End) Digitization

This starts from the front end of the business. How companies engage their customers in the billing and payment process dictates how easy it is to automate those processes in the back end. The more digital the end-to-end process is, the easier it is to automate the process and make it touch-free; which is the new preferred (and required) way to transact.

Cross Border Payments (Global/Local)

The pandemic has made connectivity top-priority given the increase in remote work and pay. As the world becomes more connected, it is easier than ever to access goods and services no matter where you are in the world. At the same time, delivering that experience seamlessly is more complicated than ever. To compete on the global stage, organizations need to deliver a more local experience. This requires unifying fragmented systems, navigating a fast-moving regulatory landscape and delivering on idiosyncratic customer needs.

Customization

At Globus Bank, we identified the need to innovate how the standard inter-bank transfer is made and we realized that almost every commercial bank in Nigeria had similar steps for Inter/Intra/Self-transfer bank transfers. For Inter-transfer, you are usually required to select the preferred bank from the over 200 FIs listed on the NIP platform (for Banks routing through NIBSS).

At Globus Bank, we created a NUBAN algorithm that could generate the top 3 likely banks whenever you input the destination bank account number. This took out 4 redundant clicks from the transfer module and increased user experience by 85% (based on sample research done for 25 users).

Most organizations require payment experiences that are customized to their industry, business and customers. Unfortunately, most of the payment services available in Nigeria are standardized when they should be customized. Rather than working with existing systems, processes and people, the “one size fits all” payment solutions does not guarantee the best results. Consequently, those organizations risk losing time, money and customers due to inefficient payment processes.

What are the latest innovations in the African payments space?

The digital industry is progressing at an unprecedented rate with innovative solutions and technologies being developed frequently and this is more evident in the banking and financial services industry. As the landscape is changes, Fintech companies are racing to establish themselves and take the lead in all the facets of financial services. Even though the distant future of Fintech trends are not easily predictable, Fintech predictions for 2021 offer exciting opportunities and tangible solutions.

Financial Health

An individual's financial health is the state of their finances including assets, pension, credit, savings and debt. Being considered financially healthy involves having limited financial stress, never overdrawing your checking account, never being late with payments, not worrying about losing your job and essentially, not being constrained financially.

Only a minor percentage of people are considered fully financially healthy and with the rising cost of living, increasing number of people with student debts and the explosion of the economy, only a few people have the potential of being financially healthy.

To combat this trend, several fintech companies are shifting their focus to the financial health of the mass market by building products and services to help ease the financial impact and increase their customers' financial benefits with regards to earnings, spending, saving and borrowing.

This development goes jointly with the increasing desire of organisations to increase their user experience and convenience. As financial literacy increases, financial health services have a more promising probability of companies onboarding more customers. While offering financial benefits to consumers, fintech companies also have to stay profitable by incorporating impact, scale and sustainability. Having been around for a few years, the ideal models are being perfected causing an expected rise in the number of Fintech companies offering financial health services.

Cryptocurrency (Jack Dorsey $50M, TESLA $1.5B)

The inevitable evolution of money and it’s quasi-acceptance across several economies is a discussion beyond the scope of this article. Although the CBN has prohibited Nigerian Bank’s from dealing with entities that trade digital currencies, countries like Kenya and South Africa are seeing things differently. As stated earlier, that conversion is beyond the scope of this article.

Furthermore, the popularity and use of cryptocurrencies are expected to continue to rise as well as the technology, companies and apps related to it. This sector is still highly unregulated and this creates a unique opportunity for forward-thinking Fintech companies to compete, carve out a niche and implant themselves in this evolving industry.

As the blockchain cryptocurrency market is increasing in value, Fintech companies are developing unique technologies to assist with the conversion of cryptocurrency to cash and e-wallets. The rise of cryptocurrency is expected to ultimately change the face of banking and democratize the global economy, having a positive effect on business, fair trade, hospitals, governments and personal finance.

Once again, nothing is beyond evolution. The fiat money disrupted the commodity money which in turn the barter system. Money as we know it will continue to evolve.

Prevalence of Bank Accounts- More activities from Fintechs on this

A large number of the global population don't have bank accounts and are therefore invisible to financial systems. Research shows that most of these people live in underserved locations that have limited access to bank accounts and can not afford to opt for existing banking solutions. In Nigeria, BVN holders currently sits at 46.3M, out of a roughly bankable populace of about 120M (I stand corrected)

Fintech companies are expected to extend their reach to new underserved locations and target these untapped markets through innovative banking methods and systems. Many companies are offering services to increase customers' financial literacy and financial health and set them up with sustainable and effective banking solutions.

Fintech companies are also expected to carve out a niche in these financially underserved locations by offering segment-specific services, thereby increasing global financial visibility and creating new potential market segments. The innovation and freedom of Fintech companies give them the ability to shape the financial landscape of financially underserved locations.

Digital Banks

Almost every commercial bank has digital services in the form of online banking and banking applications. However, it is evident that there will be an increase in the number of exclusively digital banks in 2021. With the improvement of mobile technology and the global strive for convenience based on digital enhancements, Fintech banking start-ups are pushing for easily accessible banking services for customers. So far, this strategy has been warmly welcomed by consumers, particularly younger generations who have now become accustomed to mobile wallets and on-the-go banking.

Conclusion

An explosion in fintech competition and the necessity to navigate new markets shapes the rapidly evolving and tumultuous industry that currently has no clear path or leader. Fintech solutions offer a glimmer of promise for a more convenient, user-friendly, and globally equitable financial system easily accessible to all.

Changing customer behaviour? We can already see changes in customer behaviour patterns as people are making changes by:

1.   Avoiding cash as a potential virus-transmitting payment instrument (ATM transactions went down by more than 50% compared to 2020 in the UK as an example)

2.   Using contactless payment methods as many merchants do not accept cash anymore

3.   Shopping more on online platforms. E-commerce businesses for deliveries, food, travel and others could strengthen their digital position and even become more powerful

4.   Being willing to share data for a higher good. For example, in South Korea and China – with more countries soon to follow – people are actively sharing their data with apps that track infected persons and therefore help save lives

Banks are also responding to the new environment through:

1.   Speeding up the adoption of mobile payment mechanisms

2.   Opening up new digital onboarding capabilities for different types of banking services

3.   Investing in Open Banking capabilities to collaborate with FINTECH and speeding up the implementation of their digital banking agendas

Regulators could also play an important role here by:

1.   Increasing the limits for contactless payments at POS to avoid people having to touch the terminal and cash. For instance, in March 2020, the European Banking Authority encouraged payment firms to increase the limits in Europe. Sadly we are not even at the “magstripe” stage in Nigeria

2.   Establish new regulation to allow remote and online banking processes such as digital onboarding (eKYC, loans, account opening and other banking services). For example, Egypt published a regulation in March 2020 to allow eKYC at banks with existing customers to issue mobile wallets and open internet banking accounts

Establish guidelines for an Open Banking framework with API standards or regulation to allow more people to securely manage their mon