Major Disruptions and Evolution in Payment/Finance Industry in 2019

Era of growth for brick and mortar financial industry is over. There is a big turf war between tech giants and traditional finance institutions which is similar to the war between Nokia and smartphones. Traditional financial institutions have an edge because they control the turf, but they are inflexible whereas tech companies are gaining through innovation.

Tech giants offering payment solutions today, might start offering other financial solutions including credit cards, loans, insurance and investments

E-commerce is already bigger than traditional commerce, and era of digital currencies has arrived. Now is the time for digital banks and digital payment solutions to take firm roots and make major inroads. In addition to banks, Insurance industry will also have to use AI and digital innovations to drive sales, reduce risks and improve business efficiency.

Traditional financial institutions need to be agile while adapting technology road-maps and forming strategic partnerships with tech companies to stay relevant

In not too distant future, we used to rely on physical cheque but now months pass by without use of cheque books. Cheque books are prone to getting lost because these are almost never used unless making a big payment. 

Here's how your payments and banking may change in 2019 and on-wards :-

1). Evolving Consumer Behavior

Consumer behavior will change in a major way. Next generations users will start using mobile apps and newer services in a big way and this will have a major impact. Many financial apps will use this trend to engage customers through more secure shopping experience, intelligent offers, intelligent rewards etc.

2). Power of Big Data, Business Intelligence and AI

Data and analytics will become driving force, changing the business in a big way. Banks and other financial institutions will use this to discover newer customers, business domains, and investment opportunities. Business intelligence systems enables decision makers by providing interactive dashboards, action oriented analysis, ability to simulate scenarios and ask questions.

Artificial intelligence enables machines to learn from experience, adjust to new inputs and perform human-like tasks. AI systems may use traditional machine learning techniques as well deep learning and natural language processing. AI systems are trained to do predictions, regression, natural language understanding, sentiment analysis, stock price prediction and other such specific tasks by processing large amounts of data and recognizing patterns in that data.

In today's world, business leaders who may have great instinct should first test their gut feelings against available data, try out what-if analysis, and use predictive analysis before finalizing their strategies and decisions

3). Power of Predictions

AI will transform business at all levels. Banks and other financial institutions use it to predict markets, customer behavior, credit ratings or credit worthiness, market risks etc

4). Customer Engagement

AI will change customer engagement in a big way. Most businesses don't know how to listen effectively to their potential customers implicit and explicit needs.

Chat bots will be your most powerful weapons for driving sales, discovering customers real needs, making attractive offers to customers etc.

U.S., Bank of America introduced Erica, (from the word AmEricaa) to send notifications to customers, provide balance information, suggest how to save money, provide credit report updates, pay bills and help customers with simple transactions. Since the introduction, the capabilities of Erica have expanded as an advanced virtual assistant to help clients make smarter decisions.

5). Blockchain

Blockchain based innovations can change how payment industry works. Security is a big concern here. Blockchain will enable traditional payment processing to secure each and every transaction against tempering, and give assurance to the customers and industry players including banks, networks etc.

Banks and financial industry will find ways to use blockchain to build more robust backend transaction processing and reconciliation mechanisms. It is also possible that blockchain based assurance may become financial industry standards just like PCI DSS etc.

Leading banks are deploying blockchain solutions to optimize their operations including treasury operations, fund management https://group.bnpparibas/en/press-release/bnp-paribas-ey-explore-private-blockchain-optimize-bank-s-global-internal-treasury-operations

6). Power of Recommendations

Innovations like recommendation engines will be integrated into mobile experience of financial applications and become business drivers.

7). Digital Wallets

Technology companies like Google and Apple will use technology to make major inroads into payment processing industry. They may acquire payment processing companies or even banks so that they can gain industry foothold and be able to access large number of customers. 

Customers who link their physical cards with mobile wallets don't need to carry their physical cards. Digital wallets have the potential to eventually replace physical credit/debit cards

These technology giants may be powering your financial institutions and we may see our cards and banks in future advertising powered by Google, Apple along with Master and Visa signs.

Traditional credit/debit cards may no longer be competitive without partnership with a leading digital wallet such as Microsoft/Apple Pay. So digital wallets are in a way also playing the role of Networks such as Master and Visa to facilitate transaction processing

Major new digital wallets include Google Pay, Microsoft Pay, Apple Pay and Samsung Pay; these allow you to make digital payments without using your physical card using technologies such as NFC or on the web. Major technology players are now entering into big competition on how they can innovate in financial domain and gain turf from traditional financial institutions and physical stores , and e-commerce players.

https://www.microsoft.com/en-us/payments

https://pay.google.com/payments/u/0/home

As Turf War Between Digital Wallets and traditional credit cards heats up, MasterCard said in a February 2018 regulatory filing said that it would start to charge PayPal, and other digital wallet operators, a fee for using its networks. Source https://www.irishtimes.com/business/technology/turf-war-between-paypal-and-credit-cards-1.1340793

8). Cloud Security

AI will play a major role in securing and effective management of cloud based services. AI will monitor your services, and will send you alerts on possible anomalous activities. AI may also be able to take over some server management tasks e.g. refreshing logs etc.

9). AI Driven Fraud Analysis and AML

Fraud analysis and Anti Money Laundering(AML) are major areas where AI is already playing a major role, this trend will continue further with use of better algorithms and more powerful technologies.

10). Natural Language Processing

Natural language processing will play major role by integrating social media with financial industry. NLP based agents will optimize sales, marketing and customer engagement and will be most important pillar of success for financial industry.

11). Digital Currencies

We have already seen rise of digital currencies in 2018, and even if these currencies don't succeed the technology behind these currencies and proven market appetite for these currencies will become drivers for further innovation and eventual disruption.

Conclusion

It is clear from ongoing disruptions in technology domain impact banking, finance and insurance that existing players need to change their mindset and adapt technology to better meet market needs and expectations. Major technology players are coming into payment domain which will further heat up the competition; banks and other financial institutions will have to change at a faster pace.

References

https://thefinancialbrand.com/71251/chatbots-banking-trends-ai-cx/

https://www.cardfellow.com/blog/digital-wallets-apple-pay-samsung-pay-paypal/