By Brian Billingsley // Excerpt from the PYMNTS 2018 Forecast eBook
A quote from Bill Gates in his 1996 book The Road Ahead seems spot-on for payments: “We always overestimate the change that will occur in the next [one or] two years and underestimate the change that will occur in the next ten.” Look at the payments industry today, and you’ll find the vast majority of payments in the world are running on systems older than Gates’ quote. They will likely still be running on those systems after 2018, and there is a very strong chance they will be 10 years from now, too. If the core infrastructure for payments hasn’t changed in the last 20 years, it can’t be expected to change in the next 12 months. So, what changes can we expect to see in 2018?
1. The need to make global ‘local’ will increase.
Although the world is becoming more and more connected, payments are still very local. Each country and culture has developed its own preferred way to pay. Northern Europe and the DACH region like invoices and closed-in-credit products. The United States loves cards. Asia and India have strong digital wallets that act like a demand deposit account (DDA). Central and South American countries use unique installment-on-card products.
How does an eCommerce company serve all these countries with a wide array of payments preferences? How do global companies — think Airbnb, Uber, YouTube and StubHub, among others — serve their global digital audience? Making connections between the old and the new is going to be required to stay globally relevant, and the payments landscape is only going to continue to become more and more complex. Online merchants, global companies and the banks that support them have to be able to solve and scale for all these important differences between payment types. Enabling more local payment options — at the checkout either in-store or online, and when requesting payments — will increase consumer choice and help grow a larger global presence.
2. There is a greater need for partnerships between competitors.
Given the importance of local payments and their entrenched leg-up in home markets, I believe we will see more payments partnerships this year. Alipay, PayPal, Klarna and card networks all have unique strong points and benefits, but they also have places where they fall short in offering a complete solution. One of the most obvious shortfalls is reach, especially when trying to enter into new markets. The potential for growth and increased innovation will necessitate partnerships (like PayPal and Visa), whether that be in the form of coopetition or as “frenemies.” The connections made between these competing systems will be required to understand and mediate the differences between the systems while also keeping proprietary data secure.
3. The ‘DDA loading dock’ problem is a focus for banks, as are the various silos within them.
For years, I have compared my primary DDA (at a super-regional financial institution which I have banked at for 20 years) to a digital loading dock. My direct deposit goes in, then goes out to the various other financial products/services I have: credit cards, savings accounts, brokerages, mortgage, PayPal, PFM applications — the list goes on. While I am very loyal to my primary bank, it’s actually one of the least utilized financial relationships I have. It wasn’t until 18 months ago that I received a call to the likes of, “Hey you should open a savings account with us. We’ve seen your balance grow.” Too little, too late.
There are several reasons why banks have struggled with losing market share and share of wallets to outsiders, but many of them stem from the fact that the bank’s internal systems don’t talk to each other. In 2018, banks are now squarely focused on solving this problem in order to be more valuable to their customers, and are looking to their core and solution providers to help.
Ultimately, the changes I expect in the next year all come down to building connections, and at Modo, we’re excited for the potential innovations that 2018 brings. Just as Bill Gates understood that change is both underestimated and overestimated, we understand that there aren’t going to be industry breakthroughs changing the underlying infrastructure that these payment systems are built upon. Because of this, our technology works with what is currently in place to connect payment systems. We manage payments data and create interoperability between systems with a payments data utility in the cloud, connecting the old systems to the new, the old to the old, new to the old or the new to the new. There are so many necessary connections and innovations that are left on the sidelines because of the difficulty that comes along with integrations, but these connections could change the way consumers connect with your brand or your client’s brand. Let’s see what we can do in 2018.