10 Payments Trends for 2016

Predictions by Aite Group

Synergent recently partnered with Aite Group, an independent research and advisory firm focused on business, technology, and regulatory issues and their impact on the financial services industry to better understand the changing payments environment. 

With the payments space in the midst of unprecedented change, Aite Group presented their 10 payment trends predictions for 2016 at a recent meeting of the Synergent Payment Systems Task Force that included: 

1.       Sublimation of payments will accelerate
Historically, payment behaviors have been a straightforward exchange of currency for goods and services. While this is still the way most financial transactions are conducted, change is beginning. Technology has enabled the payment to be intertwined within the commerce experience—payment no longer needs to be a detached activity thanks to integrated processing methods, which will continue to grow in 2016. 

2.       API partnerships gain momentum
Third parties linking their platforms to financial institutions via APIs (Application Programming Interfaces) are transforming the industry by allowing internal and external data to be tagged, geotagged, commented upon, and filtered to create metadata that can be used alongside transaction data to compile and market new products and services. 

3.       Authentication and security align
Financial institutions have many choices available for authentication and can select the most appropriate method based upon the corresponding level of risk of different types of transactions. This coordinated approach across delivery channels allows for even better customer service and increased security. 

4.       Alternative lending industry disrupted
Since 2001, the U.S. retail credit market has seen a large number of online alternative lenders emerge. 2016 will be the year that has a significant disruptive impact on U.S. alternative lenders. With an improving economy, consumers are projected to increase spending and will borrow more. Financial institutions also realize the profitability potential is growing, with new opportunities learned from the alternative lending disruptors. 

5.       Blockchain usage expands
First, there was bitcoin, but 2015 saw this online payment method begin to lose traction, with attention shifted to the technology that bitcoin is built upon: the blockchain. The blockchain represents a shift in payment services from centralized, proprietary systems to a more standardized, widely distributed, secure systems model. 

6.       Disruption in international payments increases
2016 promises to be a time of accelerating disruption in the international payments space. While highly complex regulations aimed at reducing terrorism funding, money-laundering, and tax evasion will bring further friction, emerging players seek to reduce costs and increase the speed of transfers. The cross-border transaction volume remains based in the physical realm, despite our world being in an era of rapidly evolving digital technology. The legacy process was designed 40 years ago, is expensive and slow, and will begin to shift. 

7.       Customer onboarding will be streamlined
In 2016, financial institutions will seek to better understand consumers’ increasingly complex path to purchase, which includes which channels they use to explore, buy, and engage with. Early adopter institutions and technology-led startups will be positioned to demonstrate new and innovative ways for financial institutions to onboard new customers. 

8.       Rising interest rates drive mortgage IT investment
In the United States, there is consensus that for consumer credit to grow, the volume of new mortgage balances at responsible interest rates must increase substantively—and that without profitable growth in home mortgages, financial institutions can’t do much more to improve overall financial performance. In 2016, the expectation is that governments will begin easing up, interest rates will rise, and that Dodd-Frank rules yet unwritten will factor into lenders’ mortgage IT needs. 

9.       Havoc erupts in digital wallet space
Apple Pay widely popularized the digital wallet as a payment method. However, usage appears to be slowing rather than accelerating. More major bank-led wallet initiatives are expected to be launched in 2016 (such as Chase Pay and possibly Target Pay) as the mobile wallet becomes a new battleground across the industry, with banks reluctant to cede ground to rivals. 2016 will be a year of profusion and confusion, as mobile wallet offerings multiply and consumers wallow with too many choices. 

10.   The illusion of “personal” data comes to an end
The rising tide of data breaches has created a new reality in banking and payments: The concept of secure, personally identifiable data is no longer valid. With over 278 million records compromised due to malicious attack in 2015 alone, the way in which financial institutions, merchants, and corporations assess security is rapidly evolving. 2016 will see organizations invest in technologies and practices that can adapt to this new reality.