25 May 2020
The growth of mobile ushered in a wave of new players in the payments ecosystem - new institutions as well as new services, such as digital wallets, digital banks and mobile-first ecommerce platforms.
However, more choices have led to more fragmentation. For consumers, the payment experience is actually not becoming simpler or more streamlined.
"No one outside the payments industry thinks about the payment experience.”
Today, consumers have more choice than ever before to pay digitally because the purchasing experience can be one of many permutations and combinations – of ‘when’, and of ‘how’ to pay. Will it be face-to-face, offline to online, within applications or across platforms, done with a tap, dip, swipe, click or scan?
Instead of converging towards a singular experience – which many users would prefer – purchase experiences will continue to diversify across platforms, form factors and sources of funds.
Experience comes second
Let’s not forget: no one outside the payments industry thinks about the payment experience. Buyers think about what they want to buy and where they can obtain it. Sellers think about how to best reach their target audience and maximise sales.
The payment industry, maybe in a self-serving way, used to believe the payment experience would drive where consumers shop. In reality, it’s actually the reverse: consumers will choose where they want to shop and pay using whatever payment mode is available.
People will put up with a less than optimal user experience if it results in them getting the goods and services they want. The payment experience is secondary. In the vast majority of cases, payments does not drive consumer behaviour.
When people have an abundance of choice, they will move from option to option depending on the availability of the goods and services they want, as well as their relationship with the merchant or seller. In this respect, people end up having multiple applications to serve the same need.
For example, for food delivery in Australia, consumers might have Menulog, Deliveroo and Uber Eats all downloaded onto their phone. These apps provide an array of food choices and consumers will go with the app that delivers from the restaurant they want, the app with the best incentives or the app with the brand they like best. The decision is not based on what the payment experience is like.
Ubiquity key to relevance
So because the payment experience isn’t the driver of consumer behaviour, it instead has to be ubiquitous. Regardless of the channel (online, in-app, face to face) or mode (tap, click, swipe) of purchase, the payments ecosystem must be able to support transactions wherever they occur, in the growing range of fragmented channels. This fragmentation means the one size fits all approach has changed - and it’s changed the ecosystem dynamics.
In the past, there were fewer options available and they were mostly card-based. Today, merchants have a wide range of options they can offer to provide their customers with the ability to pay however they want. This means the card network incumbents don’t have the same bargaining power with merchants anymore.
At Visa, we don’t see this as bad news because we’re a network, not a credit card. As a network, we connect buyers and sellers to facilitate commerce. There are new ways for us to do that today, be it in a digital wallet, marketplace or app.
There are now a growing number of different ways in which money is moved, which do not necessarily require a payment card such as: mobile wallet balances, account to account, real-time payments, blockchain, cryptocurrency.
Collectively, the size of these new payment flows is $US80 trillion in Asia Pacific.
As consumers become acquainted with moving money digitally, there will be more payment networks proliferating to support new flows of money and rising consumer demand. In many of these instances, the consumer’s first experience with digital payments may not always involve a physical plastic card. This is a significant change to how digital payments have grown over the past 60 years.
Blurring funding sources
As new ways of moving money change how people access and interact with money, the traditional notions about what money is will change and blur. This will be especially profound when it comes to how and when people fund a transaction.
With ‘buy now, pay later’ solutions, Visa is seeing an increase in the use of debit products to fund instalment purchases, something that was not possible a year ago. This empowers consumers by giving them choice of what funds they use. This blurring applies to all types of flows, from government-to-citizen, business-to-consumer, business-to-business and beyond.
Flexible, expansive model
As the number of participants in the ecosystem expands, there is demand for capabilities, user experiences and standards to be available across a wider set of players and payment options. What used to be available only inside the rigid four-party model (card issuing bank, customer, merchant, merchant processor bank) now has to stretch into new and different models.
Visa believes payment services need to unbundle to meet demand.
The demands of new players and operating models mean the existing ways of consuming payment services need to evolve. There is a need to provide services in a modular, disaggregated manner. These unbundled capabilities span three key areas of the commerce experience: trust, choice and convenience.
Increasingly, convenience is not just about being able to pay with the least amount of hassle, wherever you choose to shop. It is also about how interconnected and personalised your experiences are and how your data and transaction history is being used to create a better experience.
Banking apps have done a great job of improving convenience such as building in person-to-person payment services where users only need a mobile phone number to make a transfer. Most consumers trust their bank to manage their money, but many of them still lack choices such as being able to customise how spending is tracked or analysed.
Common standards necessary
In the past, where there were a handful of players in the payments ecosystem, interoperability was important but easy to establish. With a growing number of new players and rails today, the experience with moving money is fragmenting and inefficiencies in the process are starting to show.
Standards and interoperability will rise again in prominence and become a necessity to ensure participation, security and efficiency of money movement across all types of flows. It is our hope that common standards will ultimately promote and facilitate innovation, benefiting existing and new players in the payment ecosystem.
Ciyi Lim is Head of Innovation in Asia Pacific at Visa
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
25 May 2020
30 Jul 2020