Predictions for the payments landscape in 2016

A year ago I published my predictions for the payments landscape in 2015 on my linkedin profile https://uk.linkedin.com/in/jeremylight1. I will publish a summary on how they fared when more statistics are available for 2015, but in the meantime, here are listed my predictions for 2016. They are based on extrapolating observable trends and on piecing together observations of the industry.

All predictions are my own.

Contactless and Mobile Payments

1. Contactless card transactions in the UK will rise above 3bn txns for the year, and above 10bn txns across Europe (compared to my forecasts a year ago of 1bn txns for UK and 3bn txns for Europe for 2015)
2. There will be at least 1bn fewer cash transactions in the UK in 2016 compared to 2015
3. If Apple publishes figures for Apple Pay transactions in the UK, they will show volume exceeding 1 million payments per month in the UK at some time in 2016
4. Samsung Pay will become popular in the USA, more so than Apple Pay (because Samsung Pay works with all existing POS terminals, whereas Apple Pay works only with contactless terminals which are not widespread in the US)
5. In-app payments using Apple Pay, Samsung Pay etc will become a strong theme in 2016

Alternative, non-card Payment

1. Account-to-account alternative payments will grow strongly for ecommerce – in particular, there will be a surge in popularity of P2P mobile payments using social media, such as Venmo, leading to growth in ecommerce payments on social media (“buy buttons”)
2. Merchants will drive adoption of non-card alternative payments, for example Powa Tag, and actively promote them with consumers as alternatives to card payments (plastic and mobile)
3. Omnichannel retailing will drive development of cross-channel payment gateway solutions

Operating Models

1. Banks will start buying software-as-a-service solutions for their core payment engine platforms

Real-time Payments Interbank Infrastructure

1. Competition in real-time payments infrastructures will heat up in Europe, with country-specific solutions competing against regional solutions
2. The UK’s Faster Payments open access programme will gain momentum with many new PSPs getting direct access to FPS through new vendor services – the success in promoting competition and innovation through open access to clearing systems will attract the interest of regulators in other countries
3. The UK banking system’s Paym mobile real-time payment service will continue to grow at 200% - 300% per year, and will see around 2m payments in 2016
4. The “GAFA”s and other fintechs will develop overlay services on real-time payment infrastructures, with new services and innovations not available through banks/bank partnerships

APIs

1. The PSD2 in Europe will catalyse activity across European banks to develop payment APIs – there will be a heavy focus on developing industry standards (based on EBA standards) to comply
2. Additional commercial solutions will be developed to provide a rich set of open payment APIs, driven by strategic initiatives in some banks, and fintechs, both in Europe and elsewhere globally
3. Wearables with payment capability will remain a niche area, but the focus will shift to banking/payment APIs that fashion designers can embed in their products (rather than PSPs developing wearable items)
4. As the internet-of-things develops in 2016, increasing use will be made of APIs embedded in devices to facilitate payments between humans and machines and between machines

Industry Structure

1. M&A across all types of industry players will accelerate, particularly in ecommerce-focused PSPs, interbank processors and  payments technology vendors

Distributed Consensus Ledgers

1. Bitcoin will continue to develop throughout 2016 (predicting only as far as June 2016 given the uncertainty of the direction of the block size solution)
   1. averages for June 2016

                                                   i.      daily bitcoin transactions: 235 – 340 thousand transactions per day (compared to 197 thousand per day on average for December 2015)

                                                 ii.      bitcoin hashrate: > 1bn gh/s (compared to 684m gh/s average for December 2015)

1. averages for H1 2016 as a whole

                                                   i.      6 month miner’s revenue $350m - $405m (compared to $375m for all of 2015)

                                                 ii.      6 month volume of 40m bitcoin transactions (compared to 46m bitcoin transactions for all 2015)

1. Some banks will implement distributed consensus ledgers for cross-border payments, in particular using Ripple
2. Apart from traction in cross-border payments, there will be no breakthroughs in distributed consensus ledgers in 2016 (technology too immature, industry still in a discovery phase, use cases too complex, banks and fintechs struggle to find workable, compelling use cases)
3. The banking industry will start debating whether to develop solutions and services that use public, permissionless networks such as Bitcoin (as opposed to solely private, permissioned networks)
4. Three topics will dominate new investment in distributed consensus ledgers by the end of 2016
   1. Machine-to-machine payments/payments for the internet of things
   2. Analytics on distributed consensus ledger data (in particular for AML and fraud)
   3. Micropayments