The Future of Payments in Europe

With regulations increasingly forcing banks to open up, bigtech and fintechs entering the financial arena and rising customer expectations, there is increasing pressure amongst banks to innovate and provide seamless customer service to ensure that they retain the primary relationship with the customer. This is especially important in the area of payments where regulations like PSD2 will force banks to allow third parties to access the customer transaction data.

The demand for digital payments is expected to grow even more significantly in the upcoming years. Services like Apple pay (introduced recently in Netherlands in partnership with ING), offer customers a more personalized payment experience. The adoption of digital wallets and digital payments is already widespread in regions such as China where mobile digital wallets account for 35% of the in-person spending. In the US 57% of the mobile users have used digital wallets at least once. The entrance of the GAFA tech giants (Google, Apple, Facebook, Amazon) in the digital payments area will help in further expanding the market and bringing in more customers, however this will also lead to more competition in the overall digital payments landscape.

  A direct impact of this widespread growth in digital payments is that it can disintermediate the banks and credit card companies from consumers. As mobile payment apps become all-encompassing service portals, they take control of the user experience and threaten the customer relationship that banks and credit card companies used to own. A powerful combination of a) exponentially increased (and mobile-accessed) internet traffic in the next years; b) changing customer behaviour (more familiarity with tech and social media brands, the overwhelming use of apps rather than branches for banking operations); and c) new regulations such as PSD2 raise the chance of increasing competition for Banks and the significant risk of losing out on their payments share and getting pushed out from the primary relationship with the customer.

 However leading banks in the region are facing the challenge by innovating with their own apps and payment services and adapting their ecosystem to integrate with the large new players like Apple and Google. This will be a continuing strategy which Banks will follow to protect and grow their market share. Regulations like PSD2 should not be perceived as threats but should be leveraged by innovative banks to provide more informative and personalised services to their customers. ABN Amro recently came out with the feature to offer customers a single view of their accounts with different banks, a direct sign of the benefits of PSD2.

 The realization of the instant payments facility will result in increasing growth in the overall payments market. The next step would be to realise the instant payments across different countries 24/7.

 With increase in service providers and increase in ease of payments, security will become a critical factor and trust and security will be a key feature which can influence customers in choosing its payments partner in an increasingly competitive arena.

 Increase in the ease to switch payment accounts between banks will also lead to more competition and thereby further innovation and improvements in the payments service that users will receive. Eventually the option to switch banks without changing the account number will bring in the highest benefits to users in terms of service and offerings. The challenges to implement this seamlessly is something that needs to be overcome. 

  To summarise, the trend will continue towards tremendous increase in digital payments and there will be multiple players offering these services. Banks and technology companies will increasingly combine as partners to provide innovative, real time and 24x7 payment services and end users will be the real beneficiaries.