The prognostications for 2019 are starting to roll in, and if at least one comes true, we’ll see business-to-business transactions driving the growth of faster-payment systems. And smart phones might actually gain some discernible traction at the point of sale.
The predictions come from the big accounting and consulting firm Deloitte, which recently issued its 2019 Banking and Capital Markets Outlook forecast. Payments is one of 11 sectors the report examines. “Payments continues to be one of the most disruptive and dynamic banking businesses,” Deloitte says. “Innovations spanning the spectrum from incumbents to fintechs alike are reshaping the payments landscape, boosting customer expectations, and intensifying competition globally.”
One hub of activity is likely to be business-to-business payments. “Incumbents are expected to differentiate customer experience in areas fraught with friction—cross-border payments and B2B payments being prime examples,” the report says. “For example, Visa recently acquired Fraedom, a software-as-a-service solution, to expand in the growing B2B payments space.”
Zach Aron, payments leader on Deloitte’s banking and capital markets staff, tells Digital Transactions News by e-mail that the most popular use case for faster-payment opportunities initially was person-to-person transactions. Now, however, “many see more value and [return on investment] in B2B payments.”
Driving businesses’ interest in faster-payment services is the still-considerable usage of checks and a desire for more hassle-free cross-border payments, Aron notes. The Clearing House Payments Co. reported that B2B payments would be among the first transactions to go over its new Real Time Payments service.
On the consumer level, look for more adoption of contactless mobile payments next year, though Deloitte, whose U.S. headquarters is in New York City, didn’t give numbers with its prediction. While most experts believe smart-phone-based general-purpose mobile wallets such as Apple Pay, Google Pay, and Samsung Pay are gaining payment share, as of earlier this year they accounted for less than 1% of Visa Inc.’s U.S. point-of-sale transactions. “We see continued overall growth in mobile payments as users’ familiarity/comfort—and subsequent adoption—with the various propositions increases,” Aron says. “Overall, this will help drive a decline in ‘physical’ card transactions.”
A race for contactless market share could develop in 2019 between mobile wallets and so-called dual-interface credit and debit cards that support EMV contact transactions and contactless payments using near-field communication technology. JPMorgan Chase & Co. in November announced it plans to convert tens of millions of payment cards to Visa-branded dual-interface plastic over the next few years, triggering speculation that other card issuers will follow.
“The biggest question will be around contactless payments choices,” Aron says. “Will mobile-wallet payment options or in-app payment options that can be triggered in-store (or order-ahead) transactions grow, and how much? On the physical side, the driver behind the move to contactless will be driven through economics, in the cost of card production and replacement. Currently, the perception is that contactless cards do not provide an appreciable advantage over chip cards on transaction time reduction—especially if a PIN is still mandated.”
The report also notes that payments is a hotbed of investment, with 55 venture-capital deals worldwide worth a total of $15.3 billion in 2018’s first half compared with just $2.7 billion in 131 deals for all of 2017. Merger-and-acquisition activity involving payment companies amounted to $43.2 billion in 67 first-half 2018 deals versus $31.2 billion in 73 deals in all of last year.
Aron says this year’s higher M&A activity in part reflects payment card portfolio sales as well as targeted acquisitions, usually by financial-technology firms, to develop new products and services or enter new markets. “Taken together, we at Deloitte believe these reflect the start of a ‘reshuffling’ of payments players as they rethink their role in the marketplace,” he says.