What’s Ahead in 2016?

What do industry leaders foresee for 2016? Many feel the number of announcements will level off, but there will be a few big, even game-changing, ones.

Drew Luca, a partner at PwC, feels we will see mobile-payments companies undergoing the industry consolidation and interoperability that is necessary to fulfill the use case. Drew also feels that, though not yet ready for broad use for payments, shared ledger could be useful for secure transmission of property titles and digital-entertainment content.

Jim Van Dyke, co-founder of Javelin Strategy & Research and independent fintech strategist, feels we will see success for shared ledger in EDI-like applications. Sarah Martin of the Digital Currency Council sees 2016 as the year of blockchain payments. WesPay’s chief executive, Bill Schoch, feels shared-ledger payments may find their footing in 2016, pointing to the work of USAA and Bitcoin processor Coinbase on a shared-ledger mobile app.

Steve Ledford of The Clearing House sees the blockchain as ideal for smart contracts, non-repudiation of transactions, and simultaneous counter-party execution, but feels it won’t be mainstream until it is invisible, well beyond 2016. Lee Manfred, a partner at First Annapolis, feels the blockchain’s potential is enormous for cross-border payments and high-value document exchange, but doesn’t expect it to be realized in 2016.

On the topic of faster payments, Schoch points out that the fastest route to faster payments will likely be same-day automated clearing house transactions, which are set to kick off in 2016. Manfred, Javelin’s Van Dyke, and a top-five bank executive all expect to see the Early Warning/clearXchange payments system demonstrate speedier payments’ advantages in 2016.

Martin of the Digital Currency Council sees speed coming via the shared ledger, mentioning Ripple’s rapid settlement, which could be scalable. Van Dyke believes 2016 could include a shock to the industry with banks like Santander and BBVA using their real-time, core-systems approach to faster payments to make payments real time within the bank, not just between banks, something batch processors can’t touch.

Jim also feels we will see little that is truly new from the card schemes in 2016 as consumers and merchants catch up to the changes of the past several years, an opinion shared by most. Manfred of First Annapolis sees 2016 as a year of strategy realignment for cards in a post-EMV world and non-bank uses of the networks emerging. Norm Montgomery, executive vice president at First Commonwealth Bank, sees the card schemes focusing on using their strengthened security to grow revenues.

The majority expect nothing new in social-media payments, but a senior banker believes that as the Millennials start to embrace it, social-media payments will gain rapidly. Van Dyke makes a distinction between social media being digital and the Internet of Things being physical—meaning social media just replace payments made by another channel, while IoT might actually create net new payment activity.

Manfred sees 2016 as a year of testing in IoT payments. PwC’s Luca, who sees social-media payments remaining stillborn in 2016, steered me to a video on PwC’s Web site that has a pretty convincing story on the future use of IoT and algorithms in banking. First Commonwealth Bank’s Montgomery expects innovation around wearables for credit and debit payments.

Drew feels that what the unbanked will need is not an adapted version of a first-world payment system but one built to their unique use cases. Martin is not sure anyone has figured out how to overcome the large startup cost, as Kenya’s M-Pesa found was required.

My own thoughts: The real news about cards in 2016 may be how easily the public is accepting EMV. Until the question of governance is settled, we’ll see only trials with shared ledger. We’ll see the EWS/clearXchange system provide a faster, lower-friction way to pay. IoT payments will get a tryout via MasterCard Inc.’s wearables-payments program, but we won’t see things paying other things autonomously.

I don’t see breakthroughs in serving the underbanked. We will see faster ACH as a step toward real-time payments, but don’t be surprised if there is a race between this approach and the build-anew approach.

For all these reasons, 2016 looks to be a year when the wheat and the chaff start to get sorted.

—George Warfel • gwarfel@wespayadvisors.com