Open banking trends have led to a growing ability of organizations to share data and services instantly with each other through APIs across the payment space. This has paved the way for organisations, by assembling services from specialized suppliers, to be able to rapidly release innovative goods.
In some countries particularly across Europe, open banking standards are now more developed. Open banking regulations and guidelines have recently been published by many countries. As a result, many banks are forced to put in place operations to make the financial details of their customers immediately accessible through the API. The growing number of neo-banks emerging worldwide, in part due to the proliferation of platforms for Banking as a Service (BaaS), is further accelerating this movement. These neo-banks are planned to adopt the plug-and-play nature of services based on APIs.
It will become increasingly difficult to explain the complex advantages of and payment option to consumers at the point of purchase with so many new payment products coming to market.
At the same time, third-party retailers will use API services to develop capabilities for in-house payment processing. Many of these payment solutions may not require clients, for example, to use a bank card.
In 2021, retailers will have to explore further approaches to payment flows as part of an effort to expand their bottom lines.
For several payment goods, technology enablers, such as white label payment service providers, have reduced the technological barrier to entry.
As the marketplace becomes more crowded, in order to be able to profitably grow their consumer bases, banks and payment service providers will need to remain razor-focused on delivering customer value.
- THE POINT OF ONLINE PURCHASE WILL BECOME INCREASINGLY CROWDED FOR PAYMENT SERVICE PROVIDERS
When a client arrives on a merchant’s website at the payment setup stage, they are asked to choose a payment option. More options to pay than ever before will be offered to consumers in 2021, including highly customized products such as short-term loans that fully eliminate the need for bank-issued credit cards. Providers may need to clearly articulate their value proposition with the abundance of payment options, but there is generally extremely limited room in which to do this, meaning clients will likely rely more on strong brands.
2. PAYMENT SERVICE PROVIDERS WILL COMPETE TO HANDLE STRONG CUSTOMER AUTHENTICATION WITH THE LEAST CHECKOUT FRICTION IN EUROPE
As customers are expected to enter their PIN number, physical card transactions already employ relatively strong customer authentication processes. Contactless and online payments do not however, require secondary authentication forms, leaving accounts more vulnerable to fraud. Via the pandemic in 2020, the rapid adoption of digital payments has led to an increased proportion of payments being processed without secondary consumer authentication.
During the pandemic, Google announced that there was a 350 percent rise in phishing websites. TransUnion found in a survey that 22 percent of American respondents were the victim of COVID-1910-related digital fraud.
3. SECOND GENERATION NEOBANKS WILL GROW WITH PAYMENT PRODUCTS SERVING TIGHTLY DEFINED CUSTOMER SEGMENTS
The Coronavirus pandemic has led to increased uncertainly around the availability of capital for fintech companies, particularly for smaller organisations. Even larger neobanks have had to raise funds at significant down valuations. Increased uncertainty will continue through 2021, as recessions deepen.
Cash flow uncertainty will lead to mounting pressure on neobanks to reduce their net cash burn rates, in an attempt to stretch out cash they have already raised and put off the next round of funding until the economic situation improves.
As neobanks experiment with new ways of monetizing customer segments, and create new revenue streams, in 2021 it is likely we will see a much more diverse variety of neobanks.
In terms of payments, we are seeing this pressure lead to more innovation in business accounts compared to retail accounts. This may be because business customers are historically more used to paying account service fees.
4. TRADITIONAL BANKS WILL INCREASINGLY USE APIs FROM FINTECH PROVIDERS TO STRENGTHEN THEIR OWN PAYMENT SERVICES
Traditional banks have initially approached this recent surge in hosted API-based services with caution.
Firstly, connecting their bank systems, which are built on server-based architectures, with hosted APIs required new thinking. Secondly, banks had to evaluate and understand the security and robustness of externally hosted API services.
As banks start to share their own customer data through APIs, and experiment more with new customer products, in 2021 they will increasingly turn to external providers who offer APIs that enable clients to inject best-of-class services directly into their products. Organisations can easily outsource non-core product functionality via API, enabling them to focus their engineering resources on building unique competitive advantages.