The way people pay today is completely different from what it used to be just a decade ago. On a regular week, I am sending and receiving a few wire transfers. Some of the incoming transfers are landed in the countries I haven’t visited for a few years.
Typically, I subcontract quite some tasks to the teammates located in the US, Latin America, Ukraine and other countries. To make these transactions fast and cheap, I use PayPal. When it comes to securely purchasing digital products and services, Skrill comes handy. For regular expenses I am mostly using one of my MasterCards and most of such transactions are contactless.
When I was a teen, there was only one generally accepted payment system - cash. And don’t get me wrong, I am still only 27 years old. The payment systems are progressing at the speed of light, yet it feels that we are still seeing only a tip of an iceberg. Let’s learn more about the main drawbacks of the current payment systems and see how the payment systems should be innovated.
Transactional Costs
Sending money costs money. It is relatively cheap to move funds within EU member states, but when it comes to international payments that are not SEPA, money transfers are getting expensive. It roughly costs between USD 20 and 50 USD to move 1000 USD from one country to another. This may not sound like a lot, but if you really think of it...losing 2% or 5% of your funds per single transaction is actually a huge amount. Hence, the payments should simply become cheaper.
Lack of Transparency
Digital wallets excel in transparency. It is always possible to know exactly how much money Little Johnny needs to pay so that Little Susie receives exactly as much as she expects. This is not the case with banks. Still, banks take the largest slice of the transactional pie. When I am sending EUR 1000 abroad, there is absolutely no overview about how much funds will be received on the other end. Providing crystal clear overview on the conditions and costs should be a goal of every payment system.
Speed
Today, there are two ways to send funds. If you are using any modern system, the money is transfered nearly instantly. When you are wiring the funds, the whole process takes a day or a few. Another factor that impacts the speed of a transfer is the working time. Ideally, a payment system should work 24/7 and 365 days a year.
Security
This is perhaps the milestone on the way to payments innovation. It goes without saying that any transaction should be as secure as possible. While banks tend to supply a much more secured environment that involves different authentication methods, complex logins, passwords and hardware devices, they hardly provide any protection once the transaction is completed.
It is much easier to crack PayPal and get access to the funds held there, yet it is also the system that actually cares about your success. If the goods purchased via PayPal are not received, you are covered by the protection plan. Hence, a secure system is not only the one that is hard to crack but also the one that is safe to use.
Roadmap to innovation
An ideal payment system is cheap to use, provides a clear overview of all of the associated costs and fees, it is lightning-fast and secure to authenticate and use. Quite a few of the modern payment systems would actually fit these four requirements already today. Yet, there are a few extra steps to be taken.
User Experience
Millennials are changing the way software looks like. Today, an app can no longer become successful by offering a great scope of useful features. Intuitive design is required to appeal to the younger share of the population.
Consolidation
Having great payment options is certainly useful, but there are just too many means of payment in place. Today, I have five cards in my wallet. Two are not actually tied to a bank account. Next to this, I also have some cash, just in case the card is not accepted somewhere. Innovation in payments should strive to consolidate all of the means of payment within one place, and the most likely candidate for it is your mobile phone.
B2B
Consumers make the largest amount of the transactions. But, when we talk about the volumes businesses dominate. Next to this, businesses tend to be the ones that use the banks much more often. This is why innovation of B2B payment systems beyond regular banks is both inevitable and vital.
Summing it all up
The ways we pay are progressing but not hardly as fast as other technologies. Even though we have seen a leap over the course of the last 20 years, the wire transfers still remain the main means of payment. Nevertheless, consumers strive for transparency, cost reduction and speed, and these three factors will contribute a lot towards the choice of the payment system one uses.
However, the providers that achieved an intuitive user experience are expected to get an edge over the competition. Next to this, consolidating various payment systems into a single outlet and offering alternative payment systems for businesses are additional two ways where the innovation in payments will happen.
About Konstantin Rabin
Konstantin has taken part in various projects in the European financial industry for the last 4 years. Currently Konstantin is heading marketing at Kontomatik - a European developer of bank API. In addition to this, Konstantin often publishes articles on finance and technology on key websites.
About Kontomatik
Kontomatik is a provider of Banking APIs. The service supplied by Kontomatik is mostly aimed for banks with competitive products, online lenders that are looking to optimise loan-issuing processes and start-ups that want to build their app around supreme technology. Online credit scoring, instant KYC and contextual financial offers are the key benefits supplied by Kontomatik, yet the main service is the provision of a tool that lets an organisation become a true innovator in the financial industry.
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