Payments are an omnipresent part of life for corporates and consumers alike, with the United States seeing 174.2 billion noncash payments totaling $97.04 trillion in 2018.
Businesses’ and individuals’ transaction methods are also changing, with paper-based methods falling out of favor as digital methods rise. Only 26 percent of all consumer purchases in the U.S. are made with cash, for example, and 63 percent of consumers have at least two credit cards.
The pandemic has only strengthened the demand for digital payments. Forty-five percent of bank customers said that the way they interact with their bank has changed since the outbreak began, while another 45 percent said they are using mobile wallets. These changes are likely here to stay, with 31 percent of bank customers saying they will continue to use digital payment methods even after the pandemic has passed.
In August’s The FI’s Guide To Modernizing Digital Payments, PYMNTS explores the latest in the world of payments modernization, including record numbers of digital payment users in India, high demand for instant payments from corporates as well as consumers, and emerging competition from FinTechs and challenger banks.
The payments-as-a-service (PaaS) industry is projected to reach $16.7 billion by 2024, indicating the corporate world’s record-high demand for instant payments. These payment options consist of cloud-based software systems that connect international payment protocols via application programming interfaces (APIs), with revenues typically coming from subscription fees or per-transaction surcharges. New technologies and API infrastructures are also leading to rapid innovations in the PaaS space, including quicker payments than ever before.
Artificial intelligence (AI) is also driving payments innovations, with a study finding that it could add $1.2 trillion to the global financial industry over the next 15 years. The bulk of this value is driven by savings and operational efficiencies, as AI could cut costs for banks by reducing the human error that occurs in payments and other operations.
India is quickly becoming a global leader in instant payments, with more residents than ever using digital payments instead of cash. The pandemic is largely driving this shift, as cash use carries the risk of viral transmission through human contact. The Indian government has embarked on several initiatives over the years to reduce its citizens’ cash reliance, but the pandemic has had a greater impact than any of these efforts.
How Customer Expectations Have Driven Payments Innovation
Corporates crave fast payments from banks, but financial institution (FI) payments are often hamstrung by regulations and cross-border frictions that FinTechs do not face. This could be especially damaging as vendors and suppliers confront crumbling revenue streams during the pandemic.
In this month’s Feature Story, PYMNTS talked with Vikram Dewan, chief information officer of Deutsche Bank’s corporate banking division, about how FIs can turn to talent and enhance their operations to compete with agile FinTechs’ payment offerings.
Banks are pushing harder than ever toward faster, seamless payments, and numerous factors are fueling this drive toward innovation. Customer demand, accelerated speed to market and improved back-end efficiencies are all motivating causes, but banks could face ruin if they fall behind.
This month’s Deep Dive explores the various forces behind FIs’ payments initiatives, and why sticking with legacy banking systems could result in declining customer loyalty and lost competitive ground to challenger banks and FinTechs.
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