Payments

Innovation in payments has accelerated exponentially in recent years. Digital wallets, platforms and blockchain are disrupting the landscape. Purchasing and payments are now embedded in many people’s everyday digital lives. So how can banks make up lost ground?

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How you can use the RetailTech Model

The first stage is Research & Development, when an innovation is not fully-fledged and has not yet been adopted beyond prototypes, trials or POCs.

New technologies typically go through 5+ years of R&D, though the timeframe will vary substantially depending on the degree of innovation entailed.

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Model Stages

The Leading Edge stage indicates when an innovation has moved out of R&D and into operation. Approximately 5% of the market adopts the innovation at this stage, usually start-ups and a few industry players known for being forward-looking.

Sometimes, an innovation is picked up from another sector. As indicated in the timeline below, it typically takes 1 to 3 years to move from the Leading Edge to Early Adopters stage.

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Model Timeline

At this stage organisations are more risk averse than those at the Leading Edge, but are still keen to be in the industry’s upper quartile and adopt a new technology.

The broad timeline for technologies to remain at this stage is 2 to 5 years at which point they will have reached around 25% market adoption.

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Model Origins

By this point a technology or business innovation can be considered as Mainstream since it will have been implemented by around 50% of the market.

2-5 years is the typical timeframe for this stage.

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Model Lenses

Technologies in the Late Adopters stage have been widely adopted across the industry with 80% - 100% of the market using them after a further 5+ years.

Not all technologies end up being adopted by everyone, with some 20% of technologies never reaching full adoption.

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R&D

The first stage is Research & Development, when an innovation is not fully-fledged and has not yet been adopted beyond prototypes, trials or POCs.

New technologies typically go through 5+ years of R&D, though the timeframe will vary substantially depending on the degree of innovation entailed.

. .
5+
Leading Edge

The Leading Edge stage indicates when an innovation has moved out of R&D and into operation. Approximately 5% of the market adopts the innovation at this stage, usually start-ups and a few industry players known for being forward-looking.

Sometimes, an innovation is picked up from another sector. As indicated in the timeline below, it typically takes 1 to 3 years to move from the Leading Edge to Early Adopters stage.

. .
5%
1-3
Early Adopters

At this stage organisations are more risk averse than those at the Leading Edge, but are still keen to be in the industry’s upper quartile and adopt a new technology.

The broad timeline for technologies to remain at this stage is 2 to 5 years at which point they will have reached around 25% market adoption.

. .
25%
2-5
Mainstream

By this point a technology or business innovation can be considered as Mainstream since it will have been implemented by around 50% of the market.

2-5 years is the typical timeframe for this stage.

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50%
2-5
Late Adopters

Technologies in the Late Adopters stage have been widely adopted across the industry with 80% - 100% of the market using them after a further 5+ years.

Not all technologies end up being adopted by everyone, with some 20% of technologies never reaching full adoption.

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80%-100%
5+

The first stage is Research & Development, when an innovation is not fully-fledged and has not yet been adopted beyond prototypes, trials or POCs.

New technologies typically go through 5+ years of R&D, though the timeframe will vary substantially depending on the degree of innovation entailed.

The Leading Edge stage indicates when an innovation has moved out of R&D and into operation. Approximately 5% of the market adopts the innovation at this stage, usually start-ups and a few industry players known for being forward-looking.

Sometimes, an innovation is picked up from another sector. As indicated in the timeline below, it typically takes 1 to 3 years to move from the Leading Edge to Early Adopters stage.

At this stage organisations are more risk averse than those at the Leading Edge, but are still keen to be in the industry’s upper quartile and adopt a new technology.

The broad timeline for technologies to remain at this stage is 2 to 5 years at which point they will have reached around 25% market adoption.

By this point a technology or business innovation can be considered as Mainstream since it will have been implemented by around 50% of the market.

2-5 years is the typical timeframe for this stage.

Technologies in the Late Adopters stage have been widely adopted across the industry with 80% - 100% of the market using them after a further 5+ years.

Not all technologies end up being adopted by everyone, with some 20% of technologies never reaching full adoption.

Using smarter payments to re-imagine the financial landscape

Payments have always been a fundamental banking service, yet when it comes to innovation in payments, few traditional banks have led the way. As new entrants use smart payment processes to reimagine the financial landscape, traditional organizations are looking to play catch up or get ahead of the game.

P2P solutions for remittances and foreign exchange have gained momentum. Transferwise has reached a market share of 8% in the UK and is looking to expand distribution through API-based partnerships with challenger banks, while Kantox and others are specializing in P2P transfer for commercial clients.

Digital wallets are digitizing more and more of the cards in a physical wallet, combining payments, rewards, loyalty and special offers in a single scan. This innovation is being matched by the ability of retailers to accept multiple physical and virtual currencies and to use mobile Points of Sale (POS), such as tablets and mobile phones, to speed checkout.

One cross-industry trend shaking up the space is the rise of platforms, including Apple, Amazon, Facebook, Google, Alibaba and Tencent. Payments form a central element in these companies’ overall strategies. They aim to be customers’ preferred port of call with a “one click” or “no click” payment solution. Key to these platforms is the idea of contextual commerce in which shopping opportunities are embedded in people’s everyday digital lives.

The Payment Services Directive PSD2 in the EU will open up further opportunities for contextual payments. Retailers and other organizations, including utilities, will gain the ability to become Payment Initiation Service Providers and take money directly from a customer’s bank account – provided explicit consent has been given.

Though these payment changes improve the user experience, they’re typically built on today’s payment rails and use Host Card Emulation to piggy-back on cards and accounts. But other innovations out there really rock the boat.

Blockchain, for instance, builds its own rails. Private individuals have adopted blockchain for payments in the form of Bitcoin, but institutions are now climbing on board. Numerous global banks are exploring the opportunities digital ledgers present for payments, digital cash and settlement solutions. There will be plenty of practical issues to resolve, but blockchain does have many alluring features: near-instant settlement, non-repudiation, immutable audit trails and low cost. The technology looks set for widespread adoption, and could inspire a revolutionary change if governments use it for national currencies with the goal of driving out the “black economy.”

A further step toward frictionless payments will come from the Internet of Things. When an IoT-connected car needs petrol or parking, for instance, payment will come from the car – not the driver – using beacons, sensors and geolocation data. The same principle can be applied to lower- value purchases once IoT capability extends to more “things” and payment processing costs decrease, perhaps through blockchain. When this happens, real-time automated micropayments, say for electricity or lighting, will become a reality. Smart home companies are actively conducting R&D in this space now.

Biometrics is another way to improve consumer experience, removing a bothersome source of friction: authentication. Banks now offer a plethora of biometric solutions, ranging from voice and fingerprints, to selfies and heart-rate. PayPal has gone so far as to integrate with Apple agent Siri to let subscribers use voice commands to transfer payments. Going forward, the evolution of payment authentication will depend on regulation as much as technology, with PSD2 shaping the market’s direction.

Explore these and other trends in the Payments Lens of our Innovation Model.

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Payments Expert

Markus Orth
DXC Payments Practice

Arrange a meeting with Markus Orth

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