Payments Innovations Set to Disrupt the Banking Industry

Global financial services have been undergoing a massive overhaul as new technologies, most of them driven by consumers’ changing preferences, find their way into old processes to change the way business is done. It’s a topic of almost perpetual analysis as financial institutions—members of the old guard and new entrants alike—prepare to meet the challenges of tomorrow. Deloitte’s Banking Industry Outlook: Banking Reimagined examines how disruptive forces will transform the industry and casts a light over payments innovations that are already making their mark.

The Payments Landscape: Attracting Disruptors

Deloitte analysts place the payments industry in fertile ground, with characteristics that make it a particularly favorable environment for innovation:

• It’s a massive industry with $26 trillion in global transactions and billions of dollars in fees for the payment networks, processors, issuers, and other intermediaries
• Inefficiencies abound thanks to legacy architecture and decades-old protocols that create delays, risks, and headaches in both consumer and corporate systems
• Customers cherish convenience so any solution designed (without much cost) to meet peoples’ preferences will be favorably received

With an increasing B2B, B2C, and even P2P interest in on-demand, digital, and real-time payments, industry players—the disruptors, most notably—are laser-focused on streamlining and automating processes to make it easier to facilitate payments, make purchases, and transfer money.

Expectations Revealed

Deloitte shares what areas of payment technology they believe have the most potential for transformation:

The blockchain – the star of the show, distributed ledger technology is already challenging the existing paradigm, poised to transform financial architecture while creating efficiencies and lowering costs. The technology is being explored in both retail and corporate spaces, but analysts predict faster adoption in corporate payments. They expect private, permissioned blockchain-based payment systems to gain significant transaction volume by 2020, whereas a blockchain industry utility on the scale of ACH isn’t likely to be a reality until closer to 2025.

Read Will Blockchain Technology Power the Future of Payments? to learn more.

IoT and digital payments – advances in Internet of Things and digital payments, including wearables, will ensure a more automated and seamless retail customer experience. Similarly, direct payments will become more common, diminishing the need for intermediaries.

Read Making the Connection: The Internet of Things and Payments, Payments in the Internet of Everything, and Payments Professionals’ Digital Priorities for 2016 for additional insights.

Digital currencies – as these evolve and become interoperable with other currencies, they’re expected to be accepted into the mainstream—but with adoption of standards and compliance with global regulatory frameworks.

Explore more in Fast Forward? Cashless Payments in a Cashless World and A Brief History of Payments: From Stones to Phones [Infographic].

Strategic Advice for Banks

Deloitte maintains that for as much disruption as new entrants bring to the marketplace, traditional financial institutions will still dominate and lead the charge for innovation. Banks maintain strong relationships with companies, which works in their favor, but from a consumer standpoint they risk losing control over the “customer experience” as technology firms come in and offer new solutions.

With this on the table, Deloitte’s specific recommendations to banks include strategically investing in innovation by partnering, hiring, crowdsourcing, and piloting; engaging with different players to develop new solutions across the payment spectrum; and proactively working with regulators in the shaping of standards and protocols around new technologies. To see the complete, detailed list of recommendations, download Banking Industry Outlook: Banking Reimagined, available on Deloitte’s website.