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Trends in Digital Payments

Trends in Digital Payments

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TRENDS IN DIGITAL PAYMENTS

Abstract ‘Beyond Open Banking’ is about leveraging and monetizing the API infrastructure and data openness to innovate and create pioneering customer-centric solutions riding on disruptive technologies (Blockchain, AI, Automation, IOT etc.), data, design, lean UX, agile and scaling up the products and services. Infosys ‘Navigate Your Next’ framework is in sync with the ‘Beyond Open Banking’ strategy and can help in their digital transformation journey from design, strategy to scaled execution with AI-powered core, agile digital at scale and always-on-learning solutions through integration (APIs / data openness) and capability to sell the right product at the right time to the right customer. Financial institutions are facing increasing competition from technology giants and FinTech startups for winning the consumer mindshare by providing them with a seamless payments experience. Incumbent card players are investing in Omnichannel experiences to keep pace with payments digitization and the relentless changes sweeping the industry. Countries across the globe are revamping their payments infrastructure to enable businesses and consumers to move money faster and at the same time help monetize the platforms. When combined with the shift towards opening up traditional banking silos, financial institutions are focused on upgrading their payment services offerings to meet future payment requirements related to volume, speed and agility.

Consumer preferences varies from country to country. Digital payments have evolved in various ways in each of the geographies based on various factors such as consumer preferences, industry structure and support from Central banks. However, there are Digital Payment trends that show universal adoption across the globe. In the following sections, let us look at geography specific developments as well as trends that have universal adoption across the globe.

External Document © 2019 Infosys Limited Country Wise Trends in Digital set of countries that embraced Real Time enormous scale to disintermediate banks Payments Payments (RTP), support from Central to the point of making them invisible & Indian government to increase digital to the consumers. Europe on the other , and European Region are payment adoption and allowing Fintechs hand has embraced various forms of good examples to showcase how Payment to provide digital front-end for RTP rails digital payments including digital wallets, preference varies from one country to led to fast adoption of Digital payments RTP and continue to use Card based another and how Digital Payments have at a fast scale which few countries have evolved as a result of existing industry exhibited. In contrast, China’s digital transactions for eCommerce. Let us look structure, initiatives and payment journey has been led to few at each of these regions in detail in the regulations. Though India was not in initial FinTech firms that have quickly gained following section.

Digital payments in India market share of transaction value and average transaction value (ATV) is 50% volume fell to 1.9% and 4.6% respectively. higher compared to PhonePe and Digital payments growth enabled by — it is considered more trustworthy and FinTechs lead the way in consumer existing payments rail is a preferred app for merchants. As per a adoption report by Razorpay, Pay accounted The growth of digital payments in India for 54% of merchant transactions.1 is led by offerings from the National Most UPI apps help accountholders Payments Corporation of India (NPCI) pay their utility bills. FinTech apps have including the United Payments Interface introduced innovative features — PhonePe Digital Payments in China (UPI) and Immediate Payment Service enables payment of bills or to (IMPS). UPI enables consumers to open buy gold, Paytm can be used to invest in Rapid growth of mobile payments in accounts linked to their bank mutual funds. Through these apps digital China account held with any bank in India. Users gold can be bought for any denomination Mobile payments in China has a can use UPI for digital money transfer and any weight. penetration rate of nearly 90% amongst (P2P), payments at merchant outlets, utility features in 8 Indian languages. its billion mobile users. TenPay payments and payments to businesses. Using Google’s Audio QR Technology, its (WeChat Pay) and dominate the Volumes of transactions through UPI grew “Cash mode” enables users to send or market with 820 million users and 650 349% year-over-year to nearly 800 million receive money from other Google Pay million users respectively. The relatively and the value of transactions grew 45% users in near vicinity without sharing their backward economic regions have not year-over-year to over USD18.9bn during mobile number or details. lagged in mobile payments. Offline, FY 2018 - 2019. Google Pay had 327 million installations in consumers use WeChat Pay and Alipay to NPCI launched its own UPI 2018, far ahead of its nearest competition pay at supermarkets, catering, daily travel BHIM in December 2016 to enable its PhonePe with 49 million installations. orders, entertainment, etc. Online, Alipay is partner ecosystem (small-sized banks) With monthly active users (MAU) rising strong in e-commerce while WeChat Pay is to become UPI compatible and allow from 25 million in September 2018 to 45 used to recharge games. Alipay’s bus card their customers the million in March 2019, Google Pay added and ’s Metro QR code are widely convenience of using the UPI platform. the most number of users during the used for public transportation payments Demonetization in November 2016 and period However, PhonePe has caught — Tencent Metro QR code payments is the presence of only 15 UPI-enabled up subsequently; PhonePe mobile app currently active in over 70 cities in China. mobile apps propelled BHIM’s usage. By had processed 342 Mn UPI transactions April 2017, its market share in UPI reached in August 2019 followed by Google Customers won over by social media and 44.1% by transaction value and 44.3% by Pay app (320 Mn UPI transactions ) and e-commerce platform services transaction volume. However, BHIM faced Paytm app (157 Mn UPI transactions). Of In 2012, paying using mobile phones was stiff competition from apps such as Google the USD18.9bn of UPI transaction value, a novelty in China. Today, it is significantly Pay, PhonePe, Paytm and Mobikwik. By Google Pay had a 32.8% market share or embraced and defines how money April 2019, there were over 100 apps in the USD6.8bn, whereas its nearest rivals could moves in the economy. In 2017, 62% of market that interfaced with UPI and BHIM’s only manage USD4.6bn. Google Pay’s

1Razorpay

External Document © 2019 Infosys Limited global transactions were in Europe focused on local markets. investment advice and short-term loans, performed by the Chinese. Payback (Denmark), (Netherlands), among other . In 2017, (), Mobile Pay (Denmark and Alibaba’s customer base in financial Alipay-affiliated Yu’e Bao became the Finland) are examples of such local players. services outstrips counterparts in the world’s largest money-market fund, with , and PayPal are active across U.S. The tech giant serves 520 million over USD 200 billion in assets, surpassing Europe. customers in Payments (PayPal serves 203 JPMorgan Chase’s government market million), 330 million customers in wealth fund. The speed of migration to their The era of open banking APIs (Application management (Charles Schwab serves wealth-management and money-market Programming Interfaces), facilitated 10.6 million) and has credit references on funds has been tremendous. by Directive 2 (PSD2), 257 million customers (FICO has for 180 will usher in a range of new consumer million). services making it easier for new payment Digital payments in Europe The Chinese model is opposite to that in intermediaries to launch. Several wallets the U.S. China started with a social platform now offer biometric authentication allied Europe is the most diverse market for to tokenization of payment details, thereby and moved to become a payments digital payments with multiple players facilitator, whereas, in the U.S., the financial increasing the security of such transactions Europe stands out in its diversity when services industry came first, followed by higher than CP (Card Present) transactions. it comes to the use of online payments. social and loyalty. Although QR codes PayPal is the most popular method of might not be as secure as the near-field Industry Trends That Resonate online payment in Germany and Spain communication technology used by Across the Globe whereas debit and credit cards are the ApplePay and other apps in the U.S, it is preferred mode in France. cheaper for merchants who don’t have to Industry Trends such as leveraging pay for technology to accept payments. In the Netherlands, most online purchases Distributed for Cross Border are made using iDEAL, a domestic bank payments, Embracing API / Open Banking, Duopoly disintermediating the Chinese transfer system-based on SEPA Credit leveraging Real Time Payments for various banks Transfer, and is supported by all Dutch needs of consumers / corporates and Banks More than 90% of Chinese mobile banks. After selecting iDEAL and their focus on API layers can be observed across payments run through Alipay and WeChat bank, consumers authorize the pre-filled countries and continents. These are some Pay. China UnionPay, the nation’s dominant payment in their online banking portal or of the industry shifting trends that have card network, is a distant third. Alipay and their app. The merchant gained acceptances across all geographies WeChat Pay wallets are linked to a bank instantly receives a payment guarantee. considering that these trends are enabling account or credit card. With the ecosystem The funds are irrevocably credited by SEPA new players to leverage technology to controlled by two players, Chinese banks Credit Transfer. disintermediate established players and have become ‘dumb pipes’ — silent provide new value proposition to their In Belgium, Bancontact (a domestic funders whose accounts are used to top customer segment. In the following section, payment scheme) is used more than credit up customers digital wallets2. While bank let us look at each of these trends in detail. cards for online payments. In France, Paylib, bears compliance and account-related an eWallet containing cards supported by expenses they do not benefit from fees or Leveraging distributed ledger for cross the interbank scheme Carte Bancaire, has border payments branding opportunities typical of cards or become the most popular alternative to Global businesses and international other bank-run solutions. debit and credit cards for online payments. trade have steadily risen over the past In the above model, banks do not own In the U.K., the app supports 20-30 years. A worldwide diaspora has the customer relationship but are only payment at merchant outlets (using QR also increased cross-border payments. being disintermediated. The model limits code) and also for e-commerce payments. These have led to challenges including transaction data available to banks — Money is moved between current accounts the fixation of exchange rates post the using the U.K. Faster Payments service. which can be leveraged to cross-sell transfer of funds, further exacerbated Formerly Pingit, the app can be products and services, such as wealth by the involvement of multiple financial used by accountholders of other banks in management, insurance or loans. WeChat institutions with complex procedures, the U.K. Pay and Alipay use their central positions delays and inaccuracies and accompanying to offer high-rate money-market accounts, There are several digital payments services fees at each stage of the transaction.

2https://dowbor.org/2018/08/banks-are-becoming-obsolete-in-china-could-the-u-s-be-next-alipay-in-the-u-k-alibabas-proprietary-payment-platform-alipay-has-shown-up-in-adverti- sements-overseas-such-as-this-one-in.html/

External Document © 2019 Infosys Limited FinTech startups leverage non-traditional payment accounts for their customers but and services that Finicity supports. approaches to solve these pain points. have a specific scope of Payment Initiation (PISP - Payment Initiation Service Provider) FinTechs leverage open banking Ripple focuses on cross-border and initiatives inter-bank commercial payments by and Account info aggregation (AISP - leveraging distributed ledger technology. Account Info Service Provider). Tink is a European FinTech focused on open It connects banks and payment providers banking APIs. It is an FSA-regulated partner U.K.’s open banking service that came via its RippleNet which runs on blockchain to big banks, FinTechs and small startups into force in January 2018 is designed to technology. Customers have access to and serves 12 European markets. Tink offer bring more competition and innovation to source liquidity using the XRP (digital account aggregation (AIS) and payment financial services. Open banking ensures currency). Ripple has leading banks such as initiation (PIS) on a single, cloud-based the participating banks share their data , Santander, CIMB Bank, platform enabling FinTechs and banks to in a secure and standardized form with MUFG Bank as its partners. innovate and launch new products with authorized organizations online. The one API integration. Swedish bank SBAB Incumbent players acquire FinTech accountholder must give their explicit launched The Mortgage Match – a service capabilities approval to any data exchange. FinTech that uses Tink’s account aggregation players can leverage open banking to J.P. Morgan’s in-house Blockchain Center of technology to instantly collect a user’s aggregate data about consumers and Excellence developed and open-sourced existing mortgage information from their provide them with new offerings in Quorum in November 2016. This blockchain bank, and compare with a rate from SBAB. architecture, a permissioned implementation payments, loans, etc. ABN AMRO’s Grip app is ABN AMRO’s of , meets regulatory requirements, Regulations are not a prerequisite for standalone personal finance management ensures data privacy and can process up to open banking app. The app is built on top of the Tink hundreds of transactions per second. platform and is based on a customized The U.S does not have any regulations on white-label version of Tink’s front-end Visa Inc. acquired control of payments PSD2 and open banking. However, financial design. Nordic bank SEB developed its own firm Earthport, that provides cross-border institutions have tied-up to share data and personal finance management app based payment services to banks, money transfer account aggregation services. JPMorgan on the Tink platform. service providers and businesses via the Chase has partnered with to make world’s largest independent ACH network. sharing data easier and safer through API Plaid is a U.S. based FinTech that serves interfaces. Their interface leverages Open as a trusted intermediary for the fintech MasterCard acquired Transfast, a global cross- Authentication and ecosystem by securely connecting border account-to-account money transfer (OFX) 2.2 API. Accountholders can authorize consumers, their banks, and financial network. Transfast’s network covers over 125 the bank to share data on digital apps like applications. Plaid connects bank accounts countries globally. It is a proprietary payment and QuickBooks. Customers decide to apps such as , Robinhood, network, consisting of direct integrations with what they want to share and when they Coinbase, Acorns and with digital banks 300+ financial institution APIs, SFTP, web and want to share it. like Chime and Varo. Plaid Direct enables mobile product applications. popular financial applications to link Fannie Mae launched a pilot for automated between themselves, instead of routing asset verification in mortgage applications. Open Banking Initiatives it back to a traditional bank account — Fidelity launched Fidelity Access, enabling Venmo, Wealthfront, Acorns or Betterment Payment System Directive 2 (PSD2) customers to grant third parties access to plug-in to each other and can bypass banks. was launched to make payments safer, their account data for use in applications Plaid provides inter-operability between innovative and provide a level playing field such as tax preparation, personal financial various financial apps. to all players. It ensures new players can management, and portfolio advice. access consumer’s payment account (X2SA - struck bilateral data-sharing access to account) to pay on their behalf (via agreements with Expensify and PointServ. API performance is critical in a credit transfer) and provide consumers with The bank has exposed APIs to allow small digital payments ecosystem a consolidated view of various accounts held businesses to have their bank account data by them. FI holding the payment account transferred directly into the accounting API dependent services and business provides access to new players via API software provided by . Finicity enables models have transformed financial services. interfaces. real-time financial data aggregation and The industry’s reliance on service quality insights. Finicity has partnered with Wells has become critical to banks and FinTechs PSD2 introduces Third Party Payment Service Fargo to use APIs for Wells Fargo customers’ and consumers and business customers. Provider (TPP) — players who don’t hold account information with the financial apps However, certain APIs are under scrutiny

External Document © 2019 Infosys Limited including the “GET/accounts” (an API request check the authenticity of these suppliers needs. Banks are increasingly setting type). They return comparable data, such or merchants by scanning the QR code to up incubator hubs to work closely with as the location of a bank’s ATMs or details ensure that the supplier is a verified UPI FinTech startups and mentor them. They of commercial credit cards offered, from merchant. UPI 2.0 enables banks and lenders need to take a collaborative approach with to obtain access to transaction data which broadly similarly sized bank entities that face FinTechs to leverage FinTech’s product is expected to boost account profiling and the same business and technical challenges and platform offerings, and insights into credit scoring. in designing and maintaining their APIs digital preferences of millennials. FinTech’s within the context of the UK retail banking EBA’s (European Banking Association) agility and fast-paced innovation make industry. Banks whose APIs were monitored clearing mechanism RT1 supports SEPA them ideal banking partners, especially include RBS, Danske, Ulster, NatWest, Instant Credit Transfer through 1,000 in product development and innovation. Nationwide, AIB, HSBC, , addressable payment service providers in 12 Their agile approach to innovation enables Santander, Lloyds HBOS and Barclays. countries. SCT Inst scheme enables transfers faster prototyping and piloting of ideas and Availability and latency (broken down within 10 seconds, 24/7, to any of the SEPA also helps them learn from their fail-fast into DNS, handshake, connection, upload, territories. Real-time payments are processed download and processing times) were on the RT1 platform in under 3 seconds — approach. from the moment the originating PSP creates analyzed, and the APImetrics CASC (Cloud Banks must provide offerings with digital API Service Consistency) scoring system was the transaction until it receives confirmation touchpoints that score high on their used to indicate overall API service quality. that the beneficiary PSP has accepted the usability and relevance to digitally native Performance analysis in 2018 identified transaction and payment is settled. customers. Gen X customers leverage a persistent quality issue monthly, with A real-time payment platform, New omnichannel services provided by banks approximately 30% of the APIs monitored Payments Platform (NPP) was launched across mobile apps, internet banking, ATM, not reaching a CASC score of at least 800 — in Australia in early 2018. NPP processes IVR, call centers and physical branches. the generally accepted minimum score for a domestic payments in real-time and is Given the expectations, it becomes satisfactorily performing API. The API Layer available 24 * 7 * 365. As of April 2019, there imperative for banks to build state-of-the- is pivotal to the success of FinTech startups were more than 55 million Australian bank art digital touchpoints and robust back-end and banks. As banks increase their focus on accounts accessible via the NPP (estimated platforms that enable straight-through digital channels, performance standards of at 85% of all accounts that will eventually processing — these form the bedrock of the API Layer will be the key differentiator in be reachable) and around 2.8 million PayIDs digital-first banks. UPI in India is an example the future. had been registered. The platform processes more than 600,000 payments worth AUD 500 of how BigTech and FinTech offerings Real-time payments million every day. such as Google Pay, PhonePe, Paytm have won the lion’s share of UPI transactions. Real-time payment (RTP) systems are live Network is operated by Early Warning Consumers and merchants prefer digital across around 40 countries with live RTP Services, owned by seven of the largest U.S. apps provided by FinTechs due to their systems and 16 more expected to debut banks. Zelle can be used to send, request or by 2020. This rapid expansion is fueling receive money by using the recipient’s email app features and usability. In their role of predictions that the global real-time address or mobile number. Over 85 million Payment Initiation Service providers, FinTech payments market will rise from USD6.8 billion customers of 5,300 financial institutions startups have opportunities to build insights in 2018 to USD26.9 billion by 2023 — a 5-year can use Zelle Network’s real-time payment into the financial needs of customers and CAGR of 30.9%. services through their bank’s mobile banking cross-sell other financial products such as app or by registering their debit cards on the personal loans, investments and mortgages. In India, NPCI UPI 2.0 is aimed at enabling Zelle mobile app. corporates and SMEs to leverage UPI for The success of AliPay and WeChat Pay TCH, co-owned by 25 banks, launched its business payments. UPI 2.0 enables the in China is an example of how FinTechs UPI account to be linked with overdraft real-time payments in November 2017. The disintermediate banks and win customer accounts held by business entities. Payment new rail facilitates 24/7 payment clearing and trust and mindshare. Both have launched mandates can be created with one-time block settlement in real-time. multiple product offerings to cross-sell functionality for transactions. Customers services. It is significantly important for can pre-authorize a transaction and pay Recommendations to Banks banks to tune their digital strategy and at a later date. Invoice in the inbox allows Banks need to increase their focus on payers to check the invoice sent by suppliers product differentiation through innovation launch innovative product offerings to stay or merchants before making the payment. and leverage technology to build digital relevant from a customer perspective and to Signed intent and QR enables users to payment offerings that meet customer remain in the customer’s mindshare.

External Document © 2019 Infosys Limited Conclusion The proliferation of digital payments has led to many variations in payment methods as the digital payments ecosystem varies from one country to another. This is not surprising as customer behavior and needs vary. The prevalence of QR codes based digital wallets in China, real-time payments based on the digital payment ecosystem in India, presence of multiple digital payment forms and players in Europe, and adoption of ApplePay in the U.S. are examples of how each region has embraced various forms of digital payments and has its own unique set of customer needs. It is imperative to understand the different requirements of each geo market and the payment preferences of consumers in those markets. There are a common set of themes in the proliferation of digital payments that resonate across geo markets in good measures. Customers expect payments experience to be seamless, simple, frictionless and secure. They do not want to through multiple screens from different entities and enter data. Customers look for a one-click experience. Leveraging biometrics on mobile phone in various forms by digital payments service provider is a case in point. With the onslaught from FinTech startups, incumbent banks are innovating in various ways to make the payments journey seamless for retail and corporate banking customers. Distributed ledger-based cross-border payments, SWIFT Alliance Lite2, SWIFT gpi for transforming cross- border payments are examples of how incumbent banks are focused on product offerings and the digital front-end to stay relevant in a crowded marketplace. FinTechs leverage platform-based offerings and collaborate with financial institutions to provide innovative solutions. Flinqer’s offering for trade payables and Traxpay’s Financing Platform are examples of platform-based approach of FinTechs. As the digital payments market evolve, we expect increased collaboration between incumbent banks and FinTech in their joint pursuit of making digital payments seamless, simple, frictionless and secure.

External Document © 2019 Infosys Limited About the Authors

Vijay Anand nce Practice, Financial Services Domain Consulting Group, Infosys Senior Industry Principal, FSDCG - Cards & Payments Leads Global Cards & Payments domain consulting practice at Infosys. His team focus on deepening Domain competency and build alliances to strengthen product professional services capabilities in Cards and payments space. He brings in expertise across the cards and payments value chain and has been instrumental in managing large Cards and payment relationships in Infosys with leading financial institutions across the globe. Our Clients are the leaders in their space and consume a range of payments services across geographies such as Issuing Banks, Acquiring Banks, Payment Schemes, Merchant and FI Processors, Retailers, Remittance Players, OEMs and Product players. In his role, Vijay frequently interacts with Senior Executives and Analysts in Cards and payments space and oversees Infosys engagements giving him a unique perspective of the industry needs and technology solutions. He is an active member of various Industry forums for Payments like US Fed reserve task force for Faster payments , US Fed reserve task force for Faster payments , Remittance coalition etc.

Manickavasagam S nce Practice, Financial Services Domain Consulting Group, Infosys Principal Consultant, FSDCG - Cards & Payments Manickavasagam is a Principal Consultant with Cards and Payments Practice at Infosys. He has 20 years of experience in Cards and Payments domain. He is involved in consulting assignments and platform implementation initiatives in Credit card platforms, Loyalty servers, Payment Gateways, Card Customer Service platforms and Prepaid Card processors.

References https://www.flinqer.com/ https://www.traxpay.com/ https://tink.com/ https://plaid.com/ https://www.cnbc.com/2019/05/22/plaid-gives-digital-banks-and-fintech-a-new-tool-to-bypass-traditional-finance.html https://www.mckinsey.com/industries/financial-services/our-insights/open-bankings-next-wave-perspectives-from-three-fintech-ceos https://www.americanbanker.com/news/jpmorgan-chase-and-intuit-partner-to-share-data-via-api https://www.ecommercestrategychina.com/column/the-development-and-trends-of-chinas-mobile-payment-in-2018 https://asia.nikkei.com/Business/Business-trends/In-China-cash-is-no-longer-king https://www.americanbanker.com/news/why-chinas-mobile-payments-revolution-matters-for-us-bankers https://www.statista.com/topics/3946/digital-payment-methods-in-europe/ https://merchantriskcouncil.org/resource.../the-future-of-digital-payments-in-europe https://www.clearhaus.com/blog/mobile-payments-and-digital-wallets/ https://www.chargebee.com/blog/online-mobile-wallets-payment-options-usa-europe-asia/

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