Digital innovation has become an ever-increasing priority for financial institutions. The pandemic has caused a global shift in the adoption of payment technologies, with some alternatives proving far more popular than others.
Chris Hamilton is a payments industry consultant for Hamilton Platform, and is also a co-author of the recently published Payments Jury report. The report revealed that while many domestic payment organisations had to adjust their innovation programmes due to the pandemic, globally 36% reported that the pandemic had ultimately led to an increase in their innovation activities.
The report also highlighted how supporting mobile and app-based services remains the biggest innovation priority for domestic payment systems.
Here Chris discusses the findings of the report in further detail, whilst analysing the changing face of national payment systems:
Covid-19 created a rollercoaster ride for national payment systems. Initially, severe lockdowns caused a rapid drop-off in volumes, but then as national economies adapted, digital payment volumes exploded. New research shows that despite these stresses, national payment systems continued investing in digital innovation to increase resilience and flexibility. Far from slowing down the evolution of national payments, the pandemic has been an accelerant for ongoing digitisation.
The basic card and electronic payment services for each country’s consumers can be a pretty conservative bunch. After all, they know that they are relied on by millions of people, 24/7, to pay for the basics of life. One might have thought that when faced with a global catastrophe, they would forget about innovation and focus on keeping the system up, come what may, when in fact, national payment systems have remained resilient throughout the pandemic.
But it’s now clear innovation continued largely apace.
Although lockdowns and other measures to combat Covid have put acute pressure on bank and system resources, the crisis has highlighted the importance of ongoing investment in digital services. More than a third of the world’s domestic payment systems have actually increased their focus on innovation, and only 12% say that the pandemic had had a severe impact on innovation programmes.
The findings are contained in new research from the Domestic Payments Jury, a non-profit payments industry think-tank.
Since 2013, global payment systems expert John Chaplin has been coordinating information-sharing amongst the world’s domestic payments systems. This year, 48 national payment systems pitched in with data and insights on systemic innovation even as they continued to grapple with the pandemic.
The results are published in a report launched in April: “To Survive or Thrive: Domestic Payments Innovation in the Pandemic”.
The Changing World of National Payments Systems
The report documents structural changes in national payments systems all over the world. Key trends are expansion beyond traditional card payment services into mobile wallets and realtime account-to-account services; development of diverse cross-border and multi-country services; and changing participation profiles as telcos, retailers, and tech companies join banks in increasingly complex payments networks.
At the beginning of 2020, many national systems had big development plans, spurred on by rapid advances in network technologies and an increasingly competitive environment. More than a third of those surveyed reported an ambitious innovation programme, such as building a new national payments stream.
But then came the pandemic. After the initial shock, payments communities and regulators in many countries realised that technological innovation was the key to survival over the long term and supported ongoing structural innovation by the national payments system.
As the world learns to live with the virus and economies adapt, there are some clear innovation trends for national payments.
Mobile apps and wallets are clearly top of mind. They have appeal across the board – as added functionality for those who already have a card, and also as a way to financially include those who have not until now had access to non-cash payments.
The report also highlights interesting developments in related fields, including:
- streamlined card interfaces including QR codes,
- realtime account-to-account payments,
- digital identity services.
It’s interesting to note that even with a strong innovation mindset, cryptocurrencies are not yet high on the list for national schemes. This might seem surprising, given enormous global speculation about the payments potential of crypto, both private (Facebook’s Diem) and public (central bank digital currencies or CBDC). As exciting as these ideas are, it seems they are not yet mature enough to be actively considered for the basic plumbing of the national retail economy.
The stage is set for an interesting few years as an impressive pipeline of planned systemic innovation rolls out around the world. The pandemic has added some challenge, but ultimately reinforced the need to innovate.