In a world driven by technological advancements, secure payment gateways, scan and pay QRs, unified payment interface (UPI) have made digital payments faster than ever before. Blockchain-based options such as Ethereum and Bitcoin have gained ground as financial instruments. Non-fungible tokens (NFTs) have entered the realm of speculative assets and windfall gains.
The change in technology and consumer behaviour has reshaped the financial landscape with traditional players like banks and insurers now embracing digital transformation. Today, the digital-only players are using non-linear and dynamic business models to cope with both the ever-changing market needs and customer preferences.
Digital payments: Revolutionising business models
In this competitive era where needs are constantly changing, digital payments have witnessed a surge in innovation Digital payment technologies are reshaping the business models for the following:
Banks: Open banking allows networking of data across banks and authorised financial institutions and service providers. Customers who approve banks to share certain aspects of their banking data (data such as credit score) with third party financial service providers can benefit from custom financial products and services.
By analysing approved data such as digital payments and spending history, financial service providers are able to track consumer behaviour and offer them reminders of upcoming bills, insurance premiums, special offers and investment options.
Financial technology service providers: Technology service providers are delivering digital capabilities to improve the speed, security and accuracy of communication between multiple payment service provider applications. Moreover, enterprises are leveraging the power of robotic process automation (RPA) to speed up routine tasks such as issuing payment invoices and sending customer notifications and acknowledgement emails to customers.
Additionally, value-added services such as customer service through chatbots, fraud prevention through monitoring and analytics, are now a core part of the business models.
Payment gateways and aggregators: Payment aggregators are providing value-added services such as customer support and loyalty discounts to end customers. They also offer attractive pricing for international transactions involving multiple currencies; the option is availed by a surging population of people who remit money to their home country.
Digital disruption is altering the way services are delivered in the sector but is also addressing some of the industry’s previous issues, such as high switching costs, transparency, and transaction costs.
Payment disruptions in traditional banking and financial models
Conventional businesses offerings, such as payment services, credit, and advisory services, have been affected by digital disruptions. Banks, insurers, and financial service companies must collaborate and engage with digital disruptors and change makers to stay in touch with their customer base and yield higher returns.
Wallet-Driven Payments: With increasing demand, wallet service providers emerged and started to provide digital payment services to customers. Some of these wallets are managed by banks, but new private independent wallet players with PoS payments, bill payments, and online purchases are also emerging. Moreover, firms that provide wallet services are changing as unified payment interface (UPI) has taken over fund transfer facilities between individuals and merchants. The customer base is changing as businesses are targeting specific segments, such as corporate wallet solutions, transit cards for the B2B segment, and more.
Retail and e-commerce payments: Businesses are providing quick and flexible purchasing options that cater to every type of customer, whether they are making purchases online or in-person, in order to compete. Retailers are searching for new and innovative ways to persuade customers to use retail e-commerce payment methods. A few new payment options include wallets, e-commerce-friendly credit cards, and Buy Now, Pay Later (BNPL), which offers a small amount of credit. Additionally, bundle offers and loyalty rewards are given to the customers, encouraging them to use digital payments.
Enabling crypto payments: Cryptocurrencies such as Bitcoin and Ethereum are quickly gaining popularity around the world as customers are getting access to modern, easy-to-use, secure payment methods more frequently. Several payment processors have also acted quickly to upgrade their platforms to support cryptocurrency transactions, enabling customers to own and trade cryptocurrencies as well as NFTs from the markets.
Conclusion
Over the past few years, the growth of digital payments has been swift. The growth of the payments ecosystem is fuelled by technological advancements, customer convenience strategies, and regulatory reforms. The banking and finance sectors are seeing significant innovations and enhancements in the payments domain. These sectors will continue to evolve as businesses adapt to changing market dynamics and adopt new or alternative methods, while the market for digital will continue to grow and accommodate new players.
Further, firms related to these domains will likely focus on leveraging payments data and customer/merchant relationships to cross-sell other service offerings. Additionally, incumbent banks and financial institutions will drive growth by attempting to incorporate a variety of new-age models alongside their current core business. Digital payments are expected to continue to expand and be more widely used in the coming years, changing conventional banking and financial practices.
Manivannan Arulalan is the vice-president at Qualitest.
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