In previous payments prediction articles, we’ve often picked a handful of leading payment types and discussed usage trends in each. This time around The Financial Brand interviewed frequent sources on payments trends and some new faces to take a strategic, even speculative look at payments in 2024 and beyond.
What emerged is the need to think more fundamentally about payments —and to think about the components of each channel — because new thinking may break up traditional approaches and build new methods from combinations of old and new parts.
Consider how Peter Davey, a payments veteran who goes by the handle @paymentsjedi on X, formerly known as Twitter, deconstructs credit cards. Davey spent years in payments and innovation roles at The Clearing House and Capital One and is now a venture partner for payments and identity at the Alloy Labs Alliance, a consortium helping smaller financial institutions.
“Lots of folks believe that a credit card is ultimately a payments method,” says Davey. “But the reality is that a credit card is really a lending line tied to a repayment plan. A number of funds transfer mechanisms happen on the back end, but the actual credit card transaction is not a true payment capability. That’s because you’re not moving your own money to the other party.” Buy now, pay later breaks down more or less the same way, says Davey.
Now, with channels like the Federal Reserve’s FedNow service, The Clearing House’s Real-Time Payment Network, and even debit card transactions — whether they happen with actual cards or as part of a digital wallet transaction — there’s a difference. “There’s actually a true transfer of value from one party to another,” explains Davey.
Taking a fresh look at how payments get handled has the potential for unlocking new ideas. Thinking structurally can also suggest new ways of building business via payments channels — if the competition hasn’t gotten there ahead of you.
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Will 2024 Become ‘The Year of the Payment Button’?
Many aspects of financial services have a way of melting into each other. Consultant Richard Crone suggests that as companies like Apple, Affirm and become bigger players in payments, a shift will occur in how banking and payment brands build and broaden their relationships with customers, especially in e-commerce.
“The payment button will be the new acquisition channel for new accounts,” says Crone. More and more accounts will be originated on merchant checkout screens. He says PayPal pioneered this idea, Apple Pay copied it, and now Affirm, with its declaration that it will move beyond BNPL to become a major payments power, is sprinting with it.
As each of these providers captures a consumer with one service at checkout, the buyer becomes a prospect for all the additional services offered by the payments provider, more so than the products and services of the merchant. That click provides the payments provider all the information they need to market everything else they offer.
“This trend highlights an urgent call to action for banks and credit unions to update their payment strategies for integrating with the payment button,” says Crone. People who pay with Affirm can avail themselves, in time, of four accounts at once, and PayPal can connect them with 13 different relationships if you count its person-to-person payment products, he adds.
Traditional banks drool over such cross-selling multiples — though some may cringe at the potential for inadvertently going down the road of invisible cross sales that cost Wells Fargo so dearly. Both banks and nonbanks that connect with new customers this way must be sure that people know they are signing up for additional accounts. Wells got into major regulatory and legal trouble when consumers found they had been signed up for cards and other services without their knowledge.
The Payment Button Can Also Bite You
Yet Crone says the growing impact of the payment button is a double-edged weapon.
Take Amazon’s decision to snip its relationship with PayPal’s Venmo. It illustrates how this gateway to growth — a coup when it was announced not very long ago — can also be unilaterally cut off by a platform, according to Crone.
To play in this payment-button world, “banks and credit unions have to go deeper,” tying in with merchants and even specific brands of consumer products to be able to build share, Crone says.
In a sense it’s akin to some credit unions’ longstanding practice of acquiring new members via car dealers. The credit union sits among the consumer’s choices for loans, and in order to get the loan, the consumer must become a member of the credit union and open at least a nominal savings account there.
Generation Z and Millennials Will Drive More and More in Payments
There’s also a shift in store for consumers in Crone’s vision. He sees payment button movement intersecting with social commerce — sales derived from social media channels. But in time, he predicts, it won’t stay there.
There will be an impetus for consumers to band together in different ways, via social channels, to build buying and banking “combines.” If that sounds like putting the credit union movement and the idea of membership warehouse clubs into a blender, with payments as the liquid holding it all together… well, yes, exactly. Crone points out that elements of this have already been developing by Chinese providers like Pinduoduo and Temu. Banks and credit unions building their own may need to partner in some way with platforms like X using Elon Musk’s fledgling (or would-be) payments network.
Crone says the social commerce and financial services combination plays very much into the preferences of Gen Z and Millennials. Increasingly, he says, payments methods are moving out of their original, firmly defined categories, especially in the eyes of younger consumers. “This goes beyond traditional cross-selling and account bundling,” says Crone, “spanning the entire spectrum of payment methods — pay later with credit, pay now with debit, and pay before with prepaid — all coming through one user interface.”
Increased use of pay by bank services is going to push this along and so will faster payments, in the forms of FedNow and RTP, according to Peter Davey.
“There’s a general expectation by customers for real-time and transparent experiences that they don’t get with the legacy side of payments. From an economic perspective, start thinking about the idea of managing your liquidity closer.”
— Peter Davey, Alloy Labs
Davey says this thinking has been dawning on consumers for some time, but that an economic slowdown would accelerate this attitude in some quarters.
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Will Wearables Finally Find Users Among Millennials and Gen Z?
Wearable payment methods haven’t burned up the world the way some originally predicted. During a presentation at Finovate Fall, Aaron Wollner, CMO at Quontic Bank, indicated that the payment ring the digital bank had introduced in the spring of 2022 hasn’t been going like gangbusters, in spite of great press. In fact, he said, consumers seemed more interested in the account connected to the rings. Meanwhile, the advent of Amazon One, the retailing giant’s palm-based payments scheme, seems to be winning the wearables game, if only on the grounds that unlike a device or even a card, it’s difficult to leave home without your palms. But it’s still early days.
Davey, who admits that as a payments geek he tries many innovations such as wearables to stay in the loop, thinks the wave for wearables is still building. Part of the delay is technology. He says many retail payment terminals are still not equipped to accept NFC — near field communication — the tech that drives tap-to-pay usage of cards and digital wallets inside phones and which wearables need as well.
As that situation evolves, he continues, younger consumers’ preferences will come to the forefront.
Wow, a Plastic Card, Dad:
To Gen Z and Millennials, being able to pull out a plastic card for payment means nothing. Older people might feel a sense of financial empowerment with a fancy card, but to the young it's about as exciting as a set of house keys.
“Younger generations would rather not carry a physical wallet, they’d rather just pay with their phones or with their watches,” says Davey. As more retail locations change over to terminals that will accommodate this, he believes more of these consumers will use their phones and wearables to pay.
Davey adds that there’s an accelerant that he thinks is coming: A pricing advantage for NFC transactions that would make wearables and phones more attractive for merchants.
The cost of accepting any type of payment is a constant source of pain for merchants, and anything that brings that price down gets their attention. Davey thinks that ultimately card companies will come around to charging less for a payment executed using NFC technology. Give merchants a discount and they will push the payments choice even more.
Why would NFC transactions merit a price break? Davey says one reason is that the identity validation provided via the phone or other device goes beyond that offered by the possession of a card. That edge on payments fraud makes it worthwhile to encourage usage.
For himself, “I’ve tried out the rings, I’ve tried out the watches,” says the Samsung watch and phone owner. “I still think it’s easier for me to pay with my phone.”
But he says there’s also a growing sense of community that will help drive more traffic to wearables and devices. He thinks Apple users will increasingly pay with their iPhones and their Apple watches in part because it’s part of being in the Apple club.
GenAI Inside the Payments Experience
Increasingly the distinct shopping-buying-paying experiences familiar to older consumers will not be so clear cut in the future. That’s partly due to the movement toward embedded banking, but increasingly there will also be “embedded marketing.” That means marketing in the moment, driven by consumer behavior, and executed on a one-on-one basis using generative artificial intelligence.
For Vivek Jetley, the payment experience will increasingly also be a new sales experience: When you’ve got the consumer’s full attention, why not go for more business?
Jetley, EVP and global head of analytics at EXL, believes that retailers will increasingly seek to make new deals with consumers on the fly and the only tool that will make this work is GenAI. The choices presented will include not just merchandise and services, but also shopping and payment choices.
“The era of prefabricated marketing messages is over,” he says. GenAI and traditional AI — the distinction is more in the mind of the layman than the technician, according to Jetley — can digest everything the merchant and payments provider know about the consumer and communicate customized messages instantly. Jetley says today’s technology can already suggest alternatives to how a consumer proposes to pay for a given item and can already drive messages suggesting buying the item elsewhere at a better price.
This underscores the importance of who is controlling the purchasing and paying experiences.
“This is still in the pioneer stage, but not because of technology limitations. It’s because banks and other financial services institutions are wary of letting AI work directly with the consumer.”
— Vivek Jetley, EXL
Right now, he says, these companies feel more comfortable having AI talking to a human agent, who is the one that controls what gets said to the consumer.
In time, however, each payment experience could potentially be custom-fit to the consumer’s finances at the time. The old marketing cliché about “segments of one” could not only really happen, but become subdivided even further, into moments in time.
“Payments is on the front line of this change,” says Jetley, “because the payments stream is so rich with data.”