Looking Back on the Year in Retail Banking & Payments

As we get ready to turn the calendar page to 2017, the Aite Group Retail Banking & Payments analysts took a look back on the big events in the industry in 2016. Many of these promise to have ripple effects into 2017 and beyond. 

• Election results in the United States: The surprise results of the election have big banks optimistic about the potential for deregulation, while many emerging fintech players are wary about what an end to net neutrality would mean for their business model.
• Brexit: After the initial shock, U.K. and EU politicians are still dealing with the fallout. At the same time, bankers have realized that for payments, it is business as usual. For instance, the revised Payment Service Directive (PSD2) will be incorporated into U.K. law as if nothing happened.
• Amazon Go store: The Holy Grail for retail will be achieved with a new retail store model being launched by Amazon in Seattle next quarter. The customers walk in, gets their stuff, and walk out. No cashier, no self-checkout, no checkout at all. Oh yeah, what happened to the payment? Uberized. Here’s a video of the concept.
• Democratization of the rails: PayPal now has a deal to simplify acceptance of network payment cards so customers won’t be steered to Automated Clearing House (ACH) when they enroll in PayPal. Mastercard and Visa just announced token interoperability, and Citi is integrating PayPal into its wallet application. Platforms that were previously closed are now opening up, creating new opportunities for the integration of payment alternatives and, with that, unanticipated consequences.
• Demonetization: While theoretically constrained to India and Venezuela at this point, the move to remove large chunks of sovereign currency from the economy in India is driving customers to make mobile payments at a record pace. Both sign-ups and transaction volume are soaring. PayTM is the biggest beneficiary of the growth, since it's by far the largest player in these markets. China’s Alibaba Group owns more than 40% of PayTM. Hmmm.
• Mastercard acquisition of VocaLink: This move should strengthen the company’s role in non-card payments. Alternative payments and, in particular, instant payment schemes have the potential to disrupt existing card models in Europe.
• The U.S. market pushes faster payments: Visa Direct and Mastercard Send struck partnerships with Early Warning, FIS, and Fiserv to enable real time person-to-person (P2P) payments. Using the debit card rails, Early Warning, FIS, and Fiserv can reach 97% of U.S. bank accounts with real-time P2P payments. Meanwhile The Clearing House pushes forward its own initiative, partnering with firms such as FIS and ACI Worldwide.
• The battle of the rewards card: Chase introduces its Sapphire Reserve card with a 100,000 point sign-up bonus, among other benefits, along with a US$450 annual fee. The card was such a hit that Chase ran out of credit cards in about a week. 
• The new face of digital banking: At Money 20/20, Bank of America introduced its virtual assistant, “erica.” Erica uses artificial intelligence, predictive analytics, and cognitive messaging to interact with customers. She is expected to show her virtual face to the world in 2017.
• Predictive marketing analytics step it up: FIS announces its predictive data-analysis product that uses big data and machine learning to analyze customers’ payments and other bank activity, producing highly targeted marketing recommendations for each customer.
• Wells Fargo scandal: All the more shocking because of Wells Fargo's previous position as the big bank “golden child” post-recession, the bank's cross-selling scandal will continue to have ripple effects for it as well as other banks that are now closely examining their own cross-sell policies.
• Enterprise blockchain: No longer on the fringes, large technology providers such as IBM, more members to R3, and VC firms are pouring money into blockchain-based technology across many areas—bitcoin is now little more than a sideshow.
• Identity crisis: In 2016, the notion of identity, online and offline, has become a higher priority. Data breaches have rendered much personally identifiable information close to worthless for identification purposes, yet asserting and verifying identities is more relevant than ever. Current infrastructure and technology do not yet offer readily available and reliable solutions.
• ATM malware leaps forward: The year 2016 saw an uptick in the prevalence and sophistication of ATM malware (e.g., the infamous ATMs “spitting cash” to waiting money mules). Expect to see this trend continue and accelerate into 2017.
• PSD2: The European Banking Authority published the draft Regulatory Technical Standards on strong customer authentication and secure communication under PSD2 in August. The consultation paper contained some controversial proposals that received strong pushback from the market. In particular, the proposal to require dual factor authentication for almost every online payment would have a negative impact on the customer experience and would reverse the trend to “invisible payments,” at least in Europe. The final draft will be published in Q1 2017, and it is awaited with some anxiety by the market.

As we look ahead to 2017, be sure to join us for our webinar, Top 10 Trends in Retail Banking & Payments, 2017, on Thursday, February 2. Register today! 

Happy New Year from the Aite Group team!