Payments in the Cloud

A number of key benefits pertaining to banking in the cloud are now widely acknowledged – from scalability, agility and security to future proofing and (perhaps the most significant of all) cost efficiency. So while the debate around whether cloud needs to be a part of a payments players’ future strategy is well settled now, it does not mean that when it comes to cloud payments “one-size-fits-all”. In fact, it’s quite the opposite.

According to a report by Celent, we are currently on the cusp of significant change in how payments are processed, with widespread discussions surrounding cloud payments and payments-as-a-service. Payment owners need to carefully navigate and evaluate through a number of strategic choices available to them today keeping in mind their business context, technology landscape and future goals. These can range from which cloud based vendor and solution to opt for and how to deploy and deliver it – be it cloud-hosted, single or multi-tenant to multi-cloud – to deciding the scope of services they want included – from SaaS, managed SaaS to PaaS.

Each of the above paths has distinct implications for banks, however there is no question about the role cloud will play in delivering the next generation of payment solutions that are agile, cost efficient and enable real-time and seamless user experience across the payments value chain.

The Next Generation of Consumers

According to Bloomberg’s analysis of United Nations’ data, Generation Z comprised 32% of the global population in 2019. This year, as they encroach on the market and emerge as the main customer base for banks, Gen Z consumers are having a greater impact on the global banking and payments than ever before. As the first generation of true digital natives, this transition is creating a fundamental shift in the way banking is consumed.

Gen Z will continue to drive an increase in conversational finance - specifically chatbots. We have already seen this happen in China, which has a very young population. There, the tech-savvy youth are embracing mobile payments and WeChat Pay at an ever increasing rate. In fact, WeChat Pay is on track to handle one billion payments annually. As China adapts its banking models to suit this new customer base, we will soon see the rest of the world follow suit.

Gen Z may not represent the most profitable customer base for banks yet, but their numbers and influence will soon become so significant that banks will have no choice but to redesign their services to suit their needs and requirements. Banks increasingly need to incentivise their products and services, adding value, hyper-personalisation and even gamification techniques in order to retain a customer base that is by nature less loyal to their bank than previous generations.

The Impact of Emerging Technologies on Customer Experience

We are witnessing a step change in customer experience, driven by emerging technologies like Artificial Intelligence (AI). Research from The Economist Intelligence Unit found that 36% of retail bankers believe that new technologies like AI, machine learning, and blockchain will have the biggest impact in the short term, and 42% by 2025, over trends like regulation and competition. In addition, 61% of the survey’s respondents think AI will create better value for banking customers by 2025.

AI-driven hyper-personalisation will reach new heights as banks utilise real-time data to make intelligent and insightful recommendations for consumers. For example, in the event that a particular location is identified as being at risk of flooding, banks could pro-actively offer customers in the affected area the opportunity to add flood loss coverage to their home insurance policy and better protect themselves.

This year, we are also seeing rising IoT adoption boosting the payments market as a result of cashless economies and digital currency. It won’t be long before connected cars with built-in payments authorisation for fuel or electric charging are commonplace. But to fully accommodate this, payments need to become invisible and more seamless, as everyday consumer products and wearables gain the ability to handle them automatically.

As Banking Evolves, Banks will Branch Out

The proliferation of open banking and the entrance of big tech players into the banking ecosystem are two factors that are moving the goal posts for banks. With new, agile competitors driving experiential banking and upping standards for customer experience, traditional banks face their greatest challenge yet. In order to survive, banks must deliver truly tailored customer journeys, securely, while respecting their customers’ privacy.

In this race to deliver optimal customer experiences and retain customer loyalty, banks have begun to differentiate themselves by branching out into non-banking activities. The options and opportunities of these new business models are endless. For example, a bank could partner with a fintech to give travel advice or find the best holiday suited to a customer’s specific budget. Or, using an AI bot that can monitor foreign exchange market fluctuations, banks might recommend when to book an overseas holiday or purchase foreign currencies.