The best way to predict the future is by working to create it.
Change is inevitable, and businesses that initiate change have the best opportunity to manage it. This is particularly true when innovation across the payments landscape drives that change. Embracing payments modernization is important for organizations, especially because the future of payments looks increasingly digital, immediate and secure — no matter where you’re sitting.
Staying ahead of the curve within payments and commerce often involves an interplay of technological advancements, regulatory changes and agile responses to shifting consumer behaviors and competitive pressures. That’s what 15 payments and financial services executives told PYMNTS when sharing their insights on the future of commerce and money movement for the series “What’s Next in Payments: Payments Modernization.”
There are three central themes and trends shaping tomorrow, including embracing the necessity of modernizing core infrastructure to be able to rapidly meet the dynamic needs of end-users; prioritizing security and compliance to effectively deploy and scale the emerging payments modalities fundamental to customer satisfaction; and the fact that B2B payments, and businesses in general, may have the most to gain from innovation over the next few years.
Emerging Behavioral Expectations Are Shaping the End Goals of Payments Modernization
The end goal of innovation and payments modernization, as Seth Perlman, global head of product at i2c, told PYMNTS, “is to help the consumer get to their money — and use it — more efficiently and quickly.”
That was a theme PYMNTS heard consistently.
“The customer, regardless of whether it is a consumer or a business, they’re driving a lot of this change with their expectations,” Rossana Thomas, vice president and general manager of Enterprise Payments Platform at Fiserv, told PYMNTS. “And the technology is driving those expectations to be more real time, more instant. Customers want flexibility with making payments.”
Convenience and choice are perennial goals for payments innovation.
“Ultimately, we want to meet the behavior that is driving the need for a payment and be there to accommodate different payment rails, while adding value-added services around that,” Scott P. Young, senior vice president of emerging services at Velera, told PYMNTS.
Two elements drive the adoption of this approach: client demand for a comprehensive approach to modernization and the necessity to improve customer satisfaction through enhanced payment experiences.
As Wally Mlynarski, head of merchant solutions and receivables at Bank of America, told PYMNTS, clients face “pressure to accommodate the new payment types given the high correlation of customer satisfaction to the payment experience.”
“Whenever there’s a transfer of payment or money, there’s an opportunity to enhance [the process] and drive a better customer experience for consumers as well as businesses,” he added.
“Business that can adapt to very convenient ways for customers to pay are going to win in the long run … so staying on top of offerings for a streamlined payment and checkout approach is a heavy focus,” Justin Downey, vice president of product at Maverick, told PYMNTS.
“Anything that makes processes quicker and easier with less obstacles for customers, that’s where the excitement is,” Downey added.
Out With the Old Infrastructure, in With the New Architecture
In order to give end-customers what they want, firms will need to initiate core modernizations that update their incumbent payments infrastructure.
“We expect that core banking systems are going to need to undergo a very significant evolution in order to remain relevant and competitive,” Trustly Vice President of Enterprise Growth Ross McFerrin, told PYMNTS.
Given that the technical integration of these new systems poses a hurdle, McFerrin explained that collaborations between FinTechs and traditional financial institutions are crucial.
Entrenched behavior begets inertia. Companies can only overcome this inertia by the value-added proposition that shows there is a better way to do things, which translates to better margins.
“Customers are looking for more seamless, fast and secure payment options and a better experience,” said Aaron Le Hew, director of invoice-to-cash at Esker. “That is going to help push institutions to adopt new technologies that can help meet these expectations, such as mobile payments or even digital wallets.”
Partnerships with FinTechs are also essential for driving payments modernization. By using technology and ensuring integration with existing systems, these collaborations enable companies to remain agile and innovative, Le Hew added.
“There’s a lot of complexity behind the scene as merchants solve new problems and make investments to support that modernization,” Joe Meuse, vice president of product at Spreedly, told PYMNTS, explaining that staying abreast of consumers’ changing tastes requires investments in both hardware and software.
“We’re very bullish on the growth of open banking and what that could potentially mean for merchants,” he said.
“The same data that can help ensure that merchants are meeting and anticipating end-market demand can be applied at the transaction level so that routing is efficient, cost-effective and safe with tokenization,” he added.
Security and Compliance Underpin Long-Term Scalability and Growth in Payments Modernization
Payments modernization is not just a technological upgrade. It is a strategic necessity. Underpinning the effectiveness of any modernization is its security and ability to comply with regulatory needs across markets.
“Consumers want more choice in how they pay,”Prove Identity CEO Rodger Desai told PYMNTS, explaining that in order to give them that choice without creating unnecessary friction, effective authorization processes and identity-driven security solutions are crucial.
Stakeholders in the payments ecosystem can unlock the full potential of the digital economy and create a modern payments experience that benefits everyone by embracing a fundamental rethink of how to approach authentication and transaction security.
“Payments modernization is all about optimizing and streamlining … but you can’t just make things streamlined; you have to ensure it is secure as well,” Maverick’s Downey told PYMNTS.
Security and compliance will define the winners and losers of tomorrow’s payments landscape.
“Creating a consistent journey while protecting the customer” is crucial, Gerhard Oosthuizen, chief technology officer at Entersekt, told PYMNTS. “There’s no more excuse for bad user journeys. … If I’ve had a bad payments experience with a certain rail or form of payment, then I won’t use that.”
By integrating digital identity into payment authentication, organizations can streamline processes and enhance security by verifying the right person and intent behind transactions.
“Blending payments with digital identity; I think that’s where there’s going to be some real innovation,” Oosthuizen said.
“The last thing you want is three different fraud pockets, as well as three different authentication pockets, and you can’t integrate between them,” Oosthuizen added. “Bad actors are going to jump across channels, and [financial institutions] need to do that as well. … The customer isn’t just a card payment, the customer has a number of events, and tying those events together to create a consistent and secure experience” is crucial.
It is becoming critical to adopt identity verification solutions that balance security with ease of use.
“The vast majority of people aren’t crooks, so don’t treat them like crooks to stop that little small percentage that are crooks,” Intellicheck CEO Bryan Lewis told PYMNTS.
Effective tools can reduce the number of authentication steps required, minimizing customer drop-off rates and enhancing overall user experience.
For payment processor Thredd, payment modernization is a basic mission rather than an abstract concept, CEO Jim McCarthy said.
“You look for the things that are, in my mind, universal truths,” he said. “Payments are about risk management, compliance, reconciliation — all that stuff. The stuff that doesn’t get talked about because we all like to focus on the user experience and the user interface. But it’s really the plumbing that’s the most interesting to me. Those that do it well and do it in a way that’s compliant and secure, that’s where the focus needs to be.”
“So, focusing on the less sexy aspects of FinTech, I think, is where a lot of the action is,” he added.
Payments Modernization Can Have an Outsized Benefit for Businesses and B2B Payments
B2B payments, and businesses in general, may have the most to gain from embracing digital innovation and payments modernization.
“B2B payments haven’t evolved much from the modalities that dominated the landscape 40 or even 50 years ago,” Boost Payment Solutions Chief Operating Officer Illya Shell told PYMNTS.
“Traditionally, payments were an afterthought,” Shell explained. “But modernizing global B2B payments is an enormous opportunity.”
“[At] this point, only a small percentage of B2B payment flows have been digitized or optimized,” he added, noting that the market is young. “Much of what’s left is really hampered by rigid and inflexible systems.”
Shell said he envisions a landscape where globalization, cost-sharing models and tokenization of payment products will redefine the future contours of B2B payments by ensuring the payments themselves are efficient, effective and the lowest cost possible.
But to get there, businesses across both sides of the B2B transaction will need to fully embrace payments modernization — and soon.
“One of the most exciting things about the payments industry is the pace of innovation,” Sovos Chief Technology Officer Eric Lefebvre told PYMNTS, noting that the adoption curve on a lot of new payment methods has shrunk.
“[The] next horizon over the next five years is truly in B2B and driving those changes … this is the calm before the storm,” he said. “The next five to six years [are] going to be a massive change agenda for large manufacturers distributors that are operating in multiple countries … The payment methods, the compliance environment, ERP, the level of sophistication around automation — and that’s where payments modernization will have an impact.”
“Digital payments, such as Apple Pay and Google Wallet, are widely accepted in the consumer world and are starting to be introduced into the B2B space,” Esker’s Le Hew said. “There’s certainly an appetite and interest in allowing these payment options to come through. And API-driven applications are going to be key to the process of evolving and supporting these integrations into banking platforms and also allowing it to be secure.”
Jay Dearborn, chief strategy officer at WEX, told PYMNTS that bringing B2B payments fully into the digital age needs a global platform with three elements — payments, data and software — working concurrently to help simplify commercial transactions.
Modernizing B2B payments, no matter the vertical, must focus on the details surrounding the transactions themselves — whether the payments are reliable, at the right cost points and whether funds flow safely and securely.
“The network of buyers and sellers is incredibly complex,” Dearborn said. “When I think about modernization, I’m always trying to think about our largest customers and our smallest customers. What are the use cases that payments will help them unlock, creating more ease in the way that they do their business?”
Still, as all the executives emphasized, when it comes to the future of payments innovation, there is always something new, exciting and transformative just around the corner.
