Digital disruption: the transformative impact of technology on business

We look at how technology is casting its shadow forward within the payments industry and influencing business strategy.

How we transact and transfer value is changing. We’re seeing new and improved ways of paying and being paid.

Each tells a story about the invisible systems that underpin them, such as the internet, 5G or software. Or hints at abstract ideas that support the birth of new things. Think: regulation, liability models or authentication.

Technology can have unexpected, spill-over effects on how we live, work and trade. It can shift the balance of power, creating both winners and losers, as well as possibilities for further inventions and innovations.

Opportunities and risks exist in the same future, so we offer advice about how to get ready.

What are the main changes we’re already seeing?

The core idea of a payment as an exchange of value between two parties doesn’t change. Yet so much else around it does. Here are four new-ish payment methods that are emerging as ones to watch:

1. Mobile payments, whether it’s mobile wallets, mobile contactless payments, mobile banking apps, mobile money, carrier billing or peer-to-peer/C2B/B2B payment apps, the mobile payment revolution has already arrived, bringing increased speed, convenience, value and choice.
2. Open Banking, turning bank-held data inside-out, and securely sharing it on customer request, means better bank payments plus a whole host of other use cases.
3. Real-time payments, faster money 24/7/365 with better data could be transformational for bill payment, insurance reimbursements, gig economy wages, gambling pay-outs, supply chain financing and more.
4. Blockchain and cryptocurrencies, whether it’s new payment rails or new mediums of exchange, everyone from central bankers to financial institutions and infrastructure providers are looking into these alternatives.

What technologies are underpinning these changes?

Many key inventions or innovations work only as part of a broader system. That system may be one of standards to ensure interoperability. Or rules to ensure a level playing field for all participants.

Some work much better when combined with other technologies. For example, mobile banking draws on AI to aid fraud detection in real-time, identification and verification (ID&V) to prove real-world ID, and APIs to utilise data and functionality from other applications and systems.

Here are four enabling technologies to watch:

1. Artificial intelligence and machine learning, these technologies are being used to analyse large datasets in real-time to detect patterns and anomalies. This is useful for preventing fraud and financial crime, such as AML and CFT, but also for better recommendations, customer personalisation and outcomes.
2. Identity and authentication, whether through better capture and use of biometric data, the rollout of 3DS 2.0 and as-a-service providers, enhanced security measures can improve authentication and reduce fraud.
3. Software, the founder of venture capital firm Andreessen Horowitz claimed in 2011 that software is eating the world. He wasn’t wrong. From free-to-use open-source software to APIs that allow communication between systems and applications, service is increasingly delivered digitally.
4. Integrated solution providers, the atomisation and unbundling of services has led to more choice, but also more fragmentation and the complexity of choosing. This has given rise to organisations that integrate, aggregate and orchestrate different technologies and solutions, thereby adding value.

What will be the impact of technological change?

It’s hard to make predictions, especially about the future. But glimpses of the impact of change on tomorrow’s business can already been seen today.

Collaboration will be critical. A ‘go-it-alone’ approach will become as unrealistic as it is unsustainable. Expect more collaboration between financial institutions, fintechs and other third-party service providers. This could lead to the development of new products and services as well as improved interoperability, coverage and acceptance.

Cross-border will still be complex. Payments tend to work best when participants use the same systems, currencies and rules. It’s harder when they don’t. Therefore, efforts to simplify and streamline international payments are likely to continue.

Customer-centricity will still be at the fore. However, what this will look like and how it is achieved will be slightly different. The quest for a better customer experience will mean more personalisation of products, services and support, probably be informed by a hybrid human-AI approach.

How will technological change affect your business?

Payments have become more digital, efficient and international. But there’s still work to be done on making them quicker, cheaper and safer. So, anything businesses can do to improve the speed, cost or security of payments will be welcomed by customers.

Then there’s tracking and transparency. One of the most frequently asked questions in banking is ‘where’s the money?’ Offering greater traceability around where payments are on their journey to the beneficiary, or diagnosing the reasons for stuck payments to move them on for higher success rates could lead to competitive advantage.

Paying is the least pleasant part of the buying experience. Removing complexity and friction from the process is a winner. As is adding value around the moment of payment. This helps takes the commoditised process of switching data from A to B to the next level. That could be helping track or forecast spend, report tax or offer tailored financing.

How do businesses best prepare for technological change?

Technology, regulation, customer expectations and more are constantly changing, which makes for a dynamic environment. When the future is uncertain, flexibility and adaptability are key.

This involves the flexibility of your technology architecture and choice of partners. That’s because how your, and indeed any partner’s, technology is built will help determine how quick and easy it is to customise, launch, integrate with other third parties and more.

However, it also involves a flexibility of people and processes, namely A-B-C, companywide attitudes, behaviour and culture, supporting organisational structures and proven methodologies.