Payment due: an overview of the payments industry reveals an inevitable but slightly unsettling future. Marketers need to grasp the long-term trends and adjust their strategic plans accordingly.

AuthorSchmidt, Andy
PositionThe Future of Payments - Company overview

DID YOU FEEL THE EARTH SHAKE? If you didn't notice it today, you will soon. That rumble was the sound of a seismic shift taking place in the payments industry.

The unstoppable trend is that noncash payments are moving from paper to electronic--and ultimately to mobile. And, unfortunately, many banks are not yet prepared to operate in this new environment.

However, there is a bright spot: Banks that embrace the future and invest in the new payments technologies will end up with a competitive advantage--namely, an enormous wealth of data about their customers' spending habits. This data will soon open a floodgate of new bank products tailored to customer needs, generating new revenue streams and bolstering customer retention.

So marketers need to stay informed about the payments landscape so that they can prepare--before their bank gets shaken as a result of these changes. To begin to grasp the new reality, start by reviewing the background and history of payments.

Checks are being displaced

The global payment market today is a rich mix of cash, checks and electronic payment types used for transactions ranging from billions of dollars to only a few cents. This mix can vary greatly from country to country, and total volumes are growing steadily and becoming more electronic in nature as more efficient payment types displace cash and checks and new payment gateways emerge.

The question for banks is whether the infrastructures of the past can accommodate the payment types and volumes of the future as the payments business grows to an estimated $1.6 trillion in revenue by 2020.

Despite the well-known global increase in payment volumes, payments infrastructures in many financial institutions remain largely siloed, inflexible and limited to a single payment type--hardly the infrastructure of progress and competition.

The costs associated with these aging infrastructures erode shrinking profit margins and limit new revenue potential because of the significant time and cost required to test and deploy new products in such a fragile, fragmented environment. This situation must change if banks are to remain competitive both against each other and against more flexible, nonbank payment providers that threaten to disrupt traditional banking relationships in a number of markets, including person-to-person payments.

Meanwhile, some countries, such as the United States, persist in using largely outdated payment types such checks. While overall check volumes...

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