The world of money is changing. Coins and notes are being used less and less, while various forms of digital payment are taking over. In 2014, for the first time, more than half of all transactions were made through non-cash methods.
This is great news for Fintech investors and a validation of their interest in the sector. There is no question that money is getting a technological upgrade and that the future of payments is digital.
But while the question of whether the sector will continue to innovate and evolve doesn’t even warrant discussion, harder to ascertain is what will be the dominant form of payments five, ten, 50 years down the line.
Cards on the table
Twenty years ago payment channels were clear. You could pay with coins and notes, use a credit card or cheque, or arrange a bank transfer including a direct debit or standing order. Fifty years ago, the options were even more straightforward.
The problem for investors when it comes to the latest payment systems is that this once humble spread of options has exploded into a flurry of competing technologies and platforms.
For a start, the methods of payment are much more diverse than they used to be, today ranging from contactless payments to transactions channelled through the user’s smartphone.
But within this broad sphere are hundreds of rivalling entities, from startups to global behemoths like Apple and Google, all fighting for a slice of the payments pie.
The question we have to ask ourselves is, when the dust settles, will it be a bright startup with an ingenious new product that grabs market share, or one of the established tech titans – or perhaps a mixture of the two, as big companies acquire smaller ones?
Integrate or die
The payments landscape clearly has a decent amount of capacity and there’s room for more than one major player, but a degree of rationalisation is much needed in the market.
Consumers are confused about which apps they should download, often opting for those offered by recognised brands, and businesses such as restaurants and retailers are under pressure to take a punt on one system or another to avoid falling behind the competition, and thereby losing customers.
Popular platforms among the first-mover group are those that either synchronise with inventory and CRM (customer relationship management) software or incorporate it into their own offering.
Clever companies have developed tablet-based systems that enable waiters to manage orders and payments seamlessly. The system sends orders to the kitchen digitally in real time (so waiting staff can spend more time with diners) and stock counts are updated instantly.
Because the data is logged online, the system also provides detailed analytical information about business performance, providing managers with useful insights into where the business should invest and how it can grow.
‘Consumers are confused about which apps they should download, often opting for those offered by recognised brands.’
It’s just one example of payment platforms that offer more than just money processing. British tech business Kitti is another. It allows users to organise group payments so that individuals contribute to a bill in a simple and transparent way – no more quibbling.
It can be used to manage house-share bill payments, subs contributions for sports teams and contributions towards group outings. This service and a thousand more like it are creating payment systems that are about more than just the money.
The millennial mindset
The future of payments is being driven by the millennial mindset. That means not only younger people demanding more technology in their everyday lives, but also people of any age getting increasingly comfortable with digital channels.
Companies like Uber and Airbnb are now classic examples of people’s preparedness to trust relationships and agreements made instantly online.
Financial matters are no different. A growing set of people are happy to share financial data with companies in return for a slicker, more customised service. So there is more data, more integration and more automation than ever before.
Instant payments made via convenient channels are no longer enough. They’ve been around for a few years now and already the market has moved on. Today, it’s all about the value add.
Investors should consider which companies are packaging their service in the most elegant way, while serving the most basic human needs of immediacy, convenience and security. A company providing these in the right balance will be a good bet for sure.