The decade gone by has been a fairly exciting & tumultous for the world in the realms of retail finance. Banking penetration has exploded, card payments continue to flourish in the developed and developing economies, the mobile remains the talk of the town, Internet as a significant enabler for access and transaction transmission is becoming a reality.
The impact of electronic payments on economic growth has been proven repeatedly. Coupled with explosion in new frontier financing including microfinance, the onus on retail payments to grab the opportunity and leap frog remains.
However, giant unconventional leaps has not been the hallmark of the banking industry, which has typically believed in incremental and linear innovation and adoption. Regulation, economics, trust and sunk investments have stymied innovation and rebellious outbreaks from the non banking sector. However, as we gaze into the crystal ball, what lies ahead in the next decade might just surprise us
1. Micropayments Go Electronic : Paypal laid the path and led the charge in the last decade. The Internet made switching costs for micro-payments an economically viable reality, ensuring no compromise on the transactional trust in the process. Mobile, transit, prepaid, contactless, biometric and a host of other applications and approaches is going to make this the decade of "Electronic Micropayments"
2. Microfinance Goes Into Course Correction : The excitement over microfinance is palpable and understandable. A few institutions in this space have reached large scale and even gone public. Repayment rates appear to remain stable across Asia, Africa and Americas, with low delinquencies.
The challenge for microfinance is going to be in processes, talent, scaling profitably and increasing regulation. MFIs need to brace for regulators & governments placing caps on interest rates & charges, covering the potential customer delinquency risk caused by droughts, famines and other natural disasters. New portfolio and risk management techniques would need to emerge quickly to enable MFIs to steer clear from a significant market correction.
3. Debit & Prepaid Card Payments Explode : Asia will lead the charge on debit usage. As debit card platforms open out for remote payments, an increasing number of customers will benefit from the convenience of using card payments and differentiate from the credit extension facilities offered by credit based instruments. Coupled with an increasing familiarity with prepaid payment concepts and exploding acceptance channels, both formats would soon overtake credit. ( Am sure this one is open for much debate!)
4. Card Acceptance Gets Cheaper : POS & ATM devices have almost bottomed out on their price curve, and card acceptance services leveraging the mobile or its connectivity would make card acceptance drastically cheaper. Card issuance across mag stripe and chip would continue to dominate the payments landscape, hence reliance and need for card acceptance infrastructure and devices would remain.
5. Credit Scores Go Global : As the global workforce moving across geographies gains scale, sharing of credit scores across boundaries will become a reality. So dont be surprised if your FICO follows you to your next assignment in Venezuela!
6. Domestic Payment Networks Proliferate : Global economies will establish and adopt domestic payment networks along the lines of NETS & China Union Pay, to create a more cost effective & flexible payments DNA.
7. Payments Get Tax Rebates : Increasing number of nations will incentivise electronic payment usage to counter parallel grey economies and money laundering activities
Lets connect in 2020 and see where we stand.