The Competition for Payments
Whether a "traditional" financial institution, a neobank, or a fintech, payment providers are all competing for the same consumer transactions. The question is how to make the payment experience frictionless and safe for the consumer while creating a competitive position for the company offering the services. With a host of competitors, including direct biller sites and separate payment apps such as PayPal, Cash App, and Venmo, each competitor offers the consumer their own flavor of payment convenience. So with all of these choices, what would make a particular payment provider the best choice for the consumer? Are there features that make a real difference to the consumer and, thus make them the consumer's preference?
Ease of Use
Payment processing used to be about managing or facilitating the transfer of funds. Today, payments providers are partnering with traditional banks to offer even more services to support a wide range of consumer preferences. These additional services allow consumers and small businesses alike more convenience and ease when managing their payments needs. Some of the significant partnerships that have made a difference include:
  • The Apple partnership with Goldman Sachs for the Apple credit card
  • Facebook Pay, which enables customers to make payments and transfer funds using Instagram, WhatsApp, or Facebook Messenger
  • Samsung Pay, which enables customers that use Samsung products to store cards and make payments.
Even with these new entrants, 64% of consumers noted they use online banking weekly. This survey data was gathered across all generations, including Baby Boomers, the Silent Generation (the generation preceding the baby boomers), and the Greatest Generation (the generation before the Silent Generation). All of these groups use mobile payments and money transfer services weekly. A data set from GWI USA shows that 13% of Baby Boomers and Generation X are more likely to report frustration if they cannot freeze/unfreeze their bank cards or easily make PIN changes. The pandemic has forced many of the older generations to use digital banking and digital payments. However, providing a seamless, easy-to-use experience is key to keeping these older demographic segments onboard and engaged with your digital offerings.
Speed - mPOS Solutions
Mobile point of sale solutions which accept mobile wallets and contactless payments are crucial to attracting Millennials and Generation Z. These generation segments use digital wallets at least once a month, and 75% use some form of digital payment app. As their buying power continues to grow, Millennials and Generation Z will expect more mPOS offerings for merchants wishing to earn their business.
Insider Intelligence expects there to be 16.6 million mPOS terminals in the United States by 2024 to accommodate the buying power of these two generations. In preparation for this change, Fiserv, Samsung, and Visa have partnered to create an mPOS solution that accepts PIN-based contactless transactions on a mobile device. This partnership solution will make contactless payments even faster, as consumers demand speed and convenience from their contactless payments process.
Millennials and Generation Z are also concerned with security features. In fact, 29% of Millennials and Generation Z and 42% of Baby Boomers and Generation X admit being worried about data security. Data from payments companies such as PayPal corroborate the increased growth in their older segments, with 67% of Baby Boomers and Generation X reporting they have used PayPal in the past month. With more consumers of all ages embracing payments and other digital services, the goal for all companies in the payments space should be to provide a secure platform that consumers of all ages can trust.
Based on advancements in biometric technology, consumers are becoming more confident in the security of their digital services. Based on a VISA survey, 70% of respondents believed that biometrics are easier to use, and 46% thought it biometrics are more secure than PINs and passwords.
Card-not-present (CNP) transactions can also be protected with additional layers of security such as the 3D Secure 2.0 technology to verify a consumer's identity. This can be used with in-app transactions, mobile wallets, as well as telephone payments.
The pandemic forced many segments to embrace digital payments. However, companies cannot be complacent with the expectation they will automatically retain these new customers. A concerted effort must be made to bolster not just the technology but also consumer confidence in that technology. This means adding the features that address security concerns and making those features perform quickly, be easy to use, and as seamless as possible.
Choices or Confusion
Finally, there is the question of too many choices and the potential for error that is created. What payments provider does a consumer choose? Is it realistic to pay some bills using a direct biller site, some bills by check, some bills by ACH, or some by digital bill payment? Is the payment provider chosen through an internet search, social media postings, blogs, or word of mouth? Payments providers aren't one of those items where you buy three and select the best of the bunch. Setting up payments takes work, and there is also the issue of a consumer spreading their personally identifiable information (PII) across too many sources.
And what about funding sources? When a consumer decides to change payment sources due to fraud or choice, adding the new funding source to all of their payment providers is arduous. As they say, "sometimes less is more." In the case of payments, using one integrated platform that offers the various payment methods, instead of the separate disjointed approach mentioned above, means less work to set up and manage while providing the payment options available through multiple players.
I Choose You
Perhaps the most significant indicator that payments are a critical financial service for consumers is that payments are now the determining factor for which provider consumers identify as their primary financial institution (PFI). In the past, primary financial institution status was based on where the consumer had their checking account.
As we mentioned in a previous blog, consumers now have an average of 5.3 financial institution accounts, and any or all of those accounts can be used as the funding source for their payments providers. Yet consumers still have traditional financial institution accounts because, regardless of generational segment, traditional financial institutions are trusted brands due to longevity and the regulatory security requirements they have to meet. If consumers trust traditional financial institutions and use them as funding sources, why not choose them as their primary source for payments?
The fight to be the preferred payments provider is fierce, with new competitors entering the space monthly. While these options create a plethora of choices for the consumer, they can also create more confusion. Consumers prefer easy-to-use applications, merchants with mobile point of sale (mPOS), and a payments provider with proven security. All of these factors boil down to a payments application that can simplify their payment experience. Simplicity, then, may be the most competitive weapon of all.