2013 will be a pivotal year in consumer payments. It will be marked by an increase in digital disruption by nimble, tech savvy competitors. Payments incumbents will leverage their market power to battle disruptors. We see early evidence of this with MasterCard's new fee structure for “staged” digital wallet providers such as Google Wallet, PayPal and Square, which mask the merchant of record and other transaction details from others downstream in transaction flow. Finally, merchants and consumers will wield their tremendous influence in picking winners and losers as the array of alternative payment options become more abundant, more accessible and begin to deliver greater value to the commerce experience. In my new report out today, titled “Three Disruptive Payment Trends in 2013,” I explore three trends, driven by digital disruption, that will shape the future of consumer payments. I provide an analysis of what each trend means for competitors across the payments ecosystem and provide recommendations for responding to the impending disruption. Here are the key takeaways:
- Trend No. 1: Emerging payment models will disrupt traditional payment economics. Merchants have a growing set of payment options that do not adhere to the traditional interchange or processing fee model. Some of these options even deliver additional value above and beyond payment processing. As merchants adopt these new payment methods, their expectations will reset and they will expect lower costs and greater value from incumbent payment service providers. Traditional economic models will not disappear overnight, but it would be a mistake for payment incumbents to dismiss the growing number of unique pricing schemes and the disruptors who are moving aggressively to gain scale.
- Trend No. 2: Mobile digital wallets will differentiate through contextual features. As the digital wallet wars continue in 2013, leading competitors will drive adoption by integrating capabilities that remove friction and transform the payments and commerce experience in contextually relevant ways. These wallets will embed capabilities that can create a more convenient commerce experience for consumers and give merchants a growing set of potential benefits — that may provide a distinct competitive advantage — to evaluate and weigh against the additional costs of wallet acceptance.
- Trend No. 3: Emerging alternative financial services will appeal to a broad base of consumers. The payment needs of a large base of underserved consumers (unbanked, underbanked and debanked) are not met by traditional financial services or by existing alternative financial services. Disruptors are creating better, lower-cost alternative products and services that deliver more value and meet broad-based payment needs. Services that enable quick and easy conversion of cash for digital payments or prepaid products with rich features and capabilities formerly reserved for traditional bank products will appeal to underserved consumers but also other segments (e.g., younger consumers) and directly compete with checking accounts and debit cards. However, unlike other instances of digital disruption, these products and services present new growth opportunities across the payments ecosystem — for incumbent payment providers and merchants alike.
While it may be a few years before we see the full force of this disruption, in 2013 we will see the early impact take shape within the consumer payments marketplace. Of course there are many other shifts occurring within consumer payments. What shifts do you expect will create the most disruption to your business?
Follow me on Twitter @deneecarrington for more on the evolving consumer payments landscape.