The future of payments: The person will become the payment
Embedded payments will turn the person into the payment and transform these simple financial functions into nuanced, data-rich relationships, explains Alex Reddish, CCO of Tribe Payments
We accept change as it comes, and it’s only when we look back do we see how quickly things have changed. In 1990, four billion cheque payments were made in the UK—no one would suspect that they would be all but obsolete thirty years later. Those early adopters with the first credit cards similarly had no idea that we would simply be tapping them to pay for goods rather than running them through a clunky machine to take a carbon copy.
The last decade has seen incredible change. The credit card has been transformed from a physical way to pay for goods into a digital token that sits across multiple consumer wallets.
When it comes to the next decade, the biggest change in payments is going to be the consumer’s and businesses’ relationship to the transaction—there won’t be one. Payments will be embedded to the point that customers won’t think about the method at all. For them, the payment will simply happen. In fact, the person will become the payment.
What are embedded payments?
This may seem absurd, but technology has led to similar things happening elsewhere. It’s not so long ago that we had a small directory of phone numbers in our head, and a larger one in our homes. Now people can dial numbers by just saying their friends name to an Alexa. Despite saying that we are going to “phone someone” we no longer look up a phone number or actually pick up a phone. The act of calling has been embedded into other applications.
If the 2010’s laid the foundation for digital payments. The 2020’s will see payments become embedded into connected applications (Facebook, WeChat, Grab) and devices (the internet of things), priming a wave of innovation that will alter our relationship with the act of paying.
At some level this is nothing new. More than 50% of people in the U.S. now shop contextually, making purchases during everyday activities in their natural environment. Since as early as 1999, online purchases have been available using a card on file at a merchant for example. In a similar fashion, for food delivery or online taxis, the payment increasingly takes place completely in the background.
And in some retail stores, the payment terminal is already a thing of the past. Customers are recognised upon entry and exit of the store, with funds being debited for those items that they leave with. We are already seeing car companies partner with payment networks and merchants to create connected cars. In the next decade, these connected cars are expected to communicate with other connected devices and point-of-sale systems using biometric voice technology to facilitate payments for goods such as fuel, toll roads, vehicle maintenance, and parking—effectively embedding payments into the car so that transactions can be automated for speed and convenience.
What is consistent here is that there is no act of payment. Whether in a car or ordering a taxi or walking out of a store, the transaction happens in the background. This is and will increasingly be driven by biotechnology. The Uber app knows it’s you through face recognition, Whole Foods through an iris scan, and your Toyota Prius though voice confirmation. Suddenly the person has become the payment.
Why will payments become embedded?
There are three overriding reasons why payments will become embedded into applications:
It takes an average of 2 minutes and 39 seconds and 23 clicks for customers to checkout on an e-commerce site.
One of the biggest hurdles is entering payment details, especially a long card number on a mobile phone. Creating a convenient one-click checkout experience by embedding payments can dramatically reduce friction and engender loyalty with 85% of consumers saying that their checkout experience is “substantially improved” as a result.
Embedding payments will not just improve convenience and loyalty, it will increase revenues too.
The 23 click checkout delay results in an estimated $236 billion in lost annual revenue that can be recovered by removing payment friction.
By 2030, 75% of organisations selling direct to consumers will offer subscriptions with a value of $473 billion. The shift to subscriptions driven by the success of services like Netflix, Headspace and Spotify - where a recurring payment is embedded into the application - offers consistent and predictable revenues and increased customer lifetime value.
If payments are embedded contextually within applications, they can uncover insights that spur innovation. This is even more true when tied to biometrics that ties payment data to an individual. For rideshare companies, for example, an embedded payments system should provide robust data and reveal common problems for drivers, allowing solutions to be more easily identified and enacted. In Uber's case, this meant offering small loans to pay for petrol because they realised drivers sometimes didn’t have cash on hand to buy fuel and thus complete trips.
What will drive this change?
Just as Amazon Web Services and others introduced the concept of managed infrastructure that allowed companies to embed their services in the cloud, the same scenario is set to play out in the payments world.
But for embedded payments to scale it will require collaboration. Business models will need to change as payment values become smaller but volumes skyrocket and increasingly move across borders. This will require cross-industry interoperability and standardisation. In Open Banking we’ve seen the promise of creating new industry payment infrastructure. But we’ve also seen much of this promise remain unfulfilled.
Without stricter regulation that ensures all parties conform to the next generation of standards and structures, the industry will remain fragmented and fail consumers, businesses and the wider economy. Regulators need to anticipate innovation rather than the other way round - and educate and inform as well as regulate.
As payments move to the background, regulatory checks and balances will need to be put in place to ensure that individuals remain in control of what they spend and the data they share. Payment privacy will grow as an issue.
With careful collaboration and regulation, payments will become embedded into the applications and devices we use every day. And at this point payments will become more than just a way of moving value from A to B, more than just “plumbing”, more than just a simple utility.
Embedded payments will turn the person into the payment and transform these simple financial functions into nuanced, data-rich relationships. And the intelligence these relationships provide, employed ethically, will offer more convenience, more revenue, and more innovation opportunities to those that master it.