Digital Payments Transformation - Accenture

1 Digital Payments Transformation From transactions to consumer interactions Contents Executive summary 4. The shifting landscape of Digital Payments 6. How to capture the customers: harness the power of 14. mass-adoption to cross the chasm from physical to Digital How to capture the merchants: expose payment APIs to retailers 16. Five factors to get right in formulating a Digital Payments 20. strategy Five factors to get right in executing a Digital Payments strategy 26. Conclusion: participating in the intermediation layer 28. Appendix: Accenture 's proposition checklist for Digital 30. Payments offerings 2. 3. Executive summary We've come a long way in the Digital economy, and today multi-channel delivery is an imperative for every business .

2 Now the next stage of connectivity is upon us, as customers progress from choosing purchases and making Payments to undertaking seamless customer-driven interactions via mobile devices. This stage of connectivity is driving Digital However, there is little so far to show Payments Transformation the migration for these investments, and achieving of cash Payments and plastic card success in the Digital Payments landscape Payments to Payments made over Digital is proving to be a major challenge. While channels, either from dematerialized cards banks recognize this new environment, held on Digital wallets or in the cloud , or many are unsure how best to react. They from new Digital payment mechanisms. struggle with the plethora of evolving technologies, partnerships and emerging The addressable market is huge: Digital ecosystems and are often Accenture 's analysis shows that cash and hampered by the normal bank investment card Payments total about three trillion cycle, which can be out of synch with transactions a year globally, worth around the need for fast decision-making and US$13 trillion in aggregate.

3 How many of innovation. these Payments will move to Digital and how quickly is anyone's guess, but we But we believe it is possible for banks to can be certain migration is happening as cut through the fog in the fast-changing the Digital economy develops. It explains and sometimes chaotic world of Digital why mobile and Digital Payments are now Payments , and take concrete strategic a white-hot topic, attracting significant steps to position themselves within it. investments and innovation, often backed by private equity and venture capital. 4. The objectives of this Mass Payments are a starting point In exposing their APIs to third-parties, for banks to help customers cross banks should aim to set a tariff for report therefore are to help the chasm from paying with physical payment transactions at a level that cards and cash to paying using a is at or below the equivalent fees for banks and practitioners: mobile device and on to more complex card transactions, but additionally aim 1.

4 Make sense of the trends in Payments interactions for Digital commerce to charge for other API functions to and how they are shaping the Digital such as paying with a combination of generate new and incremental revenues. Payments landscape money and loyalty points, automatically In pursuing the opportunities presented selected by a Digital wallet. An initial 2. Understand key features to make a by mobile/ Digital Payments , banks focus on vanilla Payments and simple Digital payment proposition successful need to recognize and accept that interactions also allows banks to build card revenue will be cannibalized. This 3. Identify the key actions to set a Digital up gradually the internal capabilities is inevitable. As long as new Digital Payments strategy and build capabilities required to enable Digital commerce propositions have a clear and achievable to bring Digital payment propositions to (technology, partners, management commercial purpose to acquire market.)

5 Expertise, and so on). customers, retain existing customers By definition, vanilla Digital or boost share-of-wallet then this In summary, the key points Payments are a commodity; their cannibalization is manageable. to take from this report value proposition is based on speed, Banks face a stark choice either they convenience and robustness. But are: once mass adoption is established, enable accounts for their customers to make Payments over any channel in Digital richer revenue streams can then flow Success stories of mass adoption from more complex Digital commerce commerce interactions; or they leave of mobile/ Digital Payments their customers to use their bank account interactions and Payments . as a dumb account to feed the smart, propositions are rare but they digitally-enabled payment accounts their do exist.

6 In cases where these The rapid growth in contactless customers hold with other banks and propositions are succeeding in card Payments is the single non-banks. building traction and usage, they biggest trend in Payments in some usually share three key features: markets at the moment and This report takes a comprehensive look at Digital Payments , and explores each First, they tend to be retailer-centric exploiting this is a smart strategy of these points, providing tangible propositions, such as the Starbucks for banks to pursue. guidance along the way, including a mobile payment app. PayPal is also With contactless Payments seeing Digital proposition checklist as an aide- an obvious success, and has seen its sustained hyper-growth rates of memoire at the end.

7 It is designed both growth boosted by its mass usage on 300%-plus in Europe, harnessing this as a good read, and as a guide for industry eBay. explosive expansion in usage will open practitioners to refer and dip into as they the way for mass-adoption of mobile set and execute their strategies. Enjoy! Second, successful mobile/ Digital payment at the point of sale (PoS), and payment offerings usually have a well- help consumers cross the chasm from defined ecosystem of merchants and physical to Digital Payments . consumers, enabling ubiquitous use of the payment proposition. To commercialize Digital payment Third, they generally have a frictionless propositions, banks should look user experience, where the payment beyond card-based revenue is embedded as a seamless part of the end-to-end interaction.

8 An example of models and seek to generate this is the Hailo app for locating and revenue from payment application booking taxi cabs, with its automatic programming interfaces (APIs). but user-verifiable payment function. By exposing their core payment systems To launch successful mobile/ to retailers and other third parties through APIs, banks can enable third- Digital propositions, banks need parties to drive growth by embedding to learn from these successes and the bank APIs for Payments in their target mass-market plain vanilla own offerings whenever they need them. This strategy has been adopted Payments such as buying a tube successfully by PayPal. Offering of toothpaste or a travel ticket. bank APIs externally opens the way This role will enable banks' mobile/ to interactions in which consumers Digital propositions to displace cash and register their bank account on a low-value card Payments in everyday retailer app and then seamlessly access consumer interactions, and place, or the payment functions they need for intermediate themselves in the flow of that app balance look-up, account their customers' Digital lives.

9 Selection, payment, receiving refunds, and so on. 5. The shifting landscape of Digital Payments Driven by rapid advances and investments in Digital Payments offerings and capabilities, the global Payments landscape is undergoing a profound Transformation . Yet, amid the flood of change and innovation, few initiatives have emerged as clear successes. The question is: why? 6. The forces reshaping End-to-end purchase integration Real-time Payments Payments are becoming an integral part Immediate availability of funds on Payments of Digital commerce, where pre and payment is very distinct and different The first step towards answering this post purchase activities such as search, from real-time authorization and question is to identify the major trends comparison, selection, payment, and guarantee of funds.

10 It allows payment- that are under way. At an industry level, rewards operate seamlessly together- for versus-payment interactions, analogous banking as a whole is going Digital the example in Digital wallets such as Google to cash transactions transferring distinction between channels and devices Wallet. electronic cash to someone so they is blurring, with interactions over the can make a purchase. In the few internet, mobile and with a physical Retail innovation countries that currently have a real- presence converging into a common Ongoing rapid innovation in retail, time Payments capability, such as the set of Digital services, typically with a especially around omni-channel retailing, UK, it is enabling new business models, smartphone or tablet as the point of where consumers switch between including immediate availability of convergence and control.