Financial institutions hoping to stay relevant need to adapt quickly to market changes, suggests an IDC InfoBrief sponsored by Episode Six.

Episode Six is ​​a technology company that enables financial institutions and fintechs to create new digital journeys that leverage real-time payment and value transfer, with any network, any system, any what motto, anywhere in the world.

Like most in the industry, Episode Six CEO John Mitchell knows that gamers must adapt to new technologies as they meet customer expectations for speed, convenience, security and the desire to pay more than before. This report suggests just how significant these pressures will be in the years to come.

“(Some) ISPs use decades-old technology built on requirements for needs other than today,” Mitchell said. “Fintechs are tackling a need that moves them into the equation.”

Non-FIs will process 74% of global consumer payments by 2030

By 2030, it is estimated that 74% of global consumer payments will be processed by non-financial services institutions. Traditional players can carve out a slice, but they need to review their role in the future system.

The number of payments processed by financial services institutions is growing at a rate of 6%, but this is less than half the rate of 16% for non-financial services institutions. If these rates continue through 2030, $102.29 trillion will be processed by financial services institutions and $354.6 trillion by non-financial services institutions. Digital payments in 2030 will be 3.4 times their 2020 size, or $476.1 trillion.

Mitchell said a major driver of this growth is changing technologies that have changed the lifestyles of Gen Z and Millennials.

“If we look at the IoT, if we look at the Metaverse, we’ll see a need for different methodologies around payments and the ability to pay with different types of value units,” Mitchell said.

“It will lead to what we see here and what we talk about in terms of 74%. Due to technology, open banking and the rise of fintechs, the ability of brands to integrate finance into their propositions becomes easier. This is becoming increasingly important for these companies as they try to gain market share and provide more of the day-to-day and financial services that their customer base needs.

John Mitchell

As customer needs evolve, they require more and newer technologies. This forces industry players to familiarize themselves with a wider range of solutions. These needs usually cannot be met internally. Partnerships are needed.

“I don’t know how many Gen Zers have even been to a bank branch,” Mitchell said. “So those old styles of financial management are no longer valid. They are not going to work.

The report identifies six major trends currently shaping the payments landscape. The desire and convenience of real-time payments is driving innovation. The availability of on-demand services increases the level of consumer expectation. With better, hassle-free, contactless and instant processing technologies, more support will be provided before, during and after payment authorization. By 2030, 95% of non-cash physical payments will be contactless.

Will cash be dead in our lifetime?

“Contactless will replace cash, but I think part of it has to do with contactless versus handing a piece of plastic to someone,” Mitchell said. “Cash is still a big part of what we see everywhere, so I don’t see it eventually going away unless it’s just not allowed anymore because CBDCs are the currency.

“Contactless is taking over, and we’re seeing it all over the world. In parts of Asia, most transactions are contactless.

Is the technology needed to support zero-touch migration already in place? Mitchell doesn’t think so. A wholesale infrastructure change is required. Otherwise, it will be several iterations of what we have today.

“Institutions that agree to this will take the necessary steps, and a lot of that depends on collaboration and convergence with fintechs,” Mitchell said. “Existing technologies, for the most part, will not be able to accommodate new ways of paying.”

Systems need to accept more types of currencies

Consumers will also demand the ability to pay in more different currency units. By 2030, 60% of global consumers will have made a transaction using an asset class other than fiat currency. One of those class-building discussions is about rewards and loyalty points.

Mitchell said there are many methods by which consumers can redeem rewards at point-of-sale and elsewhere, but the experience is often clunky and requires multiple steps.

“These are not transparent transactions,” Mitchell said. “There are some weird conversion rates. Create a mechanism for consumers to choose on demand and use the value units they prefer.

“It’s huge, and it’s not rocket science, but it requires, in most cases, newer technologies than exist in the world of financial services today. Many of the ones you see today are multiple systems put together to overcome constraints. »

Another unit is cryptocurrencies, the role of which will be influenced by regulation, Mitchell said. This is starting to happen, and these regulations will influence the development of CBDCs.

The Metaverse will help crypto gain a more significant foothold, Mitchell suggested. As people migrate some of their daily routines to the metaverse, they will begin to interact with its native currencies. The need for asset class independent payment options will grow, whether with Bitcoin, Ethereum or something else.

The answers to these questions will themselves bring opportunities.

“How are you going to make these purchases? ” He asked. “What are you going to use for these purchases?” How will all of this play out for the rest of this decade? Certainly, in most financial institutions, today’s infrastructure will not facilitate any of this.

The BNPL experience may change

Financial institutions are also grappling with how to win back the consumers they lost in the recent BNPL surge that caught the most off guard. The new companies moved quickly, had good timing, and drove customers away from the big players.

That could reverse in the medium term, Mitchell suggested. Lenders are regulated and have the infrastructure to handle the whole process. As default rates settle, business could shift back to financial institutions if they can adjust their technology to facilitate these types of payments.

One way to predict what the future will look like is to look at what is happening in Asia. Episode six is ​​strongly present there. Mitchell said some processes common to places like Hong Kong are just beginning to reach the United States. The infrastructure is in place, so all it needs is a catalyst.

“A lot of people I know in the US didn’t use a QR code until they had to in a restaurant,” Mitchell said.

Part of providing quick payment decisions is performing instant KYC checks. The technology to support these real-time decisions is available. It must be reinforced beyond the philosophy of the 1990s which underlies many solutions to adapt to new forms of identification. This requires new technology.

Look east to see the future

We can also look east for lessons in managing open banking, and what we find is mixed, Mitchell said. Regulation, not market dynamics or consumer needs, drove the change, leading to some revisions. Some European financial institutions have tried to adapt by adding more layers to old technology instead of developing a roadmap.

“In the US hopefully we’ll see something less regulatory driven and more market driven, because I think you’ll end up in a better place.”

By 2030, 90% of real-time global payments will be linked to the network of at least one other country. This poses regulatory challenges around physical settlement, Mitchell said. The idea of ​​interoperability between networks is huge, and companies are developing the technology to make it happen.

“I think most of the work will be on the settlement and the regulatory issues,” Mitchell concluded.