Consumers of every age and enterprises of every size are being challenged and empowered with a game-changing array of electronic devices and applications that fundamentally change the way they communicate and interact. Regardless of economic sector, broadband Internet access and mobile connectivity have combined to produce savvy, discriminating consumers.
In the payments arena, in particular, the impact of the digital age in which we live has been (and will continue to be) profound.
Research has found that a majority of consumers are interested in using new forms of electronic payments, including personal payment transactions and mobile banking:
- Checks will continue to be displaced by card and ACH payments, as check volumes decline at a rate of 8% a year;
- Online bill payment, debit and prepaid cards continue to lead the shift toward electronic payments by consumers;
- Online and mobile payments are the fastest-growing segments in the payments industry; the mobile person-to-person payments market is expected to grow 48% over the next five years and e-commerce payment volumes are projected to grow at 15% annually;
- ACH transactions are estimated to grow at a rate of 12% over the next few years;
- The number of ATMs appears to be stabilizing as consumers migrate to electronic payments.
Interestingly, the bill payment landscape continues to fracture and shift with newer channels, such as mobile and tablet, emerging alongside well-established payment methods such as checks, mail, walk-in and phone.
Recent research shows that the number of online households that pay bills electronically either through a biller or financial institution website held steady from 2012 at 74%, with 24% of households using both methods.
As the number of payment channels continues to grow, there is a continued shift in the channels consumers use to pay bills. The percent of online households that pay at least one bill a month by check declined from 61% in 2012 to 53% in 2013, while the number that use their mobile phone to pay bills doubled from 8% to 16%.
Despite the emergence and consumer adoption of new payment methods, consumers have not completely abandoned the “old” methods of paying bills like checks, phone or in person payments, making the payments landscape continuously more complicated for billers.
Similarly, as financial institutions battle with each other in the mobile banking and payments race, what can be absent from conversations is the estimated 55 million non-online-banking households in the U.S. who choose not to bank online regularly or at all. Recent research, coupled with the growing popularity in this segment of non-traditional financial providers, suggest that financial institutions should pay more attention to this non-online banking consumer segment as a potential target audience for their mobile banking and payment services.
Non-traditional financial services competitors have already seen the opportunity and are implementing strategies and products to seize the day. According to data from CB Insights, a mix of venture capital and corporate venture firms all continued to jockey for a piece of this massive industry: in 2013, payments start-ups raised $1.2 billion in funding across 193 deals.
On a year-over-year basis, venture capital funding and deals to payments and technology companies ticked up 5% and 6%, respectively, from 2012 levels. Deal growth was concentrated at the early stage, with seed funding accounting for 42% of all deals in the payments space over the past two years. Of the payments start-ups that first received a seed round between Q1 2010 and Q3 2012, 35% went on to eventually receive Series A funding.
While mobile banking and payments appears to have a bright future among the non-online-banking consumer segment, it's clear that financial institutions still need to do more to educate consumers about the security of conducting financial activities on their smart phones and other mobile devices. In recent research, a majority of respondents cited fear of transaction security as a key reason that would prevent them from using mobile banking.
Clearly, technology has also raised the bar for service: in the future, it is very likely that consumers will regard the extent to which they can serve themselves to be a determining factor in selecting a financial provider and/ or individual financial services. Consumers will expect the organizations with which they do business to offer multiple electronic payment options and do so seamlessly. They want information in real time and on their terms.
Mark Sievewright is president of Credit Union Solutions for Fiserv Inc. in Brookfield, Wis. CONTACT: [email protected] or (469) 287-3600.
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