We now pay with our phones, watches, and wearables. What’s next?
We live in an age of unprecedented technological discovery and change, and the payments industry is fully embracing it. We are paying with our phones, watches, and wearables. Our credit and debit cards have new embedded microchips. And we can now initiate, verify and secure a payment with the swipe of a finger.
What is driving innovation in payments? Part of the answer is the payments industry embraces innovation. It’s more accepting of new entrants, unlike other incumbent industries.
One area of big change is in the 1.2 billion credit and debit cards that Americans carry in their wallets today. The magnetic stripe on the back of those cards hasn’t changed in the last 40 years. It’s the same technology used in cassette tapes, by the way. On October 1, the United States is shifting to EMV technology. EMV cards, or chip cards as they’re sometimes known, are not a new technology outside of the U.S. They’ve been the standard in Europe for years.
An EMV card looks no different from a regular credit or debit card–with one exception: it contains a tiny but powerful microprocessor (the “chip”), which makes it impossible for anyone to counterfeit the card. The chip generates a unique, dynamic security code with each transaction. Because of this chip, the way we pay is going to feel different. Instead of swiping the card, the customer will dip it into the terminal and leave it in while the transaction is securely processed. This small change opens the way to a whole range of new technologies that make payments safer, faster, and more convenient.
Consider the digital wallet. The idea has been around for a decade, but 2014 was the first year that the term became part of our vocabulary. The launch of Apple Pay was a catalyst for mobile payments – from 2009 to 2014 smart phone penetration has increased dramatically, 19 percent to 66 percent ownership in the U.S., setting the stage for mobile payments adoption. Our ETA / Strategy & Survey found that 40 percent of consumers are already utilizing mobile devices to shop. It makes sense: the device is already in your pocket, and paying is a matter of swiping with your finger. The recent launch of Google’s Android and of Samsung Pay are both prime indicators that consumers want to pay with their phones.
Think of all the markets disrupted by smart mobile devices: music, GPS, laptops, and digital cameras. Mobile devices are powering payments disruption too and interesting partnerships are driving the payments revolution. For example, to launch Android Pay, Google is partnering with American Express, AT&T, Braintree, CyberSource, Discover, First Data, MasterCard, Stripe, T-Mobile, Vantiv, Verizon and Visa.
Established payments companies are also setting up accelerators and venture funds to bring fintech innovations to market faster. Across the industry, the pace of fintech mergers and acquisitions deals rose 2.8 percent in volume this year, while the value of M&As increased nearly 40 percent between 2014 and June 2015.
Innovation is reverberating throughout the payments ecosystem for consumers too. Peer-to-peer payments are widely accepted among millennial consumers, putting it on the cusp of full market penetration. In Q2 2015, P-to-P provider Venmo processed $1.6 billion in payments, up markedly from just $141 million processed in 2013. Stripe is powering buy buttons on Twitter that allow for seamless shopping in social media. Facebook now allows debit cards embedded in Messenger to facilitate money transfers with shopping anticipated to be added soon.
Wearables are making payments feel fresh and modern. Surveys report that more than 80 percent of Apple Watch owners are already using Apple Pay. American Express partnered with FitBit to allow athletes to leave the wallet at home. There are vast opportunities for entrepreneurs to develop more contactless payments options as merchants update payments acceptance equipment to accept mobile transactions.
Speed and convenience are only part of the equation. These new payments options are also much more secure. Credit cards are equipped with EMV chips, which make counterfeiting impossible. Tokenization replaces live card account information with one-time use tokens that cannot be intercepted and replicated. End-to-end encryption of consumer data prevents hackers from stealing private information. Biometrics–measuring physical traits which cannot be duplicated–simultaneously reduce fraud and make transactions seamless and secure.
The payments revolution is well underway, and the future belongs to the innovators.
Originally posted on here and reproduced with kind permission of the author.