The Changing Face Of Payments Innovation

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New payment methods, online payment gateway and technologies are constantly emerging. As financial institutions seek to engage customers across channels and devices, they must shift their focus to digital transformation. Only then will true payment innovation be possible.
Even before COVID-19, payments technology was rapidly evolving, though this may have been accelerated as consumers turned to E-commerce and digital channels as a safe alternative to in-store payments.

While people adjust to contactless and mobile payments, forward-thinking consumers are considering even more novel payment methods, such as paying with a connected car. According to Mercator Advisory Group, more than half (57%) of consumers are willing to make payments through a connected car. While alternative payment methods were once thought to be popular only among Gen Z and other early adopters, the truth is that consumers have grown more comfortable with new payment methods.

Financial institutions (FIs) and businesses must prepare internal systems to ensure that processes, products, and solutions can keep up with consumer demand as consumers ...
... become more interested in alternative payment methods and continue to rely on digital payments.

How APIs are Leading the Innovation Charge
APIs have been around for a while, but they are now playing a new role in payments innovation. Customers expect secure, fast, and convenient payment services as the lines between digital and physical payments become increasingly blurred. Organizations should embrace an API-led approach to product development to achieve this. As a result, a thriving ecosystem can help FIs gain a competitive advantage while providing a personalized payments experience.

"Open banking" has gained traction across the pond, but FIs in the United States should follow suit. To stay competitive in a landscape crowded with competitors, substitutes, and new entrants, FIs must accept that collaborating with other industry players is a must. Enabling partners to access a FI's APIs in order to create unique solutions and add value to the FI's customers is the way of the future. To take advantage of these capabilities, financial institutions should investigate the various API models that can help them improve operations, such as:

1. Internal integration – APIs are used to connect applications to legacy systems and to each other. It is the original API model, but it has limitations because integrations are mostly case-by-case, making it difficult to switch or retire suppliers and capabilities.
2. Supplier integration – This integration connects organizations with suppliers directly, avoiding some of the difficulties associated with internal integration.
3. Basic open banking – With the introduction of open banking regulations in the EU, APIs are beginning to evolve in order to collect the necessary information to meet regulatory requirements.
4. Corporate client integration – Enterprise clients can integrate the bank into payroll functions and weave bank connections into supply chain payments.
5. Solution sourcing – Companies build payment sandboxes in which various organizations, students, and groups can "play," facilitating competitions to produce innovative solutions that can be introduced to the market.

6. New capabilities phased in – The API platform expands, allowing FIs to offer new services and products to customers (some of which are managed by third-party collaborators) and generate new revenue streams.

API-led connectivity will upend current business models by enabling the development of more customer-centric products and services that generate value for both customers and collaborators. APIs are a critical component of the digital transformations taking place across the financial services ecosystem.

Artificial Intelligence (AI) Has a Hand in Innovation
Artificial intelligence (AI) and machine learning are also receiving attention as more applications for the technology emerge in the financial services sector. These technologies are already being used to assist humans with tasks such as know-your-customer (KYC) in merchant onboarding, contract review for legal departments, branch automation, and fraud prevention.

AI will find a place in other roles, including customer-facing services, as it becomes more intelligent and capable of mimicking human interaction. The primary concern for AI will be security. Before conversational commerce becomes widely available, biometrics, voice authentication, and other authentication methods that may involve AI and machine learning will need to be fine-tuned.

In Conclusion
As payments and the best online payment gateway innovation accelerates, the key driver remains customer needs and preferences. The most significant barriers to innovation are concerns about security, fraud prevention, and adding value. While consumers are becoming more comfortable with and trusting emerging payment methods, financial institutions must ensure that trust is well-placed.

New payment methods also bring with them bad actors looking to exploit new and unknown vulnerabilities. Perhaps the most important point for FIs to focus on is identifying areas where they can truly add value to the consumer's life. Changing payment habits is difficult, especially when consumers are accustomed to using credit cards. Adding unique value is the only way to influence consumer behavior and encourage the use of new payment methods.