Have you ever thought SWIFT bank transfers will become instant?
A new generation of fintech companies and international initiatives make payments faster, more secure and available via a mobile device.
To further boost innovation by unifying the payment environment and promoting healthy competition, government initiatives such as PSD2 and payment standards like ISO 20022 are enabling:
- improved transaction data quality
- sharing of bank account information with 3rd parties
- near-real-time domestic and international bank transfers
- mobile payments and mobile Point-of-sale
- enhanced money protection via 2-Factor and biometric authentication
Let’s explore the trends in-depth and envision how they will change our world:
1. Оpen banking encourages competition and innovation based on the quality of service
PwC, one of the big 4 accountants, reveals that nearly 40% of bank clients are willing to share transactional data with other financial institutions and third parties.
The reason – they can have a unified dashboard for many accounts, they can receive custom-tailored offers for financing and other services.
What is open banking exactly?
Open Banking is a government-level initiative which started in the UK in early 2018. It was led by the Competition and Markets Authority (CMA) with the aim of boosting innovation and competition.
In the EU, Open Banking becomes part of the Second Payment Services Directive (PSD2) to make payments more secure, boost innovation and help banking services adapt to new technologies.
How to properly distinguish Open Banking from PSD2?
- PSD2 is an EU legal framework which mandates that financial institutions should open up data to third parties, including banks and fintech apps
- Open Banking is a UK-based initiative which established a standardized format for data sharing, essentially relying on APIs and assisting any EU account provider PSD2 requirements
Opening up financial data to third-party developers is essentially relying on APIs or application programming interfaces.
This openness paves the way to building apps that solve old finance problems in new ways.
How is open banking enabling innovation and competition?
Open banking mostly revolves around people and businesses having greater control over money and shared financial information. It enables novel apps and solutions which were never before possible – connecting user finances.
End users can:
- easily access balances and info about other services from multiple bank accounts, with different providers, from the same dashboard
- get up-to-date information about bank branches and ATMs
- use apps that consolidate all payments – to and from all your accounts, providing an overview, insights and ideas on how to save money
- manage debt more easily with overdraft alerts and hints for competitive financial offerings with lower interest rates
Businesses can:
- get tools to consolidate multiple accounts control
- employ new fintech offerings that help with cash flow management
- get access to lower interest rates and better unsecured loan terms by automatically sharing a history of revenue transactions
Now, since it doesn’t matter who is your bank account provider, what would you look for?
The answer: Great user experience and reduced fees due to healthy new competition!
Open banking apps are turning up everywhere
They all aim to innovate. They combine multiple information sources, tailor-made for your personal financial standing, and display solutions and suggestions in an easily comprehensible way.
Want to get your hands on some Open Banking apps and see what they are capable of?
Openbanking.org.uk – the UK entity responsible for defining and implementing the new standards, is now running an app store, where you can already find over 80 apps.
The list is non-exhaustive, and you can find other well-established apps in Google Play and the App Store.
2. Mobile payments are aiming to take over contactless card payments and cash
Payments via mobile wallets such as Samsung Pay, Google Pay, Apple Pay and our own iCard Digital Wallet, are gaining increased exposure.
At iCard, we witness a 45% year-over-year increase in the amount spent per transaction on POS with a mobile device.
To help you see the scale of this change:
- Mobile payments globally are forecasted to grow from $1.15B to $3.1B from 2019 until 2024 – a stunning adoption growth rate of 23%.
- 1 Billion users are expected to have used a mobile payment app in 2020
- Over 50% of Generation Z are already using digital wallets every month
- Cash payments globally have dropped from over 30% in 2018 down to slightly over 20% in 2020. They are expected to go further down – to 17% in 2022.
- Debit and credit card payments are still increasing, but that’s barely noticeable, compared to the growth of mobile payments
In Europe, your likelihood of adopting mobile payments in your daily life depends on where you live.
Sweden and Denmark have very high adoption rates (respectively – 36% and 41% of all smartphone users).
The UK (19%), the Netherlands (20%), Italy (21%), Switzerland (22%) and Norway (25%) exhibit moderate to high adoption rates.
Other nations in Europe are even slower to switch to mobile payments. In Germany, only 12% of all smartphone users have adopted the method. France, Spain and Finland are at 16%, 17% and 18%, respectively.
3. Biometric and 2-Factor authentication protects your money and confirms your payments
Now it’s fair to ask: Are you paying with your fingerprint, FaceID or retina scan already?
How cool is that!?
Another focus of the second payment services directive (PSD2) was establishing 2-Factor authentication for payments.
1 of the 3 possible authentication factors, of course, is biometric data.
Modern mobile devices are capable of easily and accurately scanning all sorts of personally identifiable features.
This is a trend that is now being implemented around the spectrum because it enhances the end-user money security. It is also the reason mobile payments are hastily being adopted.
They are simply more secure than payments with debit/credit cards … and they are as fast.
Why is biometric authentication so important?
There are many benefits to the biometric authentication concept:
- Money is better protected than with PIN codes for a debit card. It has the potential to eradicate the use of PIN codes and passwords, which are relatively easy to steal via one of the following 9 types of phishing attacks.
- There are higher transactional limits on biometrically verified payments.
- Payment authorization is seamless and nearly instant.
- Enables privacy because personally identifiable information is not displayed, but is locked into the device.
- Authenticating on your phone to make a mobile is already compatible with the existing POS network.
Payments with biometric authentication are forecasted to grow 10x by 2024 – up to $2.5 Trillion (from $228 Billion in 2019).
Cool fact: Did you know that there have been trials of biometric debit cards in Europe? How could it work? The card has a fingerprint reader that unlocks it every time you hold it. Your fingerprint is recorded on the card during issuing, then nobody can use it, except you.
4. Mobile Point-of-Sale (POS) reduces the costs for small businesses, even on the go
The mobile POS or mPOS market has been steadily growing in the past years because it helps retailers speed up the checkout, reduce costs and queues, and is in line with the reduction of cash use due to COVID-19.
But what is mPOS exactly?
It is usually an app (or an app and a gadget) for your mobile device, that converts it into a Point-of-Sale terminal.
What are some Pros and Cons of mPOS terminals?
mPOS terminals’ biggest advantage is that it allows merchants to go beyond their standard location and charge customers on the go – e.g. at farmers markets, street vending and pop-up shops.
They are also useful when a shop gets an influx of clients at specific times of the day. This way a merchant can simply take out an mPOS terminal and double up card processing speed.
One of the drawbacks of mPOS terminals includes their costs per transaction – usually a bit higher than Point-of-Sale serviced by a bank.
Another negative side is that mPOS terminals are not suitable for most merchants, due to nature of the business or local regulations, like the need for all point-of-sale devices to be connected directly to the national revenue system.
Even with these limitations, usage is getting more wide-spread and growth is huge.
The mPOS user trends
Total transaction value in Europe in 2020 has increased to $244.5 Billion – over 120% year over year growth.
The past trends draw a forecast for 2024 when total mPOS transaction value could hit over $700 Billion – a cumulative average growth rate of 30%.
This growth is not so much based on the number of users, but on the value of each user.
For example, these volumes have been the result of 117 million users paying on mobile point-of-sale terminals – a number that’s expected to go beyond 167 million people in 2024.
At the same time, the average transaction value per user is expected to grow from $2,100 in 2020, up to $4,200 in 2024.
(mPOS stats source: Statista)
The mPOS retailer trends
The benefits are obvious for retailers:
- Easy integration
- Easier data accessibility and integration
- Improved cash flow
- Faster checkout experience
- Combines more easily with incentives programs
- More convenient than cash
With these benefits, and with the reduction of cash use due to the epidemic, 46% of small and mid-size retailers in the western world are already accepting payments on mobile Point-of-Sale. At the same time, on a global level, mPOS is here to stay. Global transaction values are predicted to grow from $850 Billion in 2019 to $1.9 Trillion in 2024..
5. SEPA and SWIFT bank transfers are becoming instant
Opening up banking information for third parties has the potential to create instant, global bank-to-bank transfers without intermediaries and additional costs.
This is where ISO 20022 comes to play – it establishes a common “language” or data structure standard for storing and accessing financial data.
This creates a level field on the financial market and enables challenge banks and fintech apps to access traditional infrastructure in near real-time.
Unified standard means better and faster international (SWIFT) and domestic (SEPA) interoperability.
SEPA Instant adoption
SEPA’s data formats, provided by the European Payments Council, rely on the global standard ISO 20022.
In fact, many Payment Services Providers in Europe have been adopting the new data format for some time now, which made SEPA possible.
SEPA Instant was launched in November 2017, with a promise that bank to bank payments in Euro will process in under 10 seconds.
Three years later, 56% (or 2,240) of European Payment Service Providers have already joined the network.
Back in April, when we wrote a blog article on 14 SEPA instant facts, only 50% of EU PSPs had joined the scheme.
With that speed of adoption in the past 3 years, it would be easy to forecast that by the year 2024, close to 100% of payment processors in Europe will be connected and ready to process instant transfers.
SWIFT also moves to instant
SWIFT – the global provider of financial messaging services, recently announced a new strategy instant, secure and frictionless payments processing.
Just like SEPA, they will rely on ISO 20022 data standards to quickly settle payments between bank accounts across continents, providing transparency end-to-end.
It’s still in the early stages, but the SWIFT board of directors has set a deadline to enable fully functional, ISO 20022 compliant.
This should come 5 years later – by November 2025, when all data remediation, back-office processing and channel improvements should be ready to further boost global innovation in the financial sector.
Want to feel fintech innovation in your hands?
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