Consumer payments have seen their fair share of innovation over the past few years. From Paypal’s (and now Stripe’s) push into retail payments and WeChat’s maturation into a financial services platform, we’re seeing the future of payments play out in front of us. It’s clear we’ve moved from a payments world consisting of stand-alone devices to an interconnected one. We’ve evolved from ATMs and payment terminals to a world where payments are almost invisible (think Uber), made possible by intelligent integration into consumer software.
But what’s next? Where is the next round of payments innovation going to take us?
The third wave of payments
Forrester believes we’re moving into autonomous payments. In the research firm’s new research paper, the first wave of payments consisted of disconnected machines, like payment swipe terminals and ATMs. You could primarily access money and move it around. From there, we moved into a payments world where our software and digital experiences integrated payments — the second wave.
The third wave, and yet to come, is autonomous payments. Here, payments become an invisible part of a high-value commerce experience, defined by three key components:
- Authentication becomes the payment: Forget chip and pin or other current authentication methods. We’re talking biometric identification, from fingerprint to facial ID to computer vision that recognizes you when you walk into a store or step in front of a vending machine.
- Transactions become invisible: We already have a taste for invisible payments. When you exit an Uber, you don’t even need to think about payments. Everything is handled behind the scenes in the app. Payments will continue to become an integrated part of software, invisible in the user experience.
- Rewards become orchestrated: Most loyalty programs todays are just ways to push more product through the same pipes. And forget about finding ways to consolidate multiple rewards and reward programs for consumers. It’s a mess. In the autonomous payments wave, Forrester expects distributer ledger technology to climb the walled loyalty gardens and create new opportunities for consumers and the merchants they shop at.
“The consumer will wield disproportionate power and conspire with those that best serve and unleash that power — while punishing those that don’t,” said Forrester. “We are steadily marching toward autonomous payments, where the payments melt into the broader commerce experience and create incremental value.”
Commerce platforms compete against the card networks
The Bank of Amazon is a growing reality. It doesn’t really matter whether or not the company ever gets a formal banking license — Amazon Pay is making headway online and in brick-and-mortar. Alibaba, Amazon, and other ecommerce leaders carry a lot of influence with their customers and Forrester expects them to slowly undermine the market power of the card networks.
Walled loyalty gardens will fall
Consumers and merchants just don’t have incentives aligned in the loyalty and rewards world. Short-sightedly, most merchants look to score another sale, while customers really are searching to align with a brand longer term. The result is frustration with the walled gardens around individual reward programs. This won’t last.
“[A consumer’s] goal is to have rewards and points act more as liquid currency — essentially to tear down the walls,” said Forrester. “Walls will fall, instigated by a ‘jumper’ able to take financial risk and use AI to mine, exchange, and recommend rewards that make the most sense to the consumer at the time of purchase.”
What’s a company to do in the coming autonomous payments wave?
Forrester recommends building and participating in ecosystems as one way to compete in this changing payments world. There’s a tension here, too. Individual firms want to maximize their own data and customer relationships while ecosystems require data sharing and collaboration. If you think about how commerce begins pre-sale and extends to product delivery and post-sale follow-up, there’s a lot of room for companies to stake out strategic parts of their ecosystems.
“Model the ecosystem: the creation, flow, value-sharing, and protection of data,” said Forrester. “[Define] how and how well you engage the customer to stay relevant; and how you innovate on pace (or faster) to help shape a better ecosystem and better protect your interests.”