James Booth, VP, Head of Partnerships in EMEA for PPRO
Over the last ten years, the retail e-commerce ecosystem has undergone a wide-ranging transformation. As recently as 2010, the e-commerce and payments value chain were relatively straightforward: Any eCommerce merchant could integrate a payment processor’s front-end HPP into their checkout or perform a deeper API integration for a customised checkout experience. The customer then enters their card details or other bank details, which were passed on to payment platforms and schemes for processing.
In 2020, we are now well into the era of open banking, and things look very different. The volume of payments has exploded. By 2018, global digital payments were worth US$3,417.39 billion, and are expected to increase to US$7,640 billion by 2024. Using integrated real-time payments systems — which incorporate everything from authentication through settlement to confirmation — consumers send and spend money in the blink of an eye. And the speed and volume of transactions are made possible by the increased use of technology and artificial intelligence to do everything from risk assessment to anti-fraud measures.
But this very visible — and much written about — transformation is not the only way in which the payments and e-commerce landscape has been changing beyond recognition. Because while e-commerce over the last ten years has gone increasingly global, the way people pay online is more than ever local. In some markets, low rates of financial inclusion make cash-voucher schemes the best option. In others, bank-transfer apps are the most popular.
Our research has shown that between 2017 and 2019, the number of UK online transactions paid for using a bank transfer increased by 36%. Driving the use of bank transfer payment methods by UK consumers to now account for 8% of all British online transactions, with cards and e-wallets, including PayPal, leading the race. In fact, card payments account for 56% of transactions, followed by e-wallets (25%), bank transfers (8% ) and lastly cash (7%).
Some markets prefer e-wallets or primarily use locally issued credit cards. In the Nordics, deferred payment methods are becoming the norm. And in countries such as Germany, most online shoppers prefer via direct debit.
The result is a global online and digital payments market that is now incredibly diverse. And even more complicated. Even markets right next door to each other may have very different payment preferences. In Latvia, for instance, 49% of online transactions are paid for using a credit card . In neighbouring Lithuania, it’s just 24%.
Globally, by 2021, only 15% of all transactions will be paid for using the brands of credit cards familiar to most Western merchants. That number is only set to decrease. Today, local payment methods account for 77% of e-commerce spend; by 2024, it is forecast that this share will increase to 82%. There are an estimated 450+ significant local payment methods worldwide, so considering the UK mostly rely on PayPal and card payments, there is a big world of alternative payment methods the British public are yet to realise. To truly go global, merchants don’t just need break down language barriers, but also payment barriers.
Already, Klarna, one of Europe’s most popular bank-transfer and pay later app, processes €53.4 billion in online payments every year. Merchants operating in or entering Europe which doesn’t support Klarna are effectively saying that they’re not interested in any part of that €53.4 billion. And this situation is not unique; it applies to markets throughout the world.
Local payment methods, as they drive financial inclusion, will only proliferate.
When we look forward to the state of e-commerce in 2030, a personalised shopping experience is not a nice-to-have. It is an absolute requirement. Consumer preferences must be noted; if they aren’t, retailers will miss out on sales. Almost half (47%) of UK consumers will end a transaction if their preferred payment method is not available, according to PPRO research, so customising payment options for cross-border shoppers is vital. This is highly important to attract international customer bases beyond a retailer’s local remit. It’s no longer adequate to offer customers one single way of paying – in-store or online. Payments aren’t a one size fits all approach.
The best brands do this already. Those who don’t will struggle to make it to 2030.
2020: THE YEAR BLOCKCHAIN COMES OF AGE
– By Rob Coole, VP of Cloud Technologies at IPC
Despite headlines over the years stating that blockchain will change the world, it has not been validated or deployed at such speed and scale like other new technologies such as AI or cloud. Blockchain’s intensive power consumption, reliance on multiple servers and the sheer expense of it, are some of the main reasons cited. In the past, the hype had not met the reality.
But in 2019 blockchain came into its own. With more understanding of what blockchain can do for financial markets and its use points becoming more clear, real-life deployments and advances have started to develop. 2019, for instance, was the year when we saw new blockchain alliances such as Enterprise Ethereum Alliance, increase of blockchain start-ups and the introduction of new infrastructure projects.
Additionally, Gartner’s own Hype Cycle for Blockchain Technologies shows that blockchain is sliding into the “Trough of Disillusionment” – predicting that over time, “permissioned blockchains will integrate with public blockchains, and will take advantage of shared services while supporting the membership, governance and operating model requirements of permissioned blockchain.” Additionally, Gartner predicts that blockchain will be fully scalable by 2023. IPC’s sense of the future of blockchain, particularly in the enterprise space, is just as positive. We are seeing customers truly learning about the practical purposes to deploy, leading to more investment in time and money in blockchain.
Blockchain is suited for complex, collaborative, multi-party, and critical application use-cases and one reason why the hype around blockchain took much longer than some predicted. Adoption in highly regulated, complex markets such as the financial services industry shouldn’t be a surprise. However, we are now seeing a rise in organisations taking a competitive advantage by adopting next-generation blockchain, rearchitected and redesigned to meet the stringent requirements needed for the financial industry.
Next-generation blockchain organisations are leading the way showing the industry how the technology can be used intelligently for the world we live in today. R3, an enterprise software company for example, is working with an ecosystem of over 200 financial institutions, regulators, trade associations, professional services and technology companies to develop Corda, a Blockchain platform designed specifically for businesses to deliver two interoperable and fully compatible distributions of the platform that address issues such as transactional certainty, data privacy, and the scalability limitations.
Both application service providers and subscribers should exploit service providers with products and solutions so that they are not left behind. It is important that partners are complementary to both service providers and subscribers in terms of operational level integration to complement application services. It is critical for adoption success.
We are now seeing blockchain have real value with the integration and support from the hyper-scale platform community such as Microsoft Azure and AWS together with open industry platforms, such as IPC’s Connexus Hub, that creates end-to-end solutions that solve business problems.
We are, like many technology sectors, seeing a move to an API approach. APIs support partners integration and gives institutions the ability to easily access data, provide insights and inspire innovation for the market need.
Service providers, like IPC, can play a critical role here by supporting operationalisation in the systems-oriented context. Such providers are a natural connector embedding connectivity to key market participants. IPC, for example, enables access to all asset classes with over 2,000 sell-side firms, 4,000 buy-side firms and over 75 exchanges in its vast, diverse ecosystem.
Of course, 2020 has and continues to bring new challenges, with the COVID-19 pandemic affecting every aspect of our lives. The World Economic Forum, however, believes technologies such as blockchain “will benefit all countries currently impacted by COVID-19”, as it provides an efficient approach to reduce trade cost on a global scale.
Digital initiatives such as blockchain is non-partisan and open to all which allows users to act quickly at low cost with low barriers for innovation – all valuable factors in getting the global economy back on its feet. So, although blockchain adoption was slow in its early stage, 2020 seems to be the year blockchain comes of age.
AI IN THE FINANCE SECTOR: WHAT’S NEXT?
By Rui Vasconcelos, Product Manager for AI/ML at Canonical – the publisher of Ubuntu
The last few years have seen the promise of general AI acclaimed across multiple industries and this vision has been particularly strong in the finance sector. We’ve currently hit the trough of the hype curve and it will take some time for engineering solutions to deliver on the touted promise. The potential is so great, that hope for general AI will require a longer term and collaborative investment, rather than a quick ROI for a single financial company. As a result, we need to see a continued collective effort from organisations in the direction of making general AI a reality – whether that is in the near future or further in time.
Artificial intelligence within financial organisations has developed from an almost unfathomable vision into tangible deployments, with applications ranging from back-end decision making to front-end customer-facing services. Financial services companies are now placing a much greater focus on AI/ML and are rearchitecting their IT and business operations to take advantage of what this new technology can offer. However, these implementations are what is known as ‘narrow’ AI, which is focused on a single or limited task and operates within a pre-programmed state. Almost all of the AI that surrounds us today is narrow AI. Everyday examples within the financial industry range from Robo-advisors to tailored credit and insurance tools. In distinction, general AI is a progression of this and is often described as an AI solution that can solve a wide range of financial services issues – from natural language understanding to anticipating risk and detecting fraud – with the additional advantage of self-learning to solve any problem without human intervention.
Narrow AI is goal-oriented and solves a particular problem, which is not necessarily bad. We have seen AlphaGo perform a singular task (playing the complex game of Go) and beat the top human expert at it. Organisations focused on being highly competitive in specific use-cases, should concentrate on narrow AI, however it is a short-term win. Those looking at wider-range problems and planning to gain long-term competitive edge need to consider investing in work that will make general AI more accessible, benefitting both the company and society in the long run. Getting there will harness tools and insights that will be very valuable to other financial services applications, even if we do not reach general AI in our lifetime. Where a ‘narrow’ AI would take into consideration historical stock prices to make time-series predictions, general AI would look into all types of accessible data that might influence the mood of investors on that day.
It’s unsurprising that AI development is a resource heavy and challenging process, and general AI development will be even more so. However, we possess an unparalleled capacity today to move it forward, both in terms of computation and human collaboration. The open source community may be able to help tackle some of the hurdles to general AI development by encouraging collaboration as well as pooling knowledge and resources. For instance, open source software allows IT teams in finance companies to benefit from frameworks, data sets, workflows, and software models in the public domain at reduced costs. In addition, the open source community sees projects as a shared responsibility, so provides an extra layer of security by continually monitoring source code for potential flaws and vulnerabilities.
A further advantage of the open source community is that it assists financial businesses to overcome the AI skills gap – one of the most frequently discussed obstacles to AI adoption. In fact, recent research shows that a third of IT teams cite a lack of skilled people and difficulty hiring for required roles as the third most-common challenge. The first hurdle is a lack of institutional support from within the business. In another study, technology’s lack of transparency was also cited as a major hurdle. With collaboration promoted at its very core, an open source approach to AI allows smaller IT teams to benefit from the wider expertise of the much broader community.
Open source will be fundamental to democratising the development of general AI. Financial services organisations who are invested in refining and improving AI for the benefit of their own operations and society will look to open source for future development. However, realising general AI will require long-term investment. Without it, the likelihood of reaching general AI in our lifetime is low. So, it’s up to financial services businesses to start concentrating resources into general AI now to make this future a reality in a short timeframe.
2020: THE YEAR BLOCKCHAIN COMES OF AGE
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AI IN THE FINANCE SECTOR: WHAT’S NEXT?
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