The payments landscape is changing fast. New technologies and regulations are drastically impacting the way consumers can pay. On top of that, younger generations have different demands and expectations, affecting the way they want to pay.
How will these changes in payments affect the financial industry and brokers, in particular? Finance Magnates spoke with Philip Ternhem, Senior Sales Manager at European FinTech Trustly, for his in-depth perspective.
How does a shifting environment create new challenges for brokers and will conversion remain an integral focus?
Indeed, the payments landscape is evolving quicker than ever before. Consumers’ payment preferences are changing as new technologies emerge and new regulatory efforts and scheme compliance rules set new standards.
Many areas of the financial industry also face increased competition from emerging players that are battling over the same consumers with different technologies, fueled by the transparency at different price comparison sites. As this affects the cost of acquiring and retaining new customers, companies need to make sure to get the most out of each sales effort.
As a result, conversion will remain in heavy focus. Some industries are tackling this by moving towards instant payments, or even making payments invisible.
Take the online gaming industry, for instance. In 2018, several European markets embraced “Pay N Play®,” a technology that removes potential churn points and improves conversion by combining the payment and registration steps.
The player simply makes an instant deposit from his or her bank account and during this process, Trustly fetches relevant KYC data and passes it on to the operator, who creates an account in the background. It’s a frictionless experience for the player and fully compliant for operators, demonstrating the power of combining instant payments and data.
As for leverage brokers, the regulatory prerequisites still set some limits. But a crucial part of creating a solid acquisition funnel is payments — to constantly optimize the payment options you offer in each market you operate in.
Some brokers see a more than 50% drop-off between opening the account and the first trade. This means that the payments experts within trading companies will play a big part in their overall performance.
In addition, an example of how regulatory changes will affect the trading industry is the update around Merchant Category Codes (MCC) from international card schemes to “high risk” for certain traders. The update took place in 2018 and we will likely see an increasing effect spill over to 2019.
Payment options need to be closely monitored and constantly optimized. It may require some resources to do so, but it’s definitely worth it.
How do brokers stand out in an increasingly competitive field?
Access to similar platforms, affiliate networks, and general market transparency has made it hard to stand out. But one payment trend has successfully been used to spearhead marketing messages in other industries: instant payouts. As opposed to waiting days in some traditional handling, instant payouts let customers access their funds instantly.
Several European gaming operators, for instance, are already promoting this feature in marketing campaigns as a way to differentiate themselves and drive customer acquisition. Just ride the subway in Stockholm and you’ll see advertisements that read, “Receive your winnings in your account before you reach the next station.”
The recently prolonged European Securities and Markets Authority (ESMA) regulation sets some boundaries on marketing, but using the solution to improve the overall service could act as a competitive advantage.
Not convinced yet? Contrary to popular belief, our findings from the gaming industry show that instant payouts don’t pose a churn risk but actually trigger people to engage more with the service. Perhaps they are more likely to feel comfortable with keeping the balance on the provider’s account due to the liquidity of the balance.
After all, if customers know that it will take days to access the money, they’ll be more likely to initiate a withdrawal so they can have the money for the weekend.
With so much buzz around instant payouts in other industries, we will see this spread to industries like trading and soon become an industry standard.
What do you make of PSD2? Is it tearing down walls and opening up borders?
The second payment service directive (PSD2) from the EU is said to be the biggest thing ever to have hit modern European banking. Its purpose is to open up banking to digital competition.
In short, banks have to provide standardized access to customers’ bank accounts, which will allow third-party providers to initiate payments and access account information.
And as banks’ authentication methods become more convenient, it will pave the way for more mobile-optimized payment options. These new payment options, as opposed to cards, also don’t come with transaction limits.
But whether PSD2 will live up to the hype in its entirety remains to be seen. The regulation is, to some extent, already in place and by September 2019, the directive will be in full effect.
As with all major regulatory changes, it will take some time before all the dust settles and the consequences surface. But one thing is certain: the regulation will not be an overnight revolution.
Banks and other financial institutions will be forced to figure out the best ways to comply and deliver new value to the market. Some of this value will come in the form of data. Account information services (AIS) can offer a much better understanding of the end customer, which will lead to the development of new services.
Another new form of value that will derive from PSD2 comes out of the possibility to allow third parties to initiate payments from consumer bank accounts. However, simply initiating a payment isn’t enough if true value will be added to the payment process.
So, when evaluating emerging players, it’s important to ask: what functions are really handled? Reconciliation, returns, irreversibility of payment?
When a payment is initiated, a payment provider must be able to guarantee that the payment actually has arrived and is not cancelled by the consumer or the bank after the service is delivered.
This requires a more advanced offering from a full service payment initiation service like Trustly. Trustly resolves this issue by being embedded in the flow of funds and is therefore able to notify merchants that funds have settled and issue seamless returns. That is a key takeaway, in my opinion, from PSD2.
Another thing to keep in mind is the fact that not all banks will offer access to customer bank accounts via an API, and many of those that will are behind schedule. In fact, 41% of banks missed a recent PSD2 deadline to provide a test environment for third party providers.
Exactly when PSD2 will reach its full impact remains to be seen but, especially in the interim, it is essential to partner with an experienced payments provider that is not just reliant on fully functioning PSD2 APIs.
Will mobile continue to loom large for brokers and how can they maximize user experience?
According to our data, preference for mobile payments is still on a steep rise. Therefore, having a mobile-adjusted service and an optimized checkout is simply a must-have, especially if you want to cater to the younger, mobile-first demographic. And the services that offer the best mobile experience will win.
The trading industry, which often offers services that rely on access to analytics and market trend analysis, needs to be able to package this information an intuitive way. Payments play an important part of that mobile experience — or at the very least, it should not interrupt it.
Trustly is a FinTech company driven by the idea that online banking payments and transfers should be fast, simple and secure for businesses and consumers alike. It supports cross-border payments to and from consumers’ bank accounts in 29 European countries and today offers the market’s best bank coverage, linking together over 3,300 banks.
By signing just one agreement, merchants can accept payments and transfers from bank accounts across Europe and reach more customers at no additional cost. Trustly is an authorized Swedish payment institution under the supervision of the Swedish Financial Supervisory Authority.
Disclaimer: The content of this article is sponsored and does not represent the opinions of Finance Magnates.