Payments is a fast-moving industry, and thanks to a combination of private- and public-sector innovation, developments are speeding up. Technology is changing the way we send and receive payments, and is also set to transform how we understand our payments data. Here are five payments trends that will create new opportunities for small businesses in the next few years.
John Armstrong, national industry leader for financial services at KPMG Canada, says that the use of cheques has been steadily decreasing here over time.
The figures bear him out. Payments Canada’s 2016 Report on Canadian Payment Methods and Trends showw that cheque and paper-based payments in Canada fell from 5.8 per cent to 4.2 per cent in volume between 2011 and 2015. Still, there are a few die-hards who hold out.
“The sticky stuff has been small businesses’ use of cheques,” Armstrong says, adding that they like paper-based payments because they are easy to annotate and keep physical track of. This will change with the advent of new electronic payment mechanisms – particularly the ISO 20022 messaging standard that will let businesses automatically embed descriptions directly into their electronic payment messages.
Consumers have enjoyed a rich period of innovations in payments, from getting instant loan approval through to sending money via chat services, and low-cost blockchain-based funds transfer. A lot of this innovation has happened in retail banking with new products and services, says Soumak Chatterjee — leader of Deloitte’s Canadian payments team. The downside? Small businesses have been left out in the cold.
“They see all of this cool innovation happening on the retail side, but they don’t see it happening on the commercial side as they’re running their own businesses,” he says. “This is providing a place for new entrants to step into these places and start providing unique services.”
Expect to see a closing of the innovation gap between consumers and business-focused payments services in the next couple of years. What will drive this, though?
Historically, payments systems around the world have not operated in real time. That is changing, says KPMG’s Armstrong. The U.K. has already implemented its Faster Payments system, while Australia is rolling out its own, called the New Payments Platform.
Canada’s vision for a new payments system will roll out over the next few years following a major revamp. It will see payments happen in real time, electronically, accompanied by more information than companies generally make available now.
This will help close that innovation gap between SMBs and consumers, as businesses are able to more easily reconcile payments on their books thanks to new payment messaging technologies.
Interac, which currently settles payments in near-real time, is looking forward to its own innovations as Payments Canada moves to revamp its own payment rails. Executives at the payment network have promised ‘request for payment’ technology that would effectively let businesses send electronic invoices, and it will support ISO 20022 later in the year, according to a recently published white paper.
Today, your bank typically controls your online payment experience. To send money and understand what payments you’ve made and received, you must log into your online bank interface. Expect this to change as banking interfaces become more open, says Deloitte’s Chatterjee.
“It’s about how you open up access to data and payment capabilities from current providers, and it’s also about how you integrate better with new entrants that have an advantage in the market,” he says.
This will happen via application programmable interfaces (APIs) – effectively, software commands that let one company’s digital system talk to another’s. By providing access to their services via APIs, banks will enable third-party service providers such as inventory management systems and accounting packages to fold payment data from the bank into their own data and provide better visibility for small businesses, he predicts.
“APIs are what enables end-to-end services,” he says. “They are the glue that lets you tie together a business transaction with a payment transaction and an accounting transaction.”
In this scenario, a small business selling car parts might be able to pull payment data from its bank into its back-end operations software, automatically reconciling it with a customer invoice and with an inventory system that adjusts stock levels accordingly – all without manual entry. It could also pay its own suppliers directly from its software without logging into the banking system.
In Europe, regulators have mandated this openness with the Payment Services Directive 2 (PSD2). In Canada, we still need some direction from regulators, Chatterjee says. He predicts that this is coming, but financial institutions may do it anyway without being forced to, as it helps them to partner with other companies and enhance their services.
Increased access to payments data will make analytics and business intelligence more accessible to small businesses, Chatterjee predicts. Combined with lower-cost analytics software and machine learning technology, it will enhance their decision-making capabilities.
One example could be the use of historical payments data for automated credit adjudication, he suggests. Another could see small businesses using analytics software to mine payments data and producing targeted offers for their customers. “Businesses are getting better at predicting customer needs,” he concludes.
None of these trends will happen immediately. They will be slower developments, in line with financial institutions’ tolerance for risk, and the willingness of small businesses to adopt them. In 10 years, though, the payments landscape in Canada will look far different than it does today.