What to Know about Money and Payments in 2020

Technology is reshaping how everything from consumer shopping to business payments to retail banking works. Looking forward, however, the industry wonders, “What’s Next?”

While we’ve taken a deeper look at strategic payments trends in 2016 (parts one and two), what should you look forward to just four years from now, in 2020? For starters, more than half of finance leaders expect cash will represent fewer than 5% of retail transactions.

In Tech We Trust

In a recent Economist Intelligence guide, “In Tech We Trust,” researchers take a deeper look into the present and future of retail banking, a cashless society, payments, and emerging competition from innovators in the FinTech space.

Surveying over 200 high-level banking executives and C-Suite members from around the world and interviewing 33, The Economist took a look into both the strategy and implementation concerns for innovations at financial institutions.

Digital is No Longer a Threat, It’s a Survival Strategy

While post-crisis regulatory concerns are still an issue globally, financial institutions that had strived to adapt now face another challenge—digitization and financial technology.

Startups, both within the industry and from non-financial sector competitors pose a “potentially fatal risk” to financial institutions that can’t keep up:

“The scale of disruption is unprecedented, across every market, every distribution channel and every single product line. Fintech poses a potentially fatal risk and will be a severe test of banks’ IT systems and their ability to respond to rapid changes in customer expectations, short product development times and growing cyber risks.”

To address this digital threat, banks have two options: Build their own solutions or buy startups outright, a quicker but costlier option.

Learn more what’s on the horizon for payments and the financial industry in Finovate Fall 2015: Six Takeaways from Latest FinTech Conference.

The Traditional Retail Branch is Dying

The study found that by 2020, 64% of respondents expect retail banking to be fully automated, and nearly half (49%) believe that the traditional transaction/branch-based banking model will be dead.

Beginning with the Teller…

For some, the shift has already begun: Denmark’s Jyske Bank will have no teller desks by the end of this year, with retail locations already dipping to 97 and are expected to decrease further.

“Digitisation is driving major transformation, rewriting the model as customer expectations change. The touchpoints of branch footfall and human interaction are in rapid retreat. Banks hope that the role of the branch will shift from cash-handling to that of providing value-added financial advice.”

…And Moving to the Adviser

While the traditional role of adviser, private banker, or wealth manager appears to remain safe at the moment, mobility and changing consumer demand could be changing that as well.

“High-margin lines are also being squeezed. Robo-advice is front-page news, with cheap, functional, index-tracking model portfolios and fancy rebalancing tools. Hefty bank adviser and wealth unit fees will not last as consumers come to realise that they are paying a lot for fund managers who largely fail to deliver.”

With lower minimum investment levels that banks find unprofitable, paired with the lower costs, robo-advisers can offer their services to a wider range of clients.

Notably, 17% of respondents expected robo-advisers to be their biggest competition by 2020, following only P2P lenders (21%), non-financial service firms (20%), and payment players (20%).

For more information on how Fintech is revolutionizing finance and money, read Fintech: Reinventing the Financial Services Industry on the WEX Blog, as well as Will Blockchain Technology Power the Future of Payments?

Mobility, Convenience, and the Rise of Omni-Channel

While banks look to remove tellers, go mobile, and provide lower cost, more accessible options to consumers, these banks still need to look to be with consumers when and where they choose.

“At the front-end, customers want quick, cheap, simple access to banking by any means they choose. But the smartphone cannot do it all; banks must be multi-channel. Branch, call centre, remote video, phone, PC and automated teller machine (ATM) must function as one. Right now, they often operate in separate silos.”

But it goes further than breaking down silos, as customers seek a cohesive banking experience, a consistent user experience wherever and however the customer hopes to participate in said experience.

Omni-Channel Banking

Omnichannel banking is different from the current “multichannel” approach in which banks encourage customers to use the least expensive channel, while delivering minimal cross-channel consistency and an inconsistent user experience. Omnichannel banking provides a consistent experience across channels to provide customers with seamless access to financial products and services—where and when they are needed.

For example, Bank Millennium has removed internal and product and channel structures, all front-ends, from call centre to online, function as one. Customers can start a loan application online, ask questions in branch, sign a contract and get the cash from an ATM.

This assumes, however, that consumers will continue to use ATMs for cash—something which could be rendered obsolete by the convergence of technology from multiple players from mobile payments/digital wallets to cards to other cashless interfaces.

We took a look into how phones could better fit into the consumer shopping and banking experience in In the Balance: Mobile App or Mobile Web, and Mobile Cash: The Next Step in Financial Self-Service.

A Cashless World Could Be Led by Emerging Markets

With more than half of respondents finding that by 2020, cash will represent less than 5% of all retail transactions, the idea of withdrawing or depositing cash using ATMs or at retail branches.

“Cash is expensive to manufacture, sort and distribute – for banks as well as customers. It is also potentially dangerous. The head of Norway’s DNB recently pointed out that if you get rid of cash, criminals stop targeting your branches. It is inconvenient, too. That is why early adopters of M-Pesa, the ubiquitous Kenyan mobile money network, quickly learned that their phones could store and pass money to friends, not just pay their bills.”

While Asia, Africa and Latin America remain more cash dependent than Europe and the US, the demise of cash may be speedier than in developed markets. Some 62% of Asia Pacific respondents say that cash will represent fewer than 5% of transactions by 2020.

For more information on the continued decline in cash, read Fast Forward? Cashless Payments in a Cashless World on the WEX Blog, as well as some of the related looks into mobile payments and digital wallets:

• The Perfect Brew: the Mobile Starbucks Experience
• 2016 Mobile Payments State of the Industry
• Mobile or Plastic? The Connected Card Offers the Best of Both Worlds
• Are Digital Wallets In, Out, or Somewhere in Between?

Conclusion: Money is Evolving, Innovators Will Disrupt the Financial Sector

The way that consumers and businesses look at money and pay each other is changing. We briefly covered the evolution of payments throughout history in our recent infographic, and look forward to sharing the latest in payments trends and technology with you.

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