With the rampant growth of technology, the payments sector is not left unaffected. The innovations in payment technology have impacted the traditional finance industry in many ways.
Growth of Payment Technology Innovations
The new technologies, including the Internet, digitization, and the growth of e-commerce, have changed the face of payment services. As more and more people rely on e-commerce due to round-the-clock and faster access, a wider variety of products and services, and international reach, new modes of payments have experienced a boost.
The traditional payment methods do not fit into the e-commerce model as the customers need more secure, faster, and smoother transactions. Therefore, new and innovative payment technologies have emerged and developed in the past few years in response to the customers’ needs. The payments have become more cashless, instant, and secure, and the payments industry has undergone a radical change.
The most exciting payment innovation trends include the growth of mobile payments, third-party payment services, and the implementation of artificial intelligence in the world of payments. Mobile payments or mobile commerce cover all the transactions that occur through a mobile device, including on the websites and mobile applications. Such mobile transactions are growing 53% faster than e-commerce transactions through desktops. The customers get to use this innovative technology to buy anything at any time from anywhere and make payments through mobile banking apps.
Moreover, artificial intelligence is also modifying the payments industry more than we could have ever imagined. It has opened multiple doors for customers to enhance their experience through chatbots and tailored offerings and financial institutions to understand customers’ behaviour and cater to their specific needs. The emerging FinTech firms use such smart innovations for creating innovative products and services, including robo-advisory, credit risk assessment, risk management, and quantitative trading techniques like Algorithmic trading.
Impact of the Innovations on the Traditional Finance Industry
It is evident that the payment technology revolution is changing the shape of the global financial industry. The traditional financial sector, which was considered to be immune to any significant changes, is under the risk of losing out to the innovative FinTechs and is under pressure to improve its offerings.
As a result of the state-of-the-art innovations in payment technology, the traditional financial industry is facing increased competition. The traditional financial institutions and banks are competing with the budding FinTechs to remain valuable for the customers. The new products and services offered due to advancement in technology are offering a wide variety of choices to clients.
Several traditional and small banks are being left behind in the competition and are struggling to survive. Additionally, reacting to genuine competition, many conventional but smart financial institutions are striving to deliver a similar level of services to the clients to remain in business. Subsequently, the overall quality of financial services is improving with better customer experience, personalized support, and innovative technology-led services. The traditional financial industry is also trying to follow the footsteps of the leading FinTechs and adopting mobile banking, real-time payment services, cloud technology, and a more sustainable financial ecosystem.
The payment technology innovations are also working as catalysts for the introduction of new global regulations. The emerging FinTechs as well as the traditional financial institutions, are responding to customer needs of safety, security, and efficiency and working on new risk management frameworks. The innovations in payment technology call for the processing of large volumes of data in a decentralized way, leading to higher risks. Therefore, new frameworks and regulations are put in place to deal with cyber threats and frauds.
Moreover, the digitalization of payments across the globe requires a common and centralized regulatory structure to efficiently manage the process. It has led to an increased need for standard regulations to deal with the associated challenges, like secure customer authentication and confirmation of payee. Overall, the traditional financial industry is under duress to balance sustainability, commercialization, and security.
Thus, the ongoing changes in payment technology are demanding a substantial shift in the traditional financial industry. The conventional banks are treading the thin line between maintaining continued relationships with their existing clients and retaining them while competing with the innovative approach of the new incumbents. The future rests on a close working relationship between the traditional banks and financial institutions and emerging FinTechs. New models of collaboration are required to ensure that the traditional financial industry responds well to the unique challenges, keeps itself sustainable, and does not lose to the innovative offerings of the technology-centered financial service providers.
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