The next 5 years in payments: how market-driven technology will change consumer expectations.

September 24, 2018

Glenn Mac Donald, COO of Dimebox.

An interview with Glenn Mac Donald, COO of Dimebox.

Current technological advances are shaping the world around us in an increasingly accelerated way. The payments industry has often been accused of slow adaptation of new technology. Now we see a tremendous change in this field. How is that going to play out in the next couple of years?

Technology will keep manifesting itself in every aspect of our daily lives, and it’s showing no signs of slowing down. The payments industry has been notoriously conservative about developing and integrating new technologies. A world that has not been standing still, however, is the retail commerce industry. Even though a successful payment is a critical aspect in the finalization of any commercial transaction, the conservative adoption of newer payment technology has created negative consumer shopping experiences and thus slowed down innovation in the retail commerce space. While the omnichannel shopping experience incorporates many of the modern functionalities and services made possible by the latest technologies, the payment part lacked that same modern approach.

In the past, banking systems made a broad distinction between physical and digital payments. With the current speed of data processes, all different flavors of payment can be fully integrated by fintech companies, or offered through new products and services released into the market by international card schemes. These innovations are changing the way people pay, or expect to be able to pay. Contactless payments, for example, are now an accepted fact of life in the Netherlands, which is a huge change compared to ten years ago.

Due to the gaining momentum of these developments, the world of payments is set to see more change in the next five years than it has seen in the last fifty.


Do you see technology as a driving factor in changing consumer behavior or is consumer need dictating which technologies are successful?

It’s a two-way street, but it’s a bit unbalanced towards one side. Consumer need can be crucial in generating disruptive innovations, but most often you’ll see change coming from large players who are creating new tech if they see an opportunity to increase their profitability. That tech is then imposed on retailers and consumers, which in turn encourages or forces new consumer behavior. Apple is an example of a company that is doing that, but also the likes of Visa and Mastercard need to play that game to stay relevant and competitive. They will keep serving the issuing banks but are also venturing into the merchant acquiring side, facilitating seamless cross-border payment options for international merchants.

As more and more processes are governed by digital information, the payment landscape is starting to blend. In the future, it won’t matter if you’re using a credit or debit card, whether payment information is tokenized or if there’s a card on file, as long as the transaction happens. All parties involved in the payment cycle, whether they’re marketplaces like Magento of Shopify, a PSP or payment gateway, they need to adapt to a world where it’s no longer relevant via which channel a transaction should happen, as long as the sale is successful.

Along those lines, we will also see online and offline sale starting to converge. Right now,  we make a distinction between e-commerce card-not-present payments and POS card-present payments, because they are processed differently behind the scenes. In the future, this distinction will become irrelevant. In-store purchases will be available through apps, and automatic checkout could take place as you’re exiting the store through a customer-on-file principle. Out-of-stock items could be shipped directly to your preferred location, without the need for logins, PINs, CVCs, swiping or signatures. Retailers will want to offer all these possibilities within a single payment framework, regardless of whether that transaction happens in a store or from a device miles away.


One area of change we’re already seeing everywhere around us is mobile payments. Are physical cards going to disappear any time soon?

The short answer is, not yet. At the moment we’re seeing a diversification of payment methods because a larger supply of local payment methods leads to more sales for retailers. However, the rise in mobile payments is a sign that certain things are changing. In most African countries mobile payments are outperforming cards, because cards were never very established there in the first place. They may very well skip the adoption of cards altogether in favor of the next payment development.

Such methods will exist alongside physical cards for the time being, because consumer behavior trends have a tendency to overlap. The generation that prefers to use cash is being replaced by the generation that is used to contactless, and those will be replaced by people that grew up with access to frictionless payments.


What is the biggest challenge in realizing the next era of frictionless payments?

The primary challenge right now is identification and authorization. How can we authenticate that a person or entity has the funds or credit to complete this transaction? Availability of such insights is the core of every payment process, encapsulating everything from fraud, acceptance, and omnichannel to customer friction, you name it. How you use that information in real time will become more important than the methods of payment at your disposal. That means linking authentication through wearables or biometrics to the actual funds or the promise of those funds with a single payment system. Fintech companies will be active in creating those connection layers. Then, payment methods might quickly condense again, maybe first moving towards a universal top-up wallet.

Eventually, we might even see retina scans that immediately authenticate the consumer’s buying power without having to check their bank account. The point is, payment will become more and more invisible. The primary challenge for technology providers is to build towards a particular vision of the future, instead of just copying what’s already here. That would be a surefire way to become obsolete within a few years.


Why are large financial institutions deciding to buy technology providers instead of building new technology themselves?

The ‘buy versus build’ mentality stems from the struggle to maintain complex legacy systems that cannot be turned off or migrated with the flip of a switch. Such systems require entirely new processes and sources of information which established companies have no compatible frameworks for. By acquiring younger companies, established players can leverage a clean technological foundation allowing them to embrace upcoming developments and slowly phase out their legacy systems. Until that time, many types of payment technology will have to coexist side by side. Cards and cash are not going to disappear in the next twenty years, but the industry cannot rely on the same systems to carry us into the future indefinitely. That turning point is closing in faster than most companies want to admit. The distinguishing factor between the surviving giants and the parties stuck with their legacy technology is a genuine willingness to re-evaluate their foundations and to apply innovative solutions. It might be a difficult step, but postponing it will only make it more difficult when the bell finally rings.

Young companies that want to succeed in the fintech space can accommodate this movement by fostering and encouraging innovation within their ranks. In the current PSD2 era, a lot of established institutions are willing to cooperate by forming new partnerships and API structures. Conventional banks are not just looking to buy, absorb or build, but also to work together closely with third party service providers. If you want to survive in the changing market, you need to move away from relying on products and services that others already offer, and invest in new offerings. Those third parties are the ones that think ten steps ahead of the current market. That means creating and adding value, doing things others can’t. That’s the principal way to feed your growth and establish those critical partnerships.

– Glenn Mac Donald is a Merchant Acquiring expert and COO of Dimebox, an Amsterdam-based payment technology provider offering a white label payment platform that services the entire payment value chain with a single API solution.

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