Between Bitcoin, Apple Pay and the European Commission’s Directive on Consumer Rights, this year has already seen an unprecedented level of interest in the present and future of online payments. More than ever before, online merchants are being challenged to sort out important payment trends from the increasing volume of noise. Processing more than $30 billion in online transactions annually at Digital River, we’d like to offer our global perspective about what will really matter in the European payments industry this coming year. We count up from five, to one.
5. The virtual wallet will go mainstream
There’s little doubt that 2015 will be the year the virtual wallet goes mainstream. The rising tide of Apple Pay is lifting the concept of the virtual wallet from techy obscurity into daily prominence, first in the United States and then in Europe. Although Apple Pay hasn’t yet penetrated the European and British markets yet, 2015 might be the year it will. Zapp and PayPal, among others, have tapped a deep well of interest in mobile payments. As consumers become comfortable with the idea of using a phone or a watch to pay for purchases, the digital wallet will become a vital medium for retailers to add value to their customers’ experience. If its leather ancestor was a filing cabinet, the virtual wallet is an ecosystem, in which debit cards coexist with frequent-flyer programs, credit cards with coupons, and library cards with Bitcoins. Virtual wallets aggregate all these forms of consumer interaction, which will make it more rewarding, and simply more convenient, for people to replace plastic cards with virtual payments. This year, loyalty programs, rewards programs, and highly relevant offers will actually persuade people to reach for their phones at the point of sale. And once people start using virtual wallets, they won’t go back to leather.
4. Things will pay
Some recent studies project that before long tens of billions of individual objects, from computers and smartphones to light bulbs and refrigerators, will be connected to the Internet. The ‘Internet of Things’ will change industries and lives in profound and unpredictable ways. But we can be sure that this proliferation of connectivity will have a transformative effect on the way people manage payments. The more objects connect to the Internet, the more methods of payment will become available. For several years, Google Wallet has allowed American consumers to make payments with NFC-enabled smartphones; in 2014, the iPhone 6 took another step toward making smartphone payments mainstream. In the coming year, it’s likely that consumers in Europe and the UK will be able to use their Apple Watches to pay. Even more exotic forms of object-payment are in the works: paying with a nod while wearing Google Glass, or tapping the ring on your finger to pay from a Bitcoin wallet. Coupled with innovations in information security and payment services, these new forms of payment will enable increasingly frictionless payments. At Digital River, we like to say that the ‘Internet of Things’ is inevitably becoming the ‘Commerce of Things.’
3. Payments will add value
The ‘Commerce of Things’ won’t just provide new ways for consumers to make purchases, it will enable new ways for merchants to turn a payment transaction into a moment of genuinely useful interaction with a consumer. As more devices connect to the Internet, more data becomes available about how people make purchasing decisions. Leveraging the vast quantities of richly contextual data generated by connected devices will allow retailers to provide value for consumers in increasingly relevant ways. To take a simple example: if a consumer pays for a cup of coffee with her smartwatch, she could instantly receive a coupon for a gym down the street — an offer she might find happily timely, since she uses her smartwatch to track her exercise as well. Finding innovative and responsible ways to monetise such moments of contextually relevant interaction will keep the payments industry busy through 2015 and beyond.
2. Goodness will matter
Ensuring that payment systems come with robust consumer protections will matter more than ever before. In the past year alone, several major regulatory changes, particularly in Europe, affected the ways payment transactions are processed globally. We expect this trend to continue as the European Banking Authority revises its Payment Services Directive in the coming year. Complying with such regulation requires hard work on the back end of payments systems. But we believe that compliance with complex and global consumer protections is only the outward expression of a crucial trend in the payments industry in 2015. In Europe first, then in the United States, the BRIC nations, and increasingly in emerging economies, consumers will reward retailers and payment providers not just for complying with local regulations but also for behaving in ways that respect their rights. In 2015, goodness will matter as much as compliance.
1. Consumer choice will win
As new payment methods and even new currencies evolve and proliferate, consumers will be in charge. In 2015, more than ever before, retailers will have to let their customers pay the way they want to pay. Providing the right mix of payment types for your particular customers is crucial, which means that merchants will have to find ways of responding to shifting preferences quickly. Technologies and currencies will continue to change, but responsiveness to customers’ preferences will determine retailers’ success in navigating the evolving payments landscape.
Souheil Badran is senior vice president and general manager of Digital River World Payments, Digital River .