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We did a YouTube video at the beginning of 2018 on the top 12 trends in the payments domain. We took stock of how we performed.
Before we get into that, here are the digital payment trends for 2018 that we predicted at the beginning of the year.
Except perhaps for the second prediction, we hit the bull's-eye on every other prediction.
The entire payments world is now talking about open banking APIs. Digital banks and neobanks are mushrooming thanks to API-driven applications. The payment technology shift toward open APIs in 2018 was not just a trend. It was an architectural change that permanently altered the competitive landscape. A traditional bank that previously competed only with other traditional banks now finds itself competing with any fintech company that can build a better interface atop the same banking infrastructure.
The implications of open API adoption extend beyond consumer banking. Payment networks have opened their APIs to allow acquirers, processors, and fintech developers to build directly on their infrastructure. The developer ecosystem that grew around open payment APIs in 2018 is substantially larger than it was at the start of the year, and the pace of new product development enabled by API access continues to accelerate.
Fintechs are the flavor of every large investor's portfolio. More and more fintechs are emerging in the market, addressing consumers' every financial need. They are currently working with large banks as part of the ecosystem.
Fintech trends 2018 showed a clear pattern: fintechs that started as challengers to traditional banks increasingly found their most successful model was collaboration rather than competition. A fintech with a superior user experience and a bank with a balance sheet and a regulatory license proved to be a more powerful combination than either could be on its own. The embedded finance model that emerged from this dynamic, where financial products are offered through non-financial platforms, is one of the defining payment innovation stories of 2018.
UPI and Bharat QR have exceeded expectations in the digital payments space. India has consistently surpassed a billion transactions per month and is marching towards a billion per day.
The UPI growth story is one of the most remarkable in the history of digital payments. A payment rail that processed its first transactions in 2016 crossed a billion monthly transactions in 2018 and showed no signs of slowing. The combination of interoperability across banks, zero cost for consumers, and the simplicity of the VPA addressing model created a network effect that accelerated adoption faster than any comparable payment system in any other market. Bharat QR extended its reach to merchant acceptance environments where even the simplest QR code display was sufficient to enable digital payment acceptance.
Real-time payments have become a reality. From Kirana grocery stores to vegetable vendors, everyone is accepting digital payments because they are real-time.
The top payment trend of 2018 was the mainstreaming of real-time payments, and this prediction proved accurate. The shift from batch settlement to real-time confirmation changed the behavior of merchants who had previously been reluctant to accept digital payments because the delay between transaction and settlement created cash flow uncertainty. When a payment is confirmed instantly, and the merchant can see the credit immediately, the barrier to digital payment adoption for small merchants effectively disappears.
Fighting fraud and data breaches has indeed become a core skill in the payments industry. As digital payment volumes grew in 2018, the sophistication of fraud attacks grew in parallel. The industry's response, better transaction monitoring, stronger authentication through 3DS 2.0, and tokenization of card data, all gained significant traction through the year.
Wallets, cards, and mobiles as mainstream payment instruments were a safe prediction given the trajectory at the start of 2018. Still, the speed at which the mix shifted toward mobile-first was faster than most anticipated. In several emerging markets, the mobile wallet has effectively replaced the physical card as the primary payment instrument for a large segment of the population.
Some of the world's largest banks are talking about adopting cryptocurrencies in a significant way. The cryptocurrency trend of 2018 was more volatile than most payment technology trends that year, with both extreme price movements and genuine institutional interest occurring within the same year. The prediction that cryptocurrencies would move beyond bitcoin and develop real use cases proved partially correct, stablecoins and central bank digital currency exploration gained serious traction, even as speculative cryptocurrency trading dominated the headlines.
The second prediction, that blockchain for cross-border payments would become a reality in 2018, was the one that missed. Blockchain for cross-border payments remained a pilot and proof-of-concept story through 2018 rather than a production reality. The technology proved more complex to deploy at scale than the early enthusiasm suggested, and the regulatory and interoperability challenges that come with cross-border payment infrastructure proved difficult to resolve within a single year.
Looking at how our predictions have performed, we should update them regularly. The exercise of making specific predictions, rather than vague trend statements, forces a level of precision that makes the review really useful.
You can watch the video here.
