The Third Wave: Analytics (a.k.a. “Big Data”) Will Transform the US Payments Infrastructure

The LTP team had previously estimated the creation of 40,000 new jobs in payments and commerce. Not surprisingly, many of these opportunities are in technology and data sciences. As the large FIs continue to expand and improve their tech capabilities and the tech & mobile players begin building at scale to support payments & commerce, product and development skills will be in increasing demand.

In fact, at a macro level, the US payments infrastructure that has been supporting innovation in the space for the last few decades has broadly followed several overlapping waves of build-out:

The First Wave

This was the era of ubiquity and interoperability. Over a long period of almost 5 decades, this wave was instrumental in the shift from cash and checks to cards and other electronic payments. Even though cash will probably never completely go away, and checks will probably outlive most of those reading this article, the industry has achieved a lot in this first phase of digitization.

As examples of major achievements in this wave, we saw the buildout of the cards ecosystem in multiple flavors (debit, credit, prepaid, etc.), the establishment of ACH and electronic check processing, and the proliferation of ATMs. Even though this last example might sound anachronistic, the technology and process infrastructure necessary to enable anywhere+anytime availability of cash has been an accomplishment for the industry. Other non-US-specific examples include organizations such as SWIFT, that standardized messaging for remittances across countries and currencies.

This first wave resulted in the institutionalization of the Chief Technology Officer or equivalent at large FIs, and provides most of the foundation for the current slew of innovations that constitutes the next phase.

The Second Wave

For the past few years, perhaps for a decade+, we have been investing for efficiency and effectiveness in payments, specifically on the infrastructure side. The initial keywords here are lower costs to the consumer, outsourcing & off-shoring, process automation and optimization, etc.

However, there is a more fundamental shift that is probably far more impactful and that involves a more mainstream appreciation of the customers’ expectations and experiences. Examples of this new plumbing (as we had covered in a 2-part series recently) are the availability of APIs from payment incumbents, ease of integration with KYC providers, mobile enablement of traditional services such as check deposits, the rise of crypto-currencies, buildout of middleware between the ‘big iron banking infrastructure and the slick online/mobile experiences that consumers have come to expect.

Also, while NFC, Touch ID (biometrics in general) and other tangible technologies get media airtime, there has been intense focus on security, fraud & authentication in this second wave of buildout. Finally, this second phase includes the realization in the industry that innovation in core payments alone will not suffice; investments for enabling consumer-friendly commerce and shopping experiences are integral to extracting business value from the payments infrastructure.

While we are far from done with extracting the full potential of this wave, we are also able to see the next one on the horizon, as a logical continuation of this trend.

The Third Wave

Even while we are smack in the middle of the second wave, the third wave of data science driven analytics, predictive and in real-time, is coming to our shores as a tsunami! It is big, all-consuming, and very fluid just like a real tsunami, but it’s the opposite of destructive. The data wave is connecting, calibrating, and creating new opportunities not only for realizing the full potential of the first 2 waves, but also for unleashing new experiences that have not yet been articulated.

Some easy examples here are personalized digital offers, dynamic pricing for goods and services, risk scoring for authentication, etc. The more interesting examples will involve synthesis of multiple, disparate data sets from multiple industries, both real-time and historical, almost there mashed up to generate a nuanced understanding of consumer behavior and an unprecedented ability to generate experiences that delight.

Of course, this third wave will be accompanied by a slew of roadblocks from regulators, privacy hawks, consumer groups and a few others, but when was the last time anyone stopped a tsunami?

LTP, supported by the analytics team at KnowledgeFaber will continue to bring you the latest and greatest as this third wave moves rapidly closer to our shores.