Voice activation, artificial intelligence, alternative financing and IPOs: These were some of the year’s hottest topics in the payments industry – and for better or worse, they all underwent significant disruption in 2017. Meanwhile, blockchain, open banking and APIs shook things up in the B2B world. Here’s a look back at some of the biggest industry shifts of the past year, and a look ahead at what could be coming next.
Artificial Intelligence
2017 has seen AI applied to fraud and security, identity verification, customer service and many other use cases. AI was once an academic pursuit – but now it has become more affordable and attainable to pursue on a smaller scale, opening it up to use by a variety of companies for a variety of purposes.
In the fraud realm, it was a race to get away from “rules-based” algorithms and to implement self-learning models instead, which can interpret patterns subjectively to help identify crafty fraudsters who have figured out the rules and how to play around them.
In customer service, chatbots and automated call centers are harvesting low-hanging fruit by helping customers solve common problems, thus freeing up live agents to handle more complicated requests. Experts in this area say bots are not replacing humans, but rather, helping them do their jobs more efficiently and driving down staffing and operational expenses for organizations.
Consumers are both eager for and afraid of advances in AI. Many are already using AI-powered mobile apps, yet most would not trust a driverless car with their lives. It may have been a big year for AI, but one big year was not enough to overcome cultural misconceptions about this emerging tech.
Voice Activation
In 2017, there was really only one name that mattered in voice-activated artificial intelligence (AI), and that name was Alexa.
Alexa has gone from following simple commands, such as setting a timer and checking the weather, to enabling commerce and learning a myriad of other skills – 25,000 of them, to be exact. In fact, experts say that Alexa will drive over $10 billion in incremental sales for Amazon over the next three years.
Since Amazon opened up the Alexa Skills Kit to third-party developers, the virtual assistant has learned a greater depth of skills for more specific applications – and that goes beyond voice commands. Developers can also use the kit to access lighting and audio cues, and soon they will even be able to monetize those apps.
Meanwhile, stand its ground against Amazon, Google added payments capabilities to its Home speaker and Google Assistant in early 2017, and invested in partnerships with retailers such as Walmart, Target, Home Depot, eBay, Costco, Bed Bath & Beyond and many others.
Apple ended up delaying its aurally-superior HomePod until a date TBD in early 2018. Perhaps the Cupertino colossus cottoned on that consumers were more interested in the “smart” aspect of the product than they were in the “speaker” side of the pitch. Samsung also decided to delay the release of its Bixby-powered smart speaker.
Alternative Financing
To talk about alternative financing in 2017, one must first look back 10 years to 2007, when the U.S. real estate bubble, created by years of sloppy underwriting, popped – and took out much of the global economy with it.
Suddenly, banks weren’t lending to anyone whose credit was less than super-prime – but consumers and SMBs didn’t stop needing access to credit. Enter LendingClub, OnDeck Capital, Kabbage and a whole host of other payments companies who rose to meet this demand.
Now, once again, the landscape is being shaken up. President Donald Trump has spent much of 2017 overturning federal regulations put in place during the Obama era, with a particular vengeance toward rules by consumer watchdog agency the CFPB – effectively de-clawing any useful solutions from the past decade. Regulators are now faced with an uphill battle to legislate a fair deal for consumers.
Innovators, however, don’t face the same political resistance.
Affirm, founded by PayPal’s Max Levchin, built a POS financing product dedicated to offering consumers an honest, transparent way to pay for items on installment.
Walmart’s new partnership with EVEN provides a tool to help smooth the income volatility for its workers by allowing them to be paid in real time for the hours they have already worked, instead of having to wait for the traditional payday.
LendUp wants to calibrate financial services to what it calls “the new average consumer” or the “emerging middle class” – the 50 percent of the population that reports volatile income.
This emerging middle class includes millennials, who are entering their credit-needing years, and gig workers – a segment that no longer includes just cab drivers, but also lawyers, doctors, computer programmers and other skilled workers who operate outside of the traditional payroll system. It is this class that FinTech-driven alternative financing solutions must serve going into 2018.
IPOs
159 companies went public in 2017, raising around $38 billion in the process – a marked improvement over 2016’s 106 IPOs, and perhaps a positive sign for things to come.
However, not all IPOs had a happy ending this year. Snap and Blue Apron are trading well below their offer prices. Market highs in the second half of the year provided a more favorable backdrop for IPOs – yet even then, Stitch Fix saw shares off by more than 10 percent after its first report as a publicly traded company this month, proving above all that going public leaves very little room for error.
Still, it could be easier than raising capital privately, as investors are demanding incrementally higher returns. Going to market could help companies with public hopes tap into industry excitement.
Retail Shrink … And Growth
Karen Webster prophesied the retail death spiral in 2014, and it hit hard this year. The retail sector saw 662 bankruptcies in 2017, including 21 from marquee players like The Limited, Gymboree, RadioShack, Toys”R”Us, Payless and others.
Store closing announcements more than tripled to a record-breaking 7,000 closures, as those who did not go bankrupt dramatically scaled back their brick-and-mortar footprints – see Macy’s, Sears, Nordstrom and Neiman Marcus.
These trends have cut the legs out from under shopping malls. There are only about 1,100 malls left in the U.S., and that number is expected to shrink another 25 percent in the next five years.
However, the good news is that people are spending – just not in the ways or places they once did. Wages are up, unemployment is down, consumer confidence hit a 17-year high in November, customers are opening and using revolving credit accounts again, and this holiday shopping season set new consumer spending records, on top of an unexpectedly strong fall.
Going into 2018, retailers are seeing that it’s not time to give up the ship – it’s simply time to adapt and give it wings.
B2B
Faster and real-time payment initiatives broke new ground in 2017, but so far, B2B payments have yet to really find their place in an accelerated world.
Industry players still expect faster and real-time payments to gain traction in the B2B space, though, especially with the launch of more solutions, like Zelle, and as more B2B use cases for those tools emerge. In the U.S., closer attention to faster payments capabilities among NACHA, TCH, the Federal Reserve and others means continuing growth in the use of the technology in 2018.
2017 may go down in B2B payments history as the year the space finally saw a bump in attention from innovators. As a result of all these emerging frictionless (or at least, less-friction) tech solutions, experts anticipate that the paper check will continue its slow death march in 2018.
Open banking regulations aren’t yet in effect in Europe via upcoming PSD2 rules, but already, banks there are getting a head start on implementation. Financial institutions (FIs) in the U.S. and Canada, meanwhile, are following suit, opening up data to third-party FinTechs via APIs.
The shift will not only answer consumer demand, but will also reduce the cost of B2B transactions as middlemen are eliminated. This will lead to greater flexibility for businesses as new payments applications and services emerge.
Finally, love or hate bitcoin, many experts are looking at this cryptocurrency not for its (debatable) monetary value, but for the blockchain structure underlying it. To be sure, 2018 will see more attention paid to blockchain in currency, though not necessarily for bitcoin specifically. Yet other use cases are also beginning to emerge: in security, in smart contracts and in supply chain finance and management.