The payments industry has entered a new era. The way we transacted changed as we physically separated – accelerating the shift to digital commerce that was already underway long before the pandemic hit. And, the way consumers transact will continue to be shaped by this new normal long after the pandemic subsides. The last year has illustrated the urgency of being able to disperse funds quickly, transact digitally, and continuing the disruption of the existing payments value chain, including growing competition from telecommunication and technology industries providing payment services to customers.
Recent events have also added a renewed focus on payments being a catalyst for financial inclusion. Markets such as India, Brazil, and Mexico have made investments in real time networks with the explicit goal of expanding economic inclusion and opportunity. We expect to see an expansion of these types of initiatives as the world recovers from the pandemic.
At Red Hat, we believe that 2021 will shine a bright light on the importance of a community-based approach to creating technology that powers the future of the payments industry. Whether it is data streaming for real time processing, or distributed ledgers for new forms of stored value, we know the critical importance of reducing the burden of adoption for our customers.
Read on for Red Hat’s take on the three technologies that we believe will make payments faster, smarter and more inclusive in the coming year.
Making financial inclusion a reality
In 2020, the shift to all-digital commerce, coupled with increased competition, put immense pressure on running payments systems on traditional technology. New entrants are armed with cloud native tools that will allow them to run their service more efficiently, while reducing their running costs. We see this year as an inflection point in both high volume and high value payments, where many organizations are facing margin pressures. It can not be understated how the rapid evolution of cloud technology, powered by open source technology, has improved productivity, reduced cost and disrupted industries. We expect to see growing competition fueling greater financial inclusion and ultimately economic growth as banks push this technology deeper into their organizations and remove costs.
Accelerated adoption of real time
It is anticipated that over half a trillion transactions will be processed over real-time networks over the next five years across 30 key markets. This means that more and more customers and businesses will become accustomed to a world where there is little or no delay in the clearing and settlement of payments. There is little doubt that this will reshape the types of digital services that will become available and help to grow the digital economy in these markets.
However, we see the benefit of real-time payments transactions going beyond just the immediate movement of money. The ubiquity of real-time payments also brings with it the standardization of messaging, access to additional data and better security. We see this as a way to reduce the cost of moving and money and making it more accessible to more people than ever before.
Cloud technology is a key ingredient in providing the scale, speed and resilience that is needed for an efficient and always on payment service. It is the foundation of any modern payments platform, automatically adjusting based on transactional volumes and automatically taking corrective action if there are issues. Public and private clearing houses can run these networks more effectively with infrastructure that is fully automated. Of course banks that connect to these networks can also enjoy these benefits as well.
With cloud technology the promise of real time is made reality.
Moving forward, we anticipate that as more companies embrace real-time payments, they will increasingly rely on data streaming technology, such Apache Kafka, an open source project created to provide messaging infrastructure for real time data streaming. Adding capabilities from the Strimzi project the setup and configuration of Apache Kafka on Kubernetes can be automated, to better support real time processing on cloud platforms. We anticipate the interest in these technologies to only increase this year.
The rise of digital currencies
There have been ups and downs with distributed ledger technology. After several years of hype and some cynicism, there are clear signals that the payments industry is in their accelerating adoption. We have taken note that central banks across the globe have indicated that they are the tipping point from exploration and experimentation to practical use in the services that they provide. This is above and beyond the networks already available from JP Morgan’s Liink network and Visa’s B2B Connect that is based on distributed ledger technology.
The pandemic illustrated a pressing need for governments across the globe to rapidly distribute funds for those who were hardest hit. The idea of a digital currency in the United States garnered increased interest and China has found promise in their pilot and is expanding it in the new year. Distributed ledger technology is at the heart of digital currencies.
Hyperledger has been at the forefront of distributed ledger technology. It has been deployed in production and successfully scaled for several years across multiple industries. The open source heritage of Hyperledger has allowed it to rapidly evolve as new uses of distributed ledger technology have been identified. Red Hat has long participated in this open source community and has brought its experience with high performance computing and Kubernetes with it.
Another significant trend is the movement to value-based pricing. As banks undergo increased pressure to add more value on top of their payments service, the use of distributed ledger technology is a potent weapon to add additional services. Whether it is support for digital currencies or other forms of stored value, its presence can help organizations differentiate in a crowded market.
With the teething pains of early adopters in the rear view mirror, we expect to see renewed interest and adoption across the payments value chain.
Putting payment information to work
Payments has long been a treasure trove of customer information. This information is vital for customers and businesses to understand their finances. Whether it is personal finance management in consumer banking, or cash management in corporate banking, the information helps to provide insight into money coming in and money going out. However, in many ways the information has been captured, collected and categorized but had limited action based on intelligence.
We have already observed pioneers, like Capital One, push the envelope on when, where and how payments are made with artificial intelligence, as well as creating new value added services based on this transactional information in 2020. As both business and customers become more comfortable with artificially intelligent actors performing more and more sophisticated monetary transactions and money management, it is reasonable to expect that the fast followers will embrace these types of capabilities.
At the end of an unprecedented year, payments and community driven technology can be a positive force to usher in a brighter future in the new year for all us.