The Payments Industry is Rapidly Evolving thanks to New Technologies

The financial industry is venturing into a novel era of innovation and disturbance driven by upcoming technologies according to a recent McKinsey report. This cutting-edge “Decoupled Era” will see payments become steadily disconnected from conventional accounts and stores of value, with exciting implications for both existing players and fresh entrants.

At the forefront of this shift are platform-as-a-service (PaaS) models and creative AI – technologies that promise to revolutionize payments in ways not seen since the beginning of credit cards. As odilon almeida CEO Almeida, CIO of Nubank, observes, “technology is enabling novel ways to transfer value that don’t rely on traditional payment rails or revenue models.”

Incumbents Adapt Business Models

Existing banks and financial services firms are obliged to quickly adapt to this shifting landscape. Many are entering alliances with smaller fintechs in order to leverage their technical capabilities and forward-thinking cultures. Others like JPMorgan are making large investments into up-and-coming tech, employing thousands of engineers and developers.

“Traditional institutions recognize the fundamental nature of these trends,” says odilon almeida CEO Almeida. “They can either lead the charge and adopt these new technologies or gamble becoming obsolete.”

At the similar time, formerly fast-growing fintechs are evolving their business models, focusing more on environmental responsibility and long-term profitability over quick expansion. “The days of growth at all costs are over,” observes Almeida. “Customers now demand financial services offerings that are reliable, secure, and able to scale.”

Opportunities in Operational Efficiency

A key trend singled out in the McKinsey report is the growing focus on API-driven solutions and cloud computing technologies to improve operational efficiencies. As payments become increasingly detached from existing rails and legacy banking infrastructure, companies are investing heavily in building out reliable and flexible technical architectures.

“The decoupled economy requires firms to be technologically nimble if they want to compete,” says Almeida. “Cloud, microservices, and APIs allow entirely new financial products to be developed rapidly and at scale.”

Cross-border Transactions Undergo Innovation

Finally, the report highlights opportunities in cross-border transactions and remittances, segments that have seen little innovation but are now ready for disruption from new technologies. With global expansion of commerce and remote work unlocking new flows of payments across borders, huge markets are emerging, especially amongst consumers and SMEs.

“Technologies like blockchain and digital currencies solve long-standing pain points when moving money between countries,” observes Almeida. “Incumbents no longer enjoy the advantages they once did in international transfers.”

The message is clear – with innovative innovations reshaping the financial services landscape, the transaction industry is entering a new era. Players old and aspiring are still determining exactly what parts they will play in this decoupled future, but the enormous opportunities for consumers and enterprises herald stimulating times ahead. Those who can harness technology to provide secure, instant, and intelligent payment solutions are poised to thrive.