December 201619Technology-injected grease is being squirted into the gears of the payments process to remove friction that historically had been purposely embedded into commerce to serve various business purposes. That sand in the gears and speed bumps were by design. One central business cause of friction was the need for merchants to validate a customer's payment credentials to complete a transaction and ensure they'd be paid after purchase. Another source of friction was that the only way a customer could see product and price information was to physically visit a store. Technology is streamlining and often circumventing these functions--leading to what we call frictionless commerce.Payments are increasingly being embedded within the customer shopping process, often automatically with little notice of the actual payment form factor, and increasingly online and mobile.Taking an Uber ride couldn't happen if the driver could not be paid, but when you order your car and are taken to your destination the actual payment transaction happens behind the scenes and the transaction is "frictionless". When you log on to Amazon (or use your Amazon Dash button) to make a purchase, your credentials and shipping information are already there. The same goes when using Masterpass and Visa Checkout.As the graph below shows, frictionless commerce will account for almost half of all consumer purchases in 10 years. Why does this matter? It's important to remember that the friction was there for a purpose, and from a bank's perspective it was an incredibly important purpose: fraud prevention. Banks are on the hook for fraud losses and some of the friction in the payments process was to validate the identity of the consumer making the purchase and to ensure that the banks will be paid back. But the growth of e-commerce, mobile, and in-application purchases is eliminating that step and opening up new avenues for fraud. Worse for the banks is that there are hundreds of Banks have a Choice: Facilitate Frictionless Commerce or Prepare for DisintermediationBy Carl Rutstein, Partner, A.T. Kearneycompanies with thousands of employees working 24 hours a day, 7 days a week on one thing--getting between the banks and their customers. This disintermediation is bad for business, as central to all banks' retail banking strategy is deepening their customer relationships--more products and more revenue per household. Incidentally, this need has not changed since branch-level sales incentives have become toxic. Despite this, there is strong business logic and customer experience improvement if a bank can better serve customers across their compete set of needs. So these competitors disintermediating the bank present a strategic, customer deepening issue as well as a fraud issue, as allowing customers to throw around their payments and banking credentials in any application that asks for them are accidents waiting to happen.CXO INSIGHTS
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