Payments & Transactions

Serving payments customers in the age of instant gratification

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Like millions of others, I enjoy having a cup of coffee at various retail coffee establishments. Over the years, these coffee shops, especially the large chain variety, have evolved with upgraded choices to increase customer satisfaction and happiness. Enhancements start with mobile app-based personalization such as social currency, rewards programs, and probably most importantly, streamlined service that lets you get your beverage faster than ever before. These benefits are all centered around “the coffee experience,” which some may argue, is even more important than the coffee itself they are selling. For many, the best overall in-store drinking coffee experience can be distilled down to serving instant bursts of dopamine, which takes more than just good coffee.

Serving coffee will never be the same

Coffee chains continuously evolve their branding, in-store design and the way they deliver their offerings to not just keep “the coffee experience” fresh, but also to appeal to the next generation of consumers. On a recent visit to my local coffee shop, I realized how uphill a task this can be with millennials and Generation Z patrons who are joining the ranks of coffee aficionados. As I was sipping my cappuccino, I observed a group of teens storm in the store, pull up the seats to form a huddled semicircle, and turn on volume of their music to drown out the in-store local music. Seeing other customers in the store raising their eyebrows, the store manager, a very amicable person in her 50s, walked up to the group and read the house rules from a placard. The teens scoffed at the manager’s dictation of how they’re supposed to behave, and amusingly grew annoyed for being deprived of some social media mobile device time. The manager went back to her business dispirited and discouraged. Then, one member of these young adults walked up to the counter, showed their phone that had the order for their entire table, flashed their mobile wallet to pay for everyone, while their friends have already split the total among them  through a mainstream P2P payment app. This all happened within a minute or two, and before I realized, the drinks were made and they were all gone. I overheard one other grump customer complain while exiting the door, “This store stinks! We should try the other one around the block next time.”

Banks are challenged as they serve young adults

Incumbent banks and payment service providers are no different from a major coffee chain in their struggle to satisfy these new customers. According to the ABA Journal, in the next four years, Gen Z consumers will make up 40% of a bank’s consumer base. Overwhelmed by choices, this mobile-first consumer cohort is characterized by its ability to multitask, while having infamously short attention spans. For a generation that spends an average of 15 hours a week on smartphones, and with the ability to handle five screens at once, the average attention span being less than eight seconds is baffling. This lends credence to what market watchdogs are observing a paradigm, ‘the switching economy,’ where consumers very quickly change who they business with and deem less satisfactory for the ones that provision them with better, richer experiences, and faster services.

Sensing opportunity, the Financial Innovation Now alliance which includes members such as Apple, Google, Apple, PayPal, Intuit, Stripe and Square are racing to disintermediate the payments ecosystem rendering traditional banking a mere utility that provides access to customer accounts.

Embracing the future of payments

One of the first steps that payments business executives can take is the recognition that they will not be serving an army of smartphone-wielding and hard-to-please class of consumers, but rather addressing a mindset that places immediacy and enterprising innovation foremost, underpinned by security and privacy, over feature and functionality. Can long-established banks fend off competition from fintech startups in their conquest capturing this mindset? That answer is yes.

We believe that the very same technologies and approaches that fintechs are taking can bolster traditional banks so the disrupted incumbents disrupt the disruptors. Alternatively, banks can leverage these capabilities to build strong ecosystems partnering with the fintech to mutually grow each other’s business. With immediate payments and new business models going mainstream, the payment fraud defenses will be stretched. Here is where technologies like artificial intelligence and ensemble analytical approaches can provide new ammunition to prevent fraud.

At Think 2019, IBM’s flagship technology conference happening in San Francisco from February 12-15, you can participate in the following sessions and discuss with IBM executives and clients how the industry is preparing for the future of payments and better manage payment fraud and risk.

In the age of instant gratification, banks can respond by first adopting and embracing immediate payment systems and then envision a universal payments hub to accelerate their payments modernization. IBM brings its industry-leading capabilities around systems, software, fraud management, security, cloud, blockchain and artificial intelligence to help you do that.

When I left the coffee store that day, I left the store manager a note thanking her. How else could I have written this blog if not for the inspiration from the visit that was paired with the stimulation from caffeine? The troubled manager could do only so much to keep all her customers at her store happy, though I would like to see the coffee chain paying more attention to what’s in store for the future, and what it can do today to shape its future.

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