A Look Into the Future of Payment Technology

With driverless cars on the horizon, how soon before virtual currency becomes a new form of payment for auto loans?

For decades, auto loan payment options have been dominated by hand-written checks and pay-by-phone capabilities. In recent years, online channels have become available. But as the technology available to customers advances, so do their expectations of how they will conduct their financial transactions. Allowing consumers to choose their preferred payment channel builds trust and strengthens the customer relationship.

What ways to pay make sense for your business and your customers? Here’s a look at some newer technologies, with issues to consider for each.

Mobile Payments. Paying with a mobile device, whether a smartphone or tablet, allows the customer to choose where and when to make a payment. While payments by tablet tend to occur at home in the evenings, smartphone payments can occur anywhere and anytime ― and customers have their smartphones with them at all times. The Pew Research Center estimated in June that 56% of Americans own smartphones, which are defined as mobile phones capable of accessing the internet via browsers or apps. Furthermore, the number of Americans performing mobile financial transactions continues to grow. A March study by the Federal Reserve found that 24% of smartphone users had made a payment from their device in the past 12 months. Add to that the growing use of tablets as payment devices, and it’s easy to see why the payments industry has mobile as its top priority.

PayPal and others. PayPal is the best known of a host of online and mobile payment platforms. Other companies offering similar services include startups such as Dwolla and Stripe, as well as larger players like Amazon and Facebook. Braintree, another major provider of payments, particularly mobile payments, was recently bought by rival PayPal.

The advantage of paying with PayPal or Amazon is primarily convenience. Customers do not need to enter payment information because it is stored with the service. These services also allow payments between individuals, and the payment information is not exposed to the payee. Further, PayPal and similar services are technology companies first and foremost, and are generally well-suited to payment on whatever device the customer wishes. Indeed, the company Intuit recently began to offer payments through its GoPayment service for Google Glass, which are eyeglasses controlled by gestures and voice commands.

PayPal has 137 million customers on file, and Amazon has 215 million. This means there is probable overlap with a lender’s customer base. Apple, often rumored to be entering this space, has 575 million customer cards and addresses on file. Facebook, which is a new entrant in the field, has 1.15 billion customers, but has only started to collect payment information and mailing addresses from them.

Millions of users of PayPal and Amazon trust the companies to keep their financial information safe. Amazon, indeed, was recently named the most trusted company in the world in the 2013 Harris Poll Reputation Quotient. PayPal was named the most trusted mobile payments company in a recent Javelin Research survey.

Bitcoin and virtual currency. At the far end of the payments spectrum are “bitcoins” and other forms of virtual currency. While bitcoins are growing in acceptance around the world, particularly in markets where payees are used to accepting multiple forms of currency, they have been slow to gain traction in the U.S. due their perceived volatility. Virtual currencies call the very idea of fiat money into question: What is a currency worth if it is not backed by a government or central bank? The value of bitcoins has remained fairly steady recently and can be tracked here. http://preev.com/ (Currently, 1 bitcoin equals $203.)

Virtual currencies offer a degree of anonymity rivaled only by cash, and so are reputed, somewhat unfairly, to be a favored means of payment for criminals. They are used often in international remittances, where services convert one local currency to bitcoins and transfer the bitcoins to a second party, which can then convert them to a second currency, all for fees much lighter those charged by banks for international transfers. Virtual currency payment services will grow in popularity in coming years, but are still several years from hitting the mainstream, according to analysts.

When considering which payment options to offer customers, lenders should balance costs and safety with customer preferences. Mobile payments are surging, and when done properly, they are more secure and more cost-effective than sending checks through the mail.

―Phil Ryan

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