Trends and Opportunities for Innovation: Payments

Commonwealth is always looking for changes in the landscape that could lead to either new financial challenges or opportunities for new innovative solutions. Over the last year we have engaged in an extensive research project and have identified four areas (payments, insurance, decision making, and new actors) that we will be pursuing in the coming months. This is the final of four posts that highlights this work.  

Payments are the circulatory system of our financial lives.  How money moves – for making a purchase, paying a bill, sending money to a friend or family member, receiving wages – is quickly evolving through technological innovation. 

Commonwealth has been exploring changes that are creating opportunities to build innovative new solutions to the financial challenges faced by the financially vulnerable.  We see potential in leveraging payment transactions to help consumers build savings and manage risk and uncertainty. 

The evolving payments environment opens the possibility of fundamental changes well beyond the register-replacing swipe or wireless devices. Decreasing costs and increasing speed – consider, for example, the start-to-finish journey of a paper check compared to a digital transfer – permit new market entrants.  In an environment where financial institutions and credit card companies once dominated, there are now many more players.  There is an increasing number of choices to move money and conduct transactions on various devices, a proliferation of opportunities to “bundle” payments with other services or interactions, and new approaches that make payments a social experience.  

Much of payments innovation presupposes that digitization is necessary, beneficial, and inevitable.  However, the “digital divide” persists and can limit the benefits available to the financially vulnerable.  Despite how it may feel at counters or checkouts, cash is not dead.  Nearly half of transactions conducted by families earning under $25,000 are in cash.  Tools such as Amazon Cash show how companies are already thinking about ways to include cash users in the digital economy. 

We also think the evolving payments environment can help the financially vulnerable control and manage cash flow challenges.  Innovations in how money moves could decrease the incidence of late fees, service disruptions, and other negative financial consequences of volatility.   

In the coming months, Commonwealth will be building and testing new solutions based on changes in the payment landscape.

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