The transaction industry is entering a fresh era of innovation and disruption driven by newly emerging technologies according to a recent McKinsey report. This cutting-edge “Decoupled Era” will see payments become progressively disconnected from traditional accounts and stores of value, with exciting implications for both existing players and aspiring entrants.
At the forefront of this change are platform-as-a-service (PaaS) models and creative AI – technologies that promise to transform payments in ways not seen since the emergence of credit cards. As Odilon Almeida, CIO of Nubank, observes, “technology is enabling novel ways to transfer value that don’t rely on usual payment rails or income models.”
Incumbents Adapt Business Models
Current banks and financial services firms are obliged to swiftly adapt to this shifting landscape. Many are entering collaborations with smaller fintechs in order to leverage their technical capabilities and creative cultures. Others like JPMorgan are making large investments into emerging tech, recruiting thousands of engineers and developers.
“Traditional institutions recognize the critical nature of these trends,” says Odilon Almeida. “They can either lead the charge and adopt these new technologies or chance becoming obsolete.”
At the identical time, previously fast-growing fintechs are evolving their company models, focusing more on sustainability and long-term profitability over rapid 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 technologies to improve functional efficiencies. As payments become progressively 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 digitally nimble if they want to compete,” says Almeida. “Cloud, microservices, and APIs allow entirely new financial products to be developed quickly 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 ripe for disruption from new technologies. With globalization 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 persistent pain points when moving money between countries,” observes Almeida. “Incumbents no longer enjoy the benefits they once did in international transfers.”
The message is clear – with new innovations reshaping the financial services landscape, the transaction industry is entering a new era. Players old and new are still determining exactly what elements they will play in this decoupled future, but the immense opportunities for consumers and enterprises herald exciting times ahead. Those who can exploit technology to provide secure, instant, and intelligent payment solutions are poised to thrive.
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