A recent research by Gartner has revealed that the development of digital payment advisor (DPA) applications residing on customer smartphones and mobile devices has the potential to fundamentally change the way many customers approach their choice of payment solution for higher-value purchase transactions. The report found that eventually, the impact of DPAs may stretch far beyond the immediate constraints of the payment market.
Commenting on the insights, Alistair Newton, research vice president at Gartner said,”By encouraging the use of alternate currencies — loyalty points and social currencies — for purchases of day-to-day products and services, DPAs may start to alter the very subtle psychological balance in place when customers make purchases using cash and payment cards. Spending hard-earned money can feel very different to consumers, compared with spending loyalty points that may have been allocated freely by retailers or airlines. Such shifts will bring significant changes to the entire retail purchase experience and the associated payment value chain.”
According to the report, the use of DPAs will also be one of the key indicators of the shift in power from banks and payment card issuers to their customers. Their use will bring greater transparency to the payment markets and drive significant change in the way consumers select their payment providers, especially for higher-value transactions, where the cost or benefits to the consumer may vary significantly depending on what payment solution the customer chooses to use. They will also start to impact the actual form of currency used to settle many payments.
Gartner does not, however, foresee customers using DPAs for every single payment application. Many of these applications will offer actionable and useful advice as to when their use will benefit the customers, meaning that DPAs will initially be used mainly for higher-value transactions. It’s unlikely that most customers will be willing to pay sustainable fees for such a service. As a result, to become economically sustainable, DPA applications will change quickly.
The use of smartphones to analyze and integrate historical transactional data with real-time location and contextual data places the power of informed decision making in the hands of customers. According to the report, by offering the customer a clear indicator of the most cost-effective — or profitable, when aspects such as potential loyalty rewards or “cash back” options are factored in — payment application to use for a particular transaction, digital payment advisors can cut through many of the marketing and pricing issues that plague today’s payment market.
Mr. Newton added,”Banks and financial services companies cannot ignore the advent of digital payment advisors. They must adapt their strategies to recognize the impact that the open availability of such information and advice will have on the payment market. Equally, retailers need to monitor the impact of DPAs on the purchase value chain that their customers will engage in.”