The development of digital payment advisor (DPA) applications, installed in smartphones and mobile devices could change the customers’ approach of selecting payment solution for expensive purchase transactions, according to a new report.
Gartner’s latest report revealed that DPAs may impact far beyond the direct constraints of the payment market.
Gartner research vice president Alistair Newton 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," Newton said.
"Such shifts will bring significant changes to the entire retail purchase experience and the associated payment value chain."
In addition, the use of DPAs would assist in transferring power from banks and payment card issuers to their customers, further increasing the transparency to the payment markets, while driving change in consumers’ selection of payment providers.
Use of DPAs will also impact the original form of currency used to make many payments, the research firm said.
"DPA applications will not initially be offered directly by mainstream banks or payment card companies, because by their nature they require brand independence to function effectively and deliver perceived independent advice to customers," Newton said.
"However, a longer-term opportunity may emerge for financial services institutions (FSIs) that wish to establish a role in the management, exchange and disbursement of loyalty points and social currencies for their customers.
"In such cases, FSIs that wish to offer the DPAs may need to establish an independently branded solution — such as some of the insurance price comparison sites, which are in fact owned by insurance companies — to ensure that customers regard any advice offered as being independent and accurate."
According to Gartner, the use of of smartphones to examine and integrate historical transactional data with real-time location and contextual data offers customers with the power of informed decision making, which would cut through several marketing and pricing issues that affect the current payment market.
"Banks and financial services companies cannot ignore the advent of digital payment advisors," Newton said.
"They must adapt their strategies to recognise 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."
