Hardly any consumer area is changing as quickly as payments. More and more companies are trying to establish new technologies and solutions. The US-based Google with its Google Pay and Bluecode from Austria are the latest providers in Germany. Apple Pay was launched today, too. Electronic payments is a topic that the insurance industry should look into.
The classic checking account and debit card are not yet obsolete when it comes to paying at check-out or paying bills, but they are not absolutely necessary anymore. Even if a bank account is still needed in the background, credit institutions have long lost their sovereignty over payments.
New methods are fast and usually mobile
Be it Paypal, Paydirekt, Google Pay or Bluecode, the latest electronic payment methods can all be used on-the-go. Using an app installed on their smartphones, customers can pay not only in online shops, but directly at check-out in retail stores. If the retail store has the infrastructure already, payment can even be contactless using NFC technology.
The second biggest commonality is the high transaction speed. Those who send money peer-to-peer can expect it to be available to the recipient immediately.
Ultimately, as a result of the Payment Services Directive 2 (PSD2), banks will lose their monopoly over customers' account information. This favors the emergence of other fintechs that will develop additional services. And, with the new Payment Service Provider (PSP), the field of electronic payments will transform even more. However, it remains to be seen whether these new payment service providers will sufficiently address the needs of insurance companies when it comes to payments.
Instant Payments are a child of PSD2. At their core, they are transfers in real-time. The transaction is carried out only if it is covered by the payer's account. After the transfer is approved, the recipient can access the transferred money nearly in real-time. Merchants are looking into this topic intensely right now, because they see potential to replace debit. The HIPPOS ("Merchant-based Instant Payment at POS") initiative wants to enable payments directly at the cash register in brick-and-mortar retail. An app on the customer's smartphone plays the main role here too.
Electronic payments in collections and disbursement speed up processes and save costs
Unlike commerce, the insurance industry has to consider two payment situations. Firstly, disbursements. In this case, the customer receives money to adjust the customer's losses. It is hardly a secret that the insurance industry still heavily relies on traditional checks for this. This is by far the most expensive method, which also means additional expenses for the insureds because they have to deposit the check in their bank.
On the other hand, the insurer obviously wants to receive payments on the policies concluded with customers. Regular debit from the customer's account and transfers are prevalent for this purpose. Modern alternatives are still a rare exception. However, there are initial projects to provide customers with the payment options they know from (online) commerce. Thus, Barmenia allows payments by Paypal and credit card.
In this way, the insurer fulfills the customers' wishes to use the payment methods that are part of everyday life in commerce and e-commerce for insurance purposes, too. As important as aligning oneself to customers in this context may be, electronic payments will increasingly become necessary for insurance companies in the future for other reasons as well.
A completely digitalized process chain can reduce expenditures and costs on disbursements. In addition, by paying claim settlements using the customer's preferred method, the company is presenting itself as being on the cutting edge. The use of Instant Payments, for example, ensures that policyholders can access their money almost without a time delay.
In property, accident, liability, and auto insurance, the entire processing can benefit greatly from the use of artificial intelligence. The transaction itself then forms the final point of an optimized process chain.
The advance of digitalization through the Internet of Things devices will enable new insurance models. For example, customers will insure a risk only for as long as it occurs. Rates based on "pay as you go" or "pay as you drive" require cost-optimized processes. Classic payment methods are not so suitable for this. By the time the debit is processed, the insured risk may no longer exist.
In the short-term, Instant Payments or mobile payment processes will certainly not change the prevalence of direct debit and transfers. But insurance companies will have to direct their focus more on the topic of payments. To develop their own strategies, they will have to examine the process steps of payment processing in detail and consider their costs. In collaboration with product management, this will probably result in a roadmap for further development.
Companies that not only offer flexible rates on policies, which can be taken out by app or on the website, but also provide the right payment options will score extra points. What's more, payments will have to be fast, flexible, and mobile.
