How did you pay in the supermarket recently? Did you tap your credit card? Wave your phone or watch? Or did you just grab your purchases and leave, letting the system do it all for you? The way we make payments and interact with our finances is evolving faster than any other financial services area.
Innovations in payment systems and ever-changing customer expectations are disrupting the status quo and leading to an increasing number of new market players and advanced payment technologies that, in turn, challenge the traditional role of banks. Consequently, understanding the industry events and payment trends will help market players make accurate and timely decisions and define the best ways to differentiate themselves in the dynamic landscape.
Where Are We in the Payment Technology Evolution? Or What’s Happening in the Global Paytech Market?
In 2019, Uber leveraged its payment processing license and introduced Uber Money — a division that works on financial solutions and allows the company to streamline payment processes for its community. WeChat — the most popular messaging app in China — is also one of the most-used mobile wallets. Meanwhile, WhatsApp now allows users to make payments and send funds to friends right in the app. Finally, you’re probably familiar with Amazon Pay — an online payment service that even enables voice shopping. These are just a few examples of how non-banks tap into financial services and change the way individuals experience payments.
These days, bold industry players with progressive payment technology solutions challenge conservative banks in nearly every field in which the latter used to hold the leading positions. As an example, it suffices to mention the introduction of Stripe card issuing that empowers businesses to create physical and virtual cards almost immediately. What used to be performed by banks only and might take a month or two, is now available online and carried out within a few seconds (virtual cards) or days (physical ones). And most importantly, the global payment innovation has just begun, and there’s even more to come.
In 2019, North America carried out $176.3 billion in non-cash transactions, outperforming Europe and Mature Asia-Pacific, with $156.3 and $67.6 billion respectively. Moreover, in 2022, North America is projected to pass $200 billion. Consequently, the future of payments and cash doesn’t seem so promising, while digital payment services are booming.
The rise of fintech companies and paytech solutions only adds fuel to the flames making payments invisible, instant, and free (IIF). Traditional banks disregard of innovations in payment technologies may lead to drastic consequences and loss of $280 billion in revenue by 2025. So, how to prevent that? — The following payment industry trends will help banks make pivotal investment decisions and get the situation under control.
Payment Innovation: Three Trends That Define the Future of Payments
Today both merchants and customers are willing to use digital payment technologies that are quick, secure, and user-friendly. We all go for facilitation and transparency, especially when it comes to finances. Paying online shouldn’t be more time-consuming or confusing than paying by cash, right? So, let’s delve into the main innovations in payment technologies that make it happen.
The Payment-as-a-Service market is rather young, but it’s projected to reach $16.7 billion in less than four years. It’s supported by API-driven architectures, cloud-based technologies, and governmental initiatives, including PSD2 (Open Banking for the UK). In fact, several PaaS providers are already active on the global stage and let their customers access an end-to-end cloud-based platform for delivering digital payment products. Among the pioneering Payment-as-a-Service companies, you may find Modulr, FIS, Paystand, and more.
Why is such an approach to mobile payment technologies and business models so popular? — Typically, a Payments-as-a-Service platform has a modular structure that allows customers to choose only those services and products they need at a certain time. Full access and integration are provided via a developer-friendly API. Being cloud-native, a payment-Platform-as-a-Service ensures better scalability, agility, and resilience. Businesses reduce both their costs and their time to market, all while becoming compliant with domestic or international regulations, depending on the provider.
And what about PaaS players? — Typically they charge a subscription or per-transaction fee, so a Payment-as-a-Service platform may be seen as a future-proof source of revenue.
#2 Digital wallets
Digital wallets have been on the market for a while now, but the adoption rate has differed. Currently, this type of mobile payment technology is used by 2.3 billion people, while this number is expected to hit 4 billion by 2024. And what are the drivers behind this fast growth? — People become annoyed by payment processing solutions requiring reentry of payment data, enrollment, or any additional effort. They starve for a seamless, quick, and smooth experience with no lines between shopping and paying.
Currently, online digital wallets can be divided into four categories: open (mainly provided by banks), semi-open (Visa Checkout and Mastercard Masterpass), semi-closed (Google Pay and Apple Pay), and closed (offered by Amazon or Walmart). Through the use of Near Field Communication (NFC) mobile payment technology, such solutions enable devices (a mobile/wearable gadget and NFC-enabled POS terminal) to exchange data and make-accept payments.
Additionally, to attract more users and enhance their experience, digital wallet providers expand their offerings. Today, except for credit/debit cards, these apps may store loyalty cards, event tickets, boarding and transportation passes, and even a driver’s license.
#3 The Internet of Payments
The combination of IoT and payments may seem a dim and distant future, but it’s not like that. In 2019, a TNS’ research found that 26 percent of voice assistant owners in the USA, UK, and Australia used their gadgets for payments. Around 57 percent of individuals would make payments through a connected car if they had one. Finally, about 45 percent would pay for groceries via a smart refrigerator.
Considering the hype, it’s hardly surprising that the number of digital voice assistants is projected to reach 8 billion by 2023. The volume of voice commerce is expected to grow in parallel and exceed $80 billion annually, including traditional purchases of digital goods and fund transfers. The Internet of (Things) Payments doesn’t sound that strange anymore, right?
However, even though IoT-enabled payments can make users’ lives so much easier, security remains the top-of-the-mind concern for 74 percent of individuals. Consequently, dispelling user doubts will be among the initial barriers to overcome before IoT payment solutions gain traction. It will require effort from technology companies, retailers, and payment providers to educate customers on the type of collected data and security measures used to protect them.
Join the Winners’ Circle: How Can You Capitalize on the Payment Processing Trends?
The trends covered in this article not only illustrate the proliferation and evolution of innovative payment systems. But they also help organizations decide how to best focus their efforts in the foreseeable future.
To benefit from these future-shaping tendencies, incumbent banks and payment providers should understand customer behavioral patterns, pain points, and possible experience “improvers” within the entire value chain. Additionally, it’s crucial to stay open for new opportunities and collaborate with a larger ecosystem of industry players to offer comprehensive, robust, and customer-focused digital payment products.
Among the winners in the future paytech world, we’ll see those companies that:
- Put interoperability right at the heart of the customer experience. Digital payment solutions should be easily integratable with external systems and applications to ensure omnichannel and invisible experience. Industry leaders may combine search, selection, payment, delivery, and rewards into a frictionless environment and put a user in control of contactless payment options, shipping timing, and more. We may also see a growing number of smart tech solutions that not only facilitate remittance but also offer financial advice, personal finance management, and others.
- Leverage the power of real-time data and make it work with AI and ML. In this way, organizations may gain insights into customer’s interests, hobbies, financial status, patterns, and even plans for the future to create relevant financial products, cross-sell solutions, or provide exclusive shopping experiences. Instead of hiring more resources, business owners may opt for intelligent automation to collect, structure, and analyze figures faster and more efficiently. Data analysis may also be used to elaborate predictive information safety rules and thus strengthen authentication, detect and prevent fraud, and generally guarantee better security of customers’ funds and sensitive data.
- Reinforce the underlying infrastructure. While adding new features and products, it’s critical to invest in cloud infrastructure and innovative payment technologies to improve system resilience, scalability, and agility. Market leaders will also devote much attention to security and strengthen it with multi-factor authentication, tokenization, biometrics, and other technical solutions. Meanwhile, it’s vital to constantly monitor the industry and test new innovations in payments and finance management, continuing to push the envelope and innovate.