The rapid advancements in payment trends have transformed the conceptualization of digital payment solutions to the next level. Read this blog to explore more
Today, the financial services sector is undergoing an immense transformation, and most of the credit goes to digital payment solutions that have changed our lives as we know them.
The COVID-19 pandemic proved to be a catalyst in the rapid transformation of the digital payment industry. The real-time nature of payments has been a boom for businesses and individuals. Countries like Australia and USA changed their means and norms of accepting payments during the pandemic resulting in contactless payment methods and other digital payment solutions.
Customers can choose from various alternative digital payment solutions that signify industry-oriented trends, including digital banking, e-wallets, mobile payments, prepaid cards, and distributed ledgers.
Here are the top 10 payment trends that will alter the financial services sector and digital payment solutions in the next five years.
Payments Trends Altering the Future of Digital Payment Solutions
Biometric Authentication is a trend that has made the most progress in the financial sector in the previous couple of years. This is a verification method that constitutes a person’s biological and structural characteristics. These verification methods include fingerprint scanners, facial recognition, IRIS recognition, heartbeat analysis, and vein mapping.
With the rise in the problems of identity theft and fraud, biometric authentication can become a reliable and secure option for all online payments in the year 2022. Eventually, the stats suggest the same aspect. According to biometric update, 2.5 million payment cards will be issued in 2021. Biometric authentication is a unique and essential payment method that incorporates and provides accuracy, efficiency, and security within a single package.
Biometric authentication is highly-secured as it involves an individual’s unique characteristics. This factor can also help you to build customer loyalty and trust pleasantly and efficiently for your digital payment solution.
Artificial Intelligence and Machine Learning
Today, the latest technologies such as AI and Machine Learning make the overall data the most valuable resource of every company. So far, financial services companies have been using such technologies to their most exclusive benefit for fraud detection and process automation. But now, they’re ready to take the next phase to apply them to digital payment solutions.
The tools that can be embedded with AI are going to define the future of payments. They will be able to effectively analyze the history of customers’ operations, including their spending habits, to predict their future activity. Then they will suggest alternative digital payment solutions such as a card with reduced fees or a preferred form of payment. An AI-enabled system will be assisting in payment activities as well. AI and ML bring much value to customer services regarding data to personalize user experience and impact the bottom line. Several companies are now using AI principles and tactics to streamline internal processes, so it’s most likely that we will soon see a similar implementation in the payment section.
Today, voice-activated transactions require biometric security and intelligent assistant verifications. It’s an area for growth since technological implications allow for a smoother customer experience. Also, RegTech is constantly changing, so an AI solution can read and disseminate the changes to help the companies function within the law and achieve significant compliance.
Seamless and Secure Payments
Most companies still require customers to file paperwork and complete the loan form before purchasing something. This barrier of entry doesn’t work in their favor as consumers get used to more streamlined processes to proceed with their digital payment solutions. Take a look at the card abandonment statistics to see how many buyers fail to check out due to payment issues.
Simplifying the wiring channels to increase customer retention is a top priority for the merchant. Companies will make the most of available technologies to streamline it. Uber is an efficient and seamless payment system because of its frictionless customer experience that eliminates the checkout process. The leading digital bank in the US, Chime, also broke free from the complex structure of traditional banks.
Open APIs for Improved Collaboration
Banks are inclined to collaborate with Fintech and mobile payments players globally. The market has forced its hand to build open APIs for third-party partnerships and more comprehensive customer exposure. US banks have launched Zelle, one API-based service that associates several banks and millions of customers.
Furthermore, MasterCard and VISA have taken identical steps. IBM has also jumped the bandwagon and added its API management platform for use in the API economy. IBM’s API connect tackles the complexities of managing APIs. It simplifies API creation, integration, consumption, and management, reducing development cycles from weeks to days or, eventually, hours. It enables developers to focus on innovative development metrics and build the next generation mobile or web application.
Merging Banks and Fintech
The adoption rate of Fintech is on the rise globally, especially in countries with large unbanked populations. However, the fintech firms lack the infrastructure and the technical expertise to leverage their operations. PayPal has succeeded, but few always remember the failures of Beenz and Flooz; the companies managed to survive for only 2 to 3 years.
The collaborative fintech investment has seen a rapid rise in North America (37% of total investment) which remains instinct on the steadfast increase across the globe, estimated at 18%. The banks stand to benefit from the easiness of registration with similar services as compared to the opening of a bank account.
Use of Contactless Payments & QR Codes
The research provided by MasterCard shows that an entire quarter of Europeans (175 million) don’t object to paying for wearables that include NFC rings, smartphones, smartwatches, Fitbits, etc. The leading financial institutions and banks, i.e., ABN AMRO bank and various others, are collaborating with MasterCard to deliver such payment options across multiple venues.
Australia leads the world in contactless payments, accountable for one-third of retail transactions. QR codes have taken off in China. Almost 400 million people use AliPay and WeChat Pay for multiple daily transactions. VISA has also launched a QR code service in Kenya, Rwanda, and India.
Use of Blockchain for Cross Border Payments
The most talked about payment trend is the use of blockchain for cross-border payments. The gradual interest in Cryptocurrencies and Blockchain technology has caused big tech companies such as IBM and central banks such as Banco Santander in Spain to adopt it for cross-border payments.
This is accessible for payments across Europe and North America. Standard Chartered, Rakbank, and Axis Bank have jointly adopted the Ripple blockchain for instant cross-border payments. The relevant companies such as SWIFT and Wyre are developing standalone blockchains to do the same procedure. The allure of almost no fees on international transfers ensures the adoption rate of blockchain across the globe.
D2C and Relevant Novel Proposition
Demand for digitalization from the SMB sector combined with emerging technologies, a wide variety of alternative data sources, and new credit models pave the way for non-traditional players to serve this underserved customer segment. It has been estimated that 40% of formal, micro, small, and medium-sized enterprises (MSMEs) in developing countries haven’t met the financial needs that cover up to USD 5.2 trillion every year, which equals 1.4 times the current global time of MSME lending.
SMBs often don’t receive adequate and timely financing, and the current lending products cannot meet their needs. It is time-consuming and costly due to diligence, underwriting, and loan procedures, making it unattractive for conventional lenders to serve SMBs. FinTechs and challenger banks tend to battle for the revival of SMB lending and changing the lending paradigm via embedding payments in their business models. After the pandemic consolidation and digitalization, digital players jumped into the growing SMB market segment.
Nowadays, the rapid transformation in digital payment solutions is expanding with the Direct to Consumer (D2C) approach. The rise of custom and integrated WordPress payment plugins such as WP EasyPay offer instant payment solutions for the targeted consumers to increase their ability to pay online seamlessly. Furthermore, the buy now pays later method has been adopted by WP EasyPay, as the latest version is compatible and fully supported with AfterPay, a digital payment platform offered by online shoppers that enables them to delay payments on multiple purchases.
Tokenization & Encryption
Digital transactions have emphasized the encryption and tokenization of individual transactions, and each transaction can be represented by a different code online so that the theft of that code is useless to carry out any other.
Blockchain technology enables dynamic identities for transactions, and services such as Android Pay perform the same process in the context of digital payment solutions.
Central Bank Digital Currency (CBDC)
Central bank digital currency is the virtual money issued and backed by the central bank. It is the form of digital currency of the country’s flat currency.
Instead of printing the money, the central bank administers the accountability or coins that are backed with complete faith and credit publicly. Hence, as the popularity of cryptocurrencies and stablecoins increases, central banks across the globe have come up with specific terms such as the fact that they need to participate in digital currencies or risk getting left behind.
Indeed, digital payments are revolutionizing the concept of payment systems. You’ll see payment methods moving from physical cash to digital payment solutions in the forthcoming years. Before transitioning completes, several new trends will appear and disappear. These trends will play a vital role in reshaping our future payment methods and associated techniques. Hence, most of the trends mentioned earlier will play a crucial role in fulfilling the overall process, but time will tell how it will be fulfilled.