Five trends that will shape the future of payments

Payments are a crucial part of the global economy. And while the economy is still recovering from two years of the COVID-19 pandemic, the payments industry has already transitioned into a new era - where digital-first becomes the new norm. Digitalisation is making businesses implement new features to meet the needs of customers and to be able to respond to this fast-paced innovation. Let’s have a look at five global trends that are currently shaping the future of payments.

Every tech is fintech and everything-as-a-service

Nowadays more non-finance companies are looking to provide financial services to their customers. In the first half of 2022, we have seen major tech companies announcing expansion into the payments industry. Adding to its payments portfolio, Apple has announced that it will release a new Tap to Pay feature that will allow people to buy goods from merchants by tapping their phones together. This comes on top of the already existing payment features Apple Wallet and Apple Cards. Earlier this year Apple also launched their Apple Pay Later feature.

This trend can be seen in messaging apps too. Big players, such as WhatsApp and WeChat, moved to the payment space a few years ago. And more recently we see other apps joining: In July 2022 Viber announced a new in-app digital wallet for paying bills, money transfers, and buying goods. Additionally, earlier in 2021 Telegram launched Payments 2.0 which enables in-app shopping right in the messenger.

Banking as Service (BaaS) has been a pinnacle to businesses’ adoption of fintech. The rise of BaaS is a part of the Everything-as-a-Service (XaaS) trend, that’s been underway for years but has especially accelerated in the last couple of years. BaaS is a business model that enables companies to provide financial services to other companies. So, every business, even those unrelated to financial services and payments can become a fintech in a way. Ecommerce, travel, insurance, and other non-financial organisations are some of the key industries that have been sourcing BaaS providers to partner with, offering them leverage over competition.

Apparently, we can expect more and more companies to implement financial services into their offerings which will make payments even more seamless for the end consumer.

Driven by Retail 

Retail and purchasing as a whole are driving forces for payment innovation. People spend a significant time of their day buying items for work, pleasure, and life purposes. Consumer behaviour can often be seen as a clear trend and potential changing purchasing methods through retail and eCommerce.

During the pandemic, retailers witnessed the shift from in-store purchases to online retail, and that’s when the relatively new payment method ‘Buy Now Pay Later’ (BNPL) skyrocketed. According to the Research and Markets’ BNPL survey, BNPL accounted for 6 percent of all eCommerce transactions in 2021, and is forecast to grow 50.5 percent by the end of 2022.

QR code is another payment method that was reintroduced to the public by the retail industry. Developed in 1994, this contactless secure and quick payment method saw its drastic rise during the pandemic when it was massively implemented in physical retail stores and restaurants.

Retailers are not only adding cashless payment methods such as the aforementioned QR codes and Tap to Pay, but some of them are also getting rid of traditional payments. A growing number of retailers now decline non-digital payments in their physical stores.

The retail industry is quick to implement new payment methods as they have the luxury of fintech partners and clear data to identify trends, thus enhancing their efficiency. Undoubtedly, we can expect retail to pioneer emerging payment methods that later will become mainstream, as it happened with BNPL.

Loyalty Schemes 

Payment and loyalty programs can help to win new customers and increase engagement with existing ones. An integrated payment and loyalty program can make a difference in customer experience and the financial performance that businesses deliver. According to The Loyalty Report, 78 percent of consumers say that loyalty programs make them more likely to continue to do business with a brand.

By connecting digital and payment channels, businesses can create a centralised view of their customers and personalise communications to specific clients. We can see more businesses turning to digital loyalty apps as well as payments with rewards, discount vouchers, points cards, and other loyalty schemes that will become further integrated into the digital payment processes.

Digital ID as the Key to Transparent Payments

Contactless payments are prompting the need for a developed digital identity infrastructure. Banks, insurance companies, BNPL providers, and other financial institutions count on digital identity verification to onboard customers. Along with CBDC, governments across the world are launching national identity initiatives and various global associations (e.g. World Bank) are working on initiatives to build digital identity ecosystems. Digital ID solutions can protect consumers against personal data abuse while also protecting the payment system against money laundering and financial crime. While the implementation of Digital IDs on a global scale may take quite some time, and this subject is very complex due to numerous social and ethical questions, we can see the trend growing, and probably we can even expect money to be ID-based in the near future.

Cybersecurity is critical in the open finance world

The shift from a cash-based economy to digital payments has accelerated the risk of cyber threats, not only to consumers but also to businesses, as 81 percent of global organisations have experienced increased cyber threats during COVID-19. As a result, financial institutions are reinvesting in automation and analytics to make online payments more secure. 

For the end user, additional authentication may actually seem like an extra thing to do: To insert OTP, then a static password, or complete some other verification step just to make a purchase online. We can expect companies to come up with a more seamless way of making payments safer by implementing a mix of digital identity, automation, and analytics to reduce cyber risks and offer high-quality customer services.