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The future of payments

The future of payments

Aug 23, 2023
Checkout.com

The world of payments is undergoing rapid transformations, driven by advancements in technology, shifting consumer preferences, and the ever-present challenge of ensuring robust payment security. 

On this page, we explain how your business can navigate the evolving payment industry, while providing insights on how to safeguard your transactions and embrace the future of digital payments. 

How will payments change in the future?

Advancements in technology – specifically the rise of AI and digitization of payments – have sparked remarkable innovations, making payments faster, more convenient, and accessible on both local and global levels.

Meanwhile, the shift towards cashless transactions is gaining momentum, and promoting inclusivity within the industry has become a major priority. As businesses and customer expectations continue to evolve, it’s clear that your business must embrace flexibility and remain open to innovation by adopting the right payment methods

Key changes and trends for payments in the future

As online payments continue to evolve, it’s important for your business to prepare for these predicted changes and trends for the future of payments…

  1. The growth of cashless

According to Gallup's 2022 survey, there has been a significant decline in cash usage throughout the US, with 60% of respondents saying they’d made only a few or no purchases with cash, which is twice the percentage compared to the 2017 survey. In contrast, only 13% reported making the majority or all of their purchases with cash – a substantial decrease from the reported 28% in 2017.

  1. Digital currencies

Central Bank Digital Currencies (CBDCs) are virtual representations of a country's currency, existing as digital tokens or electronic records. Alongside privately-issued cryptocurrencies, we anticipate them to have the most profound disruptive influence in the future of digital payments.

Leading financial institutions, including Mastercard, Visa, and BNY Mellon, are already making preparations to enable CBDCs, while a recent survey from the Bank for International Settlements revealed that 60% of central banks are contemplating the adoption of CBDCs, with 14% actively engaging in pilot testing.

In PWC’s survey, financial services organizations in Europe, the Middle East, and Africa with revenues exceeding US$5 billion highlighted "market uncertainty and potential disruption," including the introduction of CBDCs, among their top three concerns.

  1. Blockchain and cryptocurrencies

An increasing number of businesses are embracing cryptocurrency as a viable payment option. Moreover, blockchain-based decentralized financial systems are emerging, potentially disrupting traditional banking, payment systems, and the broader financial landscape. 

This has caused many established financial institutions, payment networks, and banks to establish cryptocurrency teams to prepare for the future of digital payments. Cryptocurrencies offer the possibility of faster, more cost-effective, and highly secure transactions compared to conventional payment methods. 

However, widespread adoption for everyday payments still faces several challenges, including the lack of government regulations and poor user-friendliness.

Scalability is the primary obstacle when introducing public blockchains to numerous real-world business scenarios. The challenge of scaling blockchain arises especially as the number of nodes and transactions grows. This concern is prevalent in major public blockchain systems like Bitcoin and Ethereum because every node must perform computational tasks to verify each transaction.

Consequently, public blockchains demand considerable processing strength, rapid internet access, and extensive storage capabilities. Transaction speed and delay are frequently discussed metrics of blockchain efficiency, but many prominent public blockchains still struggle to meet an acceptable Quality-of-Service (QoS) standard.

  1. Digital wallets

Digital wallets are gaining momentum as they empower consumers to securely store their payment methods on mobile devices, and access funds from various sources. The most popular examples include Apple Pay, Google Pay, WeChat Pay, and Alipay.

In 2022, about 50% of global e-commerce payment transactions were made through mobile wallets. In the US, mobile wallets are expected to surpass physical cards as the preferred online payment method within the next three years.

If this trend continues, it’s conceivable that digital wallets could transform credit cards into entirely digital entities within the near future.

  1. Cross-border payments

Consumers and businesses are getting tired of the traditional correspondent banking system, which is slow and expensive, especially when we live in a world where fast and cheap payments are becoming normalized. That's why there’s a rise in non-bank providers stepping up to challenge the banks and their card-based solutions. 

One recent example is the P27 initiative in the Nordic region, where they've brought together 27 million people across four countries and currencies into one super-fast domestic payment system.

In PWC’s same survey mentioned earlier, 42% of the respondents strongly believed that we'll see a major increase in instant cross-border and cross-currency payments for businesses in the next five years. 

Another crucial area of attention is ensuring interoperability for the future of payments. The introduction of ISO20022 is widely regarded as a favorable advancement, establishing a shared financial language and enabling smoother cross-border payments by aligning different systems and reducing obstacles.

  1. Financial inclusion

In 2014, the World Bank introduced the Universal Financial Access, which aimed to ensure that by 2020, people who were left out of the formal financial system would have access to a transaction account for storing money and making payments. 

That target hasn’t been reached yet, but there are some promising initiatives taking shape, including Thailand's PromptPay that allows users to make and receive payments using their bank accounts or digital wallets linked to their national ID, mobile phone number, or email address. By 2019, this system had attracted 43 million subscribers, which is well over half of Thailand's population of 69.5 million at the time.

Considering that central banks are considering the possibility of Central Bank Digital Currencies (CBDCs), there's also a renewed focus on the privacy and traceability of consumer and business data, which can help maintain trust between customers and businesses. In fact, maintaining trust is one the three biggest trends shaping the future online commerce.  

  1. Buy Now Pay Later (BNPL)

In 2022, the worldwide BNPL market was valued at US$ 6,150 million. According to IMARC Group, this market is projected to grow to US$ 24,653 million by 2028, with a growth rate of 26.10% from 2023 to 2028. This surge in usage can be attributed to more consumers opting for BNPL as a means of budgeting and managing their finances, allowing them to handle the costs of purchases directly at the point of sale.

The expansion of the BNPL trend into other sectors will depend on the influence of various regulations, while we also anticipate that BNPL brands will leverage their strong customer loyalty and brand reputation to venture into other areas of financial services. 

For example, Klarna's recent entry into retail banking showcases the potential for BNPL providers to diversify their offerings in the future of payments. 

  1. Open Banking

Open banking enables the sharing of financial data between banks and third-party service providers using application programming interfaces (APIs). Historically, banks have retained customer financial information within their closed systems, but with open banking, this paradigm and the future of payments are shifting.

Open Banking is frequently discussed alongside PSD2, a European Union payments regulation that became fully effective in September 2019. The purpose of PSD2 is to enhance digital payment capabilities and grant European consumers more authority over their financial data.

Enabling the sharing of financial data among different providers offers the potential for consumers to access a consolidated view of all their finances through a single app. This means they can manage multiple bank accounts in one place, streamlining their financial management.

Moreover, this opens up opportunities for service providers to offer innovative solutions like finance management tools or budgeting apps, creating tangible value for consumers and fostering stronger customer relationships.

  1. Payment security

According to Cybersource’s 2023 Report, 4 in 10 merchants are now using machine learning to detect fraud, while twice as many merchants are prioritizing fraud operational cost reduction compared to 2021.

This is because fraud detection tools, such as Checkout’s Fraud Detection Pro, are now becoming better at detecting fraudulent trends, helping businesses to stay ahead of fraudsters and protect revenue streams.

Also, studies indicate the growing impact of quantum computing on payment security. By 2026, there's a likelihood of 1 in 7 that quantum computers will compromise the most prevalent cryptographic systems. This probability could rise to 50% by 2031. Yet, recent 2023 findings from Chinese researchers imply this could occur even sooner.

Learn more: The future of authentication in payments

Ensure your success in payments with Checkout.com

With the rapid evolution of the payment landscape, it’s vital that your business integrates emerging payment methods to stay ahead of future changes. At Checkout.com, we’re well equipped for the future of payments, and fully aware of the ever changing industry and the need to adapt to new trends and technologies.

Whether you’ve got questions about the latest payment methods, concerns about payment security, or want guidance on implementing a fully integrated payment system, contact our sales team today.

Unlock your payments potential today

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August 23, 2023 17:18
August 23, 2023 17:18