Assessing the Future of Payment Technologies

In the last decade we have witnessed a seismic shift in the way we pay for goods and services. Thanks to financial technology, digital payments are being used more than ever in most countries around the world. Indeed, in the USA purchases made using traditional notes and coins account for less than 19% of all transactions. In Australia, the figure is more like 13%, according to the RBA.

Such is the uptake of people and businesses embracing digital payment technologies worldwide, some experts are predicting that most countries will be completely cashless at some point between 2030 and 2040.

Therefore, given the rapid pace of this change and the varying degrees to which they have been embraced across different age-groups and geographical regions, predicting the future of digital payments is quite challenging. However, by keeping an eye on trends within the financial technology industry and assessing the overall commercial landscape, it can help us understand the bigger picture of what might come.

There is no question that with pioneering start-ups and technological advancements leading the charge, the future of payments promises lots of exciting possibilities. But what might they be?

In this article, we will examine some of the key technologies, innovations and trends that are currently shaping transactions and payment systems and explore what that might mean for business and the everyday consumer.

What does the Future hold for the Payments Industry?

Ten years ago, and most certainly before the turn of the last century, it would have been inconceivable to many shoppers that they could pay for purchases at the supermarket or shopping mall just by placing their smartphone next to a merchant terminal. That gives you an indication of how far the financial tech industry has come in that time.

This, in turn, begs the question of where is it leading us to?

Well, it is fair to say that the future is definitely within the digital realm. Indeed, in some countries such as Thailand, Singapore, Malaysia and Indonesia, payment methods like using QR codes to initiate instant account debits or sending text messages to particular payment account numbers are already being used.

Conversely, around the world, cheques are well and truly on the decline, while in Finland, Sweden, Norway and South Africa they have even become extinct altogether.

The biggest driver of this transition to digital payments is undoubtedly convenience, both for the consumer and merchant. For the latter, the accounting and processing of physical cash can be costly, time consuming and inconvenient. It also requires very little in the way of human activity once the relevant infrastructure has been implemented.

Moreover, digital payments are seen as providing the benefits of increased security, speed and compatibility, as well as regulatory compliance. Hence the desire to constantly improve upon them.

Trends to Look Out For

While it is impossible to know what the future holds in terms of payment technologies and options, there are several current trends that point towards where we might come in 2030 and beyond.

These include the following.

1. Emergence of Payment as a Platform (PaaP) 

Payment as a Platform (PaaP) is an innovative new model that has transformed payment services into versatile platforms.

Essentially, it enables third parties to seamlessly offer their services or products through payment apps. This in turn, provides their customers with a more user-friendly experience as it enables them to integrate their various services into these payment systems.

The convergence of financial technology and other industries has resulted in PaaP being seen as a revolutionary model, which empowers businesses to expand their payment processes beyond the traditional. Subsequently, it enables them to generate new revenue streams and enhance their levels of customer engagement. 

PaaP also allows service providers to exploit the mobile money market within emerging economies, where mobile transactions are growing exponentially. In addition, the increasing prevalence of it facilitates collaboration and innovation across industries through the seamless integration of services like transportation, e-commerce, and loyalty programs into the payment platforms.

Ultimately, PaaP enhances the customer experience, while also streamlining everyday transactions. It also offers an unrivalled convenience, enhanced functionality and improved efficiency, for both consumers and businesses.

2. Role of Artificial Intelligence (AI) in payment innovation

In the last few months, the concept of Artificial intelligence (AI) has gained increased recognition in the mainstream thanks to technologies like ChatGPT. However, what might be less known among the general public is that it also has played a major role in driving payment innovation within various different industries. 

Thanks to its ability to process huge volumes of data and analyse complex patterns, AI-powered systems have gone a long way towards revolutionising how transactions are conducted, personalised, managed and secured within the FinTech industry.

Critically, AI can identify, analyse, intercept and prevent targeted attacks on global payment ecosystems, which in turn make transactions a lot more secure. Moreover, it can streamline payment processes, which can result in these transactions becoming quicker and more efficient.

It is fair to say, by integrating AI into payment technologies, those at the forefront of innovation within the FinTech industry are forging a path for future digital transactions. By leveraging the power of these machine learning algorithms, they can create even more personalised payment experiences, automate the processes of reconciliation and detect and eliminate the potential for fraud.

 3. Increasing preference of contactless payments

According to the RBA, a whopping 95% of Australians use contactless payments for in person transactions. So, it would appear that this method is here to stay for the foreseeable future.

Whilst contactless payments have been around for a few years prior, the global COVID-19 pandemic accentuated its usage, to the point where it is now second nature among consumers and merchants.

These types of payments are known for their speed, convenience and efficiency and don’t even require human touch. They also facilitate quicker and smoother, transactions that result in less queues in busy retail outlets, while NFC-enabled devices like a portable eftpos machine enables the seller to process transactions remotely, such as at markets, conferences or exhibitions. Subsequently, they have made shopping easier than ever.

Another redeeming feature of contactless payments is they have enhanced security. Technologies such as tokenisation make sure that sensitive data is not compromised during the transactional process, which provides a further protective layer against fraud.

4. Strengthening of Security through Biometric Authentication

Biometric authentication is becoming a popular payment method trend which you can expect to hear more about in the next couple of years.

This technology is known for its advanced security features. It is notable because unlike traditional password-based systems, biometric data is unique to each customer. Subsequently, it is very difficult for criminals to steal or replicate your information. As a result, this greatly reduces the chances of unauthorised transactions taking place, which should give users more confidence when it comes to making payments.

Overall, the convenience aspect of biometric authentication has led to a notable shift towards this method. Users no longer need to carry physical cards around with them, remember passwords or use tokens for authentication. Instead, facial recognition or a scan of their fingerprint is all that is needed to authenticate a payment – which serves to make the process, quicker easier and more simplified.

In the coming years, as technology develops and the overall cost of biometric hardware reduces, businesses should be better able and more willing to incorporate biometric authentication systems into their payment processes.

5. Enhancement of cross-border payment systems

According to stats from the ABS, almost 30% of all people currently living in Australia were born overseas. In the UK that figure is believed to be closer to 17% and in the USA, it is around 19%. Indeed, many other countries around the world including Canada, New Zealand and much of Europe and Asia have a significant population of residents born in another country.

What this means is that international money transfers across countries are becoming increasingly required, as people want to send money to family or make purchases through overseas websites.

Traditionally, this has been difficult to do because of the traditional banking systems in operation globally, not to mention the prevalence of government-controlled currencies. However, in recent times, there has been a rise in payment processing providers who are not tied to traditional banking systems.

ISO 20022 is a data exchange standard which has been designed to enable financial institutions to simplify the process of transmitting financial data between regions and countries. Therefore, a process that usually takes weeks can now be completed in a matter of days.

With this new capability, you can expect this to become a critical component in transferring money between countries in the next few years. 

6. Increasing adoption of Buy Now Pay Later (BNPL)

Thanks to providers like Afterpay and Zip, consumers are now able to pay for goods and services through a Buy now pay later (BNPL) system. Despite having only been around for a few years they have become a very attractive option against credit cards and personal loans which can result in one being hit with substantial interest.

As its name implies, BNPL allows customers to spread the cost of their purchases, for instance, allowing them to buy a $120 purchase over four payment instalments of $30. Moreover, as there is no interest usually involved with these accounts it allows consumers to better manage their cash flow and reduces their risk of falling into a debt they might struggle to manage.

For merchants, they can also benefit from more sales due to the flexibility this payment system gives their customers. Subsequently, it is highly likely that adoption of this method will only increase.

7. Cryptocurrencies and Blockchain  

Cryptocurrencies and blockchain technology have gained widespread attention in recent years. Cryptocurrencies are digital currencies that are not controlled by any government or institution, while blockchain technology is the underlying network that securely validates the transfer of cryptocurrencies.

In today’s globalised world, the decentralised system offered by cryptocurrencies and blockchain technology is becoming increasingly popular. Although this technology has only been around since 2008, there are now over 12,000 cryptocurrencies in existence, with new coins being added to the market seemingly every week.

While cryptocurrencies have primarily been seen as investment opportunities, some companies, such as Starbucks, PayPal, Whole Foods and KFC are accepting them as payment. 

As with any payment method, the more people use it, the more merchants will be willing to accept it. Therefore, in the years ahead, it may well become a more common form of payment in the marketplace.

Bottom Line

Overall, predicting the future of payment technologies is difficult. However, we hope this article has provided you with some food for thought on how the financial landscape might evolve.

At the end of the day, no matter what new methodologies become available, you should only adopt them if you understand the benefits and risks of doing so, and it is something you feel comfortable using.

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