The payment industry is at a pivotal moment. Recent years have seen a change in the scenery. Cash, credit cards, and bank transfers were formerly the dominant payment methods, but now the future of payment systems is rapidly changing to accommodate new technologies and practices that prioritise security, convenience, globalisation, and technical advancement.
Businesses and banks alike place a premium on meeting customer expectations, and the capacity to send and receive payments rapidly and without any problems, regardless of location, is quickly becoming a reality. If these 5 trends hold, we could see new payment options spring up in the not-too-distant future.
5 Ways the Future of Payment Systems is Changing Global Transactions:
1. Buy-Now-Pay-Later (BNPL)
As e-commerce has grown, more and more stores have started accepting deferred payments or “buy now, pay later” policies. Similar to a small loan at the point of sale (PoS), BNPL has several payback periods depending on factors such as interest rates, payment schedules, fees, and the total amount due.
Through the help of BNPL applications, online retailers can boost their conversion rates and income at checkout. The BNPL businesses typically take roughly 5-6% of what the merchants pay in interchange fees, whereas the average credit card company takes 1-3%.
With the point-of-sale system as the entry point to user acquisition and long-term client connections, the top BNPL providers are building a digital ecosystem. Many believe that digital wallets will soon include BNPL as one of its services. To achieve this, BNPL providers can collaborate with software development firms and financial app developers to create an ecosystem focused on enhancing the online shopping experience.
2. Open Banking
Open banking is the practice of sharing customers’ financial data with third-party services using application programming interfaces (APIs), with their agreement of course. It is pivotal to the development of the banking sector and the future of payment systems. Third-party providers include digital platforms, fintech companies, and software-as-a-service (SaaS) providers.
Until recently, customers’ financial information was exclusively accessible to banks, thanks to the “insular relationship” between the two parties. Open banking puts customers and companies first, expanding their access to banking services and solutions that improve money management.
3. Blockchain and Cryptocurrencies
Cryptos and the blockchain are terms that have gotten around, and although some may be confused, most of us have heard of them by now. To put it simply, cryptocurrency is a kind of digital money that is not governed by any one entity, such as a government or an organisation. Cryptocurrencies rely on the blockchain, which is the platform around which they are built. It can be described as a massive record-keeping network that offers safe verification of cryptocurrency transfers.
Although blockchain technology and cryptocurrencies as a whole are relatively new, the trend is clearly here to stay, with over 12,000 cryptocurrencies now in circulation and more added to the market on a weekly basis.
Due to the low level of adoption for crypto for everyday transactions, cryptocurrencies have mostly been seen as investment potential up to this point. There aren’t too many brick-and-mortar establishments that will accept your preferred cryptocurrency as payment. However, there is always a chance that the most widely used cryptocurrencies may gain wider acceptance for regular transactions. The more popular a payment method is and the more often its users make purchases, the more likely it is that businesses will take it.
4. Central Bank Digital Currency (CBDC)
Central bank digital currency (CBDC) is essentially digital money issued and backed by a central bank. It serves as a digital representation of the nation’s fiat currency, enabling the central bank to manage accounts or coins supported by the full faith and credit of the government, without the need to print physical cash.
Cryptocurrencies and stablecoins are becoming more popular, and central banks worldwide have realised they must join the digital currency bandwagon or risk falling behind.
Similar to cryptocurrencies, CBDCs offer numerous benefits compared to traditional fiat currency, including reduced risk, minimised reliance on third parties, lower transaction fees, and streamlined record-keeping for transactions.
5. Digital Wallets
Many consumers are opting to use digital wallets as their primary method of payment, and their popularity is skyrocketing. In contrast to CBDCs, which are in their early stages of development, digital wallets have been around for a while and are only going to become bigger and better. As part of the future of payment systems, digital wallets are set to play a significant role in shaping how we transact in the coming years. Juniper Research projects that by 2028, digital wallet transactions will have increased by a whopping 77%, reaching over $16 trillion. With this kind of growth, half the world’s population will have digital wallets in their possession by year’s end.
How did they achieve such remarkable success? Efficiency and safety. Using near field communication (NFC) for contactless payments streamlines in-store transactions, and safely storing financial data streamlines internet purchases and bill payments. You can easily access all of your card data without any hassle using digital wallets.
Most of us are probably already aware of Apple Pay and Google Wallet, the two most widely used digital wallets. However, there are hundreds of alternatives that rule their respective home markets throughout the globe. Over 90% of all mobile payments in China are processed by Alipay and WeChat Pay, while mobile digital wallet services are offered to customers throughout much of Africa by MTN MoMo and Orange Money.
Conclusion
Thanks to new technologies and shifting customer expectations, the payment ecosystem is undergoing a period of unparalleled change. Keeping up with the latest trends in the future of payment systems is therefore crucial for any business that wants to stay competitive in this ever-changing industry.
