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Payments systems gearing to be Nextgen

Payments systems are today the happening domain and many innovations are expected here in the coming year:

Customer preferences, fulfilled by the advances in digitization, are paving the way for newer modes and methods in payments systems. Customers seeking convenience, choice, speed, efficiency and security are pushing for changes in the way payments are being made and there are definite trends that are evolving in this realm. Transactions today are mostly frictionless and there are any number of ways for people to pay. There are research findings that show that unique contactless mobile payment users will touch 1 billion worldwide and digital wallet spending will exceed $10 trillion in 2025, which is an increase of $4.5 trillion in 5 years.

McKinsey in a survey in 2022 reported that 62% of respondents were found using at least 2 forms of digital payments, against 51% in 2021. A later report by the consultancy said there has been a 4 percentage point decline in the use of cash worldwide. It also said the shift away from cash usage is expected to continue in 2024.

As e-commerce has come to stay and flourish, digital payments and mobile payment apps are becoming the mainstay as customers enjoy a highly consistent digital payments experience across devices and platforms. Some of the qualifying standards are frictionless payment methods, real time payments, digital wallets, open banking, mobile banking and cryptocurrencies.

Experts in the payments domain visualize some major traits that transform the industry. Some of these are:

  • Substantial increase in cashless payment volumes
  • Major spurt in cross-border, cross-currency instant and B2B payments
  • Innovative methods in deploying security systems
  • Development of CBDCs across the world
  • Collaboration between fintechs and traditional payment providers
  • Increasing adoption of Buy-Now-Pay-Later system
  • Use of data analytics to facilitate better customer experience.

Some of the trends in the payments realm that experts site as important in the immediate future are:

Cashless system to become the mainstay

The expected direction is to go beyond the common types like credit and debit cards, mobile wallets and ACH transfers to make use of newer methods facilitated by digitization. There will be demand for customized digital transactions and payment options to suit specific needs.

Mobile wallets to evolve into the next level

Digital wallets are popular for in-person transactions through the NFC technology. These are now evolving into a stage where users are able to store their debit and credit cards with an end-to-end encrypted digital wallet and make secure transactions easily.

Contactless credit cards and Tap-to-Pay systems

Today retailers are increasingly offering contactless payment systems as a safer solution. Such systems process payments faster than inserting a chip card and avoid wear and tear on the card. Contactless cards are more secure than swiping a card’s magnetic strip. It is estimated that there are some 190 million contactless Visa credit cards and most major card issuers have started issuing these cards by default.

Increasing P2P payments

Peer-to-peer payments like Google Pay, Apple Pay, Samsung Pay, Cash App and PayPal will become more popular and may at one point become the default payment methodology. These apps can easily replace apps that now transfer money from linked bank accounts or credit and debit cards to another user. P2P payments may be increasingly adopted as pay-to-merchant (P2M) systems.

BNPL to be a norm soon

Buy-Now-Pay-Later (BNPL) that allows customers to spread out their purchase payments over a period of time, is set to evolve to become a payment service that can include a hard or soft pull on the customer’s credit, late fees, and payment cadence and loan duration. In the US, Amazon has recently partnered with Affirm, a fintech that is in the BNPL domain to offer a service that allows customers to use this BNPL service on purchases of $50 or more without a credit check or interest on the purchase.

Popularity of cryptocurrency and its use in cross-border digital payments

Cryptocurrency has come to stay and it is expected to grow. Experts believe cryptocurrencies have great investment potential. Global corporations like Microsoft are now accepting cryptocurrency payments. Cross-border payments are now increasingly using cryptocurrency. These transactions often process faster and automatically convert to local currency, creating a seamless customer experience. PayPal is a pioneer in this, allowing customers to buy, hold, transfer and use multiple cryptocurrencies in transactions around the world.

Use of blockchain in payments

Blockchain, known for its enhanced transparency, security and efficiency in transactions, is now being used in P2P payments without the need for intermediaries, reducing costs and settlement times. Financial institutions are exploring the integration of blockchain into their payment infrastructure to streamline cross-border transactions, improve remittance services, and simplify compliance procedures.

CBDCs will soon be a reality

CBDCs are designed as a new form of digital money issued by regulators, aiming to combine the benefits of traditional currencies with the efficiency and security of digital payment systems. They are backed by the issuing central banks, have a centralized control structure, with the central bank overseeing their issuance, regulation and redemption. The technology used in the development of CBDCs ensures transparency, traceability and integrity of transactions.

The payments landscape is now changing at a rapid pace, spurred by developments in digital technology and the ever-changing customer expectations. When speed, efficiency and security are the yardsticks, the way payments are processed and paid out is the determining factor. Innovations are critical here. It is all coming to a point where customers, like they have several options in their shopping process, will have many, if not equal, number of options for making their payments.

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