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The Future of Digital Payments

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Our world is evolving technologically and several innovations are happening in the payments industry. Technological advancements have led to step changes in innovation, with payments becoming faster, on both a local and global scale, easier and more convenient.

The Covid-19 pandemic necessitated a redesign for the payments business, prompted by innovative offerings from fresh entrepreneurs, aided by industry consolidation, and customers’ demand for an end-to-end experience.

With the crossing of the threshold, the industry enters a new age – Payments 4.X, in which payments are incorporated and invisible, and an enabling function to create a frictionless customer experience. What do you think the future of digital payments will be? Let’s find out that below.

How are payments changing?

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The distinction between bricks and mortar and digital commerce is no longer valid. The global volume of cashless payments is increasing. There are 2 parallel trends that drive Tthis revolution of the payments business, and indeed the global payments ecosystem,

  • An evolution of the payment system’s front and back ends, including instant payments, requests to pay, contactless payments, and digital wallets.
  • A revolution in the payment mix and ecosystem, including the growth of ‘Buy Now Pay Later'(BNPL) offers, cryptocurrencies, and work on central bank digital currencies.

Key Trends Shaping the Future of Payments

#1 Buy now pay later

Along with the expansion of eCommerce, buy now pay later has seen a surge in acceptance across practically all continents. These Buy Now, Pay Later alternatives are designed to improve conversion rates during online checkout.

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In 2021 the global buy now pay later market was projected at US$ 125.09 billion and by 2030 it is expected to reach over US$ 3268.26 billion, growing at a CAGR of 43.8% from 2022 to 2030.

#2 Digital Wallets

Despite its slow adoption, the digital wallet payment form has seen a boost in usage since the pandemic’s outbreak. According to the study, consumer use of digital wallets has increased in the last 3 years, and the pandemic has only accelerated acceptance. Digital wallets can be used for much more than just paying bills.

They can store whatever a regular wallet can hold, from resort passes to boarding cards, cinema tickets to loyalty rewards. Due of the exponential rise of this technology in recent years, consumers can now leave their thick leather wallets at home, accelerating the transition to cashless payment.

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 #3 Biometric Payment

Biometric payments are relatively new to the payment industry. Biometric banking systems use fingerprints, and facial and vocal recognition to authenticate an individual’s identification.

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It is not widely utilized, but in the coming years it has the potential to boost customer security and convenience. It also aids in the prevention of online fraud. In 2021, the global biometric payment market was estimated to be worth USD 74.4 million.

It is expected to increase at a CAGR of 62.50% during the forecast period to reach USD 5,878.32 million by 2030. (2022–2030). Facial analytics and biometric data are making lives easier for mobile technology.

#4 AI and ML

AI and machine learning are assisting businesses with process automation and fraud detection. AI-enabled platforms would be able to examine a customer’s history and predict future activity. Cardlytics, an AI vendor, has created card-linked marketing software that enables organizations to monitor purchasing behavior and match them with promotions on which they are likely to spend their money.

AI-based algorithms are used to correctly identify transaction irregularities rather than a rule-based, algorithmic technique that tends to reject non-fraudulent transactions.

Supervised ML is trained on ‘tagged’ data and predicts output based on the dataset. Unsupervised ML, on the other hand, is an algorithm that learns from untagged data. When transaction data is absent or incorrectly classified, the unsupervised method is used to locate fraudulent activities and detect any abnormal pattern.

#5 Cashier-less Stores

The combination of AI and IoT technology assists both consumers and providers, cashless retailers enhance the shopping experience by matching customers to their online shopping accounts and transaction histories. PYMNTS’ Automated Retail Tracker predicts that the cashier less retail market will expand to about $50 billion as demand for frictionless payment methods grows.

Amazon, the E-commerce leader was the first to introduce the concept by using AI technology to integrate payment activities making it easy for the customers to make payments without waiting in long queues.

Credit: (AP Photo/Ted S. Warren) Source: The Boston Globe

#6 Wearable Payment Devices

This is another safe way for customers to buy goods and services. The technology is built into their smartwatches, wristbands, or rings and functions as a tap-and-go payment method. The concept of a wearable contactless device takes this convenience to the next level by allowing the flexibility of wearing the device in various forms. Aside from payments, data analytics empowers banks to better understand consumer behaviour and build products that better suit their clients.

Stats of Payment Processing 2020- 2025

Source: Finances Online

  • From 2020 to 2025, transaction value is expected to increase by 16.3% in Europe, 15.2% in the United States, and $11.2 in China. (Statista Market Forecast, 2021)
  • With $218.3 billion in Digital Payments in 2020, the UK will be Europe’s largest market (Statista Market Forecast, 2021)
  • China has the most digital customers (926.9 million). In the United States, there were 256 million, while Europe had 480.9 million. (Statista Market Forecast, 2021)
  • It is anticipated that by 2025, the average value per user for digital commerce in the United States will be $11,755. Europe’s average transaction value will be $4,736, while China’s will be $3,261. (Statista Market Forecast, 2021)
  • By 2025, the average transaction value per user in Mobile POS Payments in the United States will be $3,261. The average in Europe will be $1,982, while in China it will be $1,815.(Statista Market Forecast, 2021)

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Payment Processing Growth- Stats

  • Mobile payments revenue reached $1.3 trillion in 2020 and is predicted to reach $3 trillion by 2023. The small interchange fees that each vendor charges per transaction generate the majority of the revenue.
  • According to the source Emarketer, by 2023, 1.31 billion individuals are expected to use a mobile payment system for cashless transactions.
  • Due to expanding relationships between merchants and mobile payment providers, the eCommerce and retail market is expected to be a fast-growing area over the projected period.
  • Mobile wallet payments accounted for 5% of all online transactions.
  • Millennials are more likely than baby boomers and elderly to utilize mobile wallets for purchases.
  • The mobile wallet market is expected to reach $80 billion by 2026.
  • 66% of people say they use mobile wallets for payments because they are more convenient than other methods.
  • According to various research, 44% of males spend more money using mobile wallets than 26% of women.

CONCLUSION

Fintech is a developing industry with many innovative directions yet to arise. We used to think of an ATM as a wow factor, but now we’re looking at a whole new technology in which you don’t need physical money to pay for the things you bought, but you also don’t need to carry your card, thanks to Fintech innovation. There’s a lot more to come.

What are your comments on the future of digital payments?

Let us know in the comments below. Check out other articles from various domains – Click Here.

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