The financial services industry is now transforming into a truly digitized sector, and one key area that sees accelerated growth today is payments. Consumers can choose from a wide range of alternative payment solutions that originate in powerful industry trends such as open banking, e-wallets, mobile payments, prepaid cards, and distributed ledgers.
What's in store for the payments sector in 2021? Keep on reading to discover the most important payments trends that are going to dominate the industry this year and push it into new avenues of growth.
- Global payment systems - why are they getting more and more popular?
- 10 payments trends in 2021
- The future of payments? It's right now
Global payment systems - why are they getting more and more popular?
Most consumers never give payment services a second thought because they always work behind the scenes. However, payment services and their providers offer essential links that bring the global financial chain together. They connect merchants to the broader financial system by enabling them to accept credit or debit card payments or offering other means of paying for goods quickly and efficiently.
A payment solution serves as a mediator between the merchants, consumers, financial institutions, and card brand networks that process electronic payment transactions. A payments services provider is a company that carries out a similar function in the payments ecosystem.
Such payment processors take care of the entire transaction to make sure that merchants get paid quickly, from authorization to settlement. Payment solutions often come with additional options such as financing, security and fraud protection services, and regulatory compliance assistance.
The digital transformation which happened as a result of the COVID-19 pandemic made the payments systems of today even more relevant as an increasing volume of consumers started buying online.
Payment services would often become embedded in more comprehensive services. For example, many e-commerce platform providers opened payment gateways to provide a connection point between many different systems such as card processing platforms and sales systems to streamline transactions.
10 payments trends in 2021
1. Payments are going to become truly global
The revenue from the global payments industry has been steadily growing, and Asia the driving force behind the global numbers. We can witness growth across all regions, so the growth of payments is a truly global phenomenon.
According to McKinsey, in the near future, we are going to see a reduction in Asia's prominence due to the expected macroeconomic slowdown in the Asia-Pacific region. Still, the company forecasts a rebalancing between developing and emerging countries that's still going to lead to healthy revenue growth of 6% per year.
2. Artificial intelligence and machine learning
Technologies such as AI and machine learning make the most of data, the most valuable resource of every company today. So far, financial services companies have been using these technologies to their advantage for fraud detection and process automation. But now, they're ready to take the next step and apply them to payment solutions.
Tools embedded with AI are going to define the future of payments. They'll be able to analyze a customer's operations history, including their spending habits, to predict their future activity. Then they will suggest alternative payment methods like a card with reduced fees or a preferred form of payment. An AI-enabled system will be assisting in payment activities as well.
AI and ML bring in a lot of value to customer service thanks to data - they personalize user experience and impact the bottom line. Many companies are now using AI to streamline internal processes, so it's likely that we are soon going to see the same implementations happening in the payment section.
For example, Wells Fargo (by the way - one of our clients, feel free to read our Wells Fargo case study) uses predictive banking and an AI-based smartphone app that helps customers to improve their finances. The solution handles recurring bill payments and sends money-saving alerts to assist users as best as it can.
Future use cases:
- Voice-activated transactions today still require biometric security and smart assistant verifications. It's definitely an area for growth since the technology allows for a smoother customer experience.
- Another area where AI plays a key role is RegTech. Regulator guidelines are constantly changing, so an AI solution can read and disseminate the key changes to help companies operate within the law and achieve compliance.
3. Providing seamless and secure payments
Many companies still require customers to file paperwork and complete loan forms before they can buy something. This barrier of entry is not going to work in their favor as consumers get used to more streamlined processes. Just take a look at the card abandonment statistics to see how many buyers actually fail to check out because of payment issues.
Simplifying the wiring channels to increase customer retention is going to become a priority for merchants in the near future. Companies are going to make the most of the available technologies that can streamline it.
Uber is a great example of an excellent payment system because of its frictionless customer experience that eliminates the checkout process. The leading digital-only bank in the US – Chime – also broke free from the complex structures of traditional banks and offers simple processes via its web and mobile app.
Future use cases:
- As banks move forward with service integrations, multichannel delivery is going to become the industry standard. This will inspire companies to invest in data analytics and dedicated tools that offer customer behavior predictions for tailoring solutions and recommendations.
- Using technology such as API, IoT, omnichannel platforms, and open banking, brands will strive to provide a seamless experience to users to convince them to stay on-site and complete the purchase.
4. More and more integrations
Most of the time, consumers want to complete a task as easy as possible. Choosing the most straightforward payment option is driving the trend in payments. The idea is for payment solutions to become easier to embed in apps and APIs.
For example, smart cars now come with integrated payment solutions that allow drivers to easily pay for gas, parking, and drivers. Users don't have to touch or do anything – all these payments are settled automatically.
Such connected devices can communicate with each other, so companies are going to turn more and more to the Internet of Things as an integral part of their technology stack. For example, users can now send and receive money through Facebook Messenger.
Future use cases:
- Financial services companies are going to embrace more digital payment solutions and introduce multiple options customers can use to make payments.
- Examples of such technologies are interactive voice responses, mobile apps, virtual payments, pay by text, automated clearing house payments, and credit/debit cards.
- It sounds like a complicated ecosystem - the idea is to provide a means of payment exactly where the customer wants it.
5. Data as the most valuable resource
Financial decision-making was always based on data. But today, it's more about data than ever before. Payment solutions can be integrated with other systems and feed them data so they can:
- understand shopping behaviors and spending patterns,
- deliver relevant recommendations,
- customize user experiences to increase retention,
- and deliver fantastic experiences.
Upselling, cross-selling, and personalized offers are incredibly powerful data-driven strategies that banks are turning to in the payments area.
Future use cases:
- Banks are going to analyze customer purchases and recommend various products - for example, car insurance after a user purchases a new car. All of this can be based on anything - from payment history to social media comments.
- Using this data, companies will be able to calculate a client's risk and understand their profile better.
6. Mobile commerce is here
According to research, people spend more than four hours on their phones every day, on average. This figure is even higher for Millennials and is bound to grow even more in 2021. Many inventions contribute to this – among others, the rise of mobile payments that leverage this tendency to facilitate shopping.
Social media apps like Facebook, Instagram, and Twitter all include Buy buttons for direct purchases through social media. Retailers have also introduced quick checkouts for frictionless processes.
And banks are going to include multiple mobile payment options to appeal more to Millennials. For example, Ally Bank has an online banking solution that allows users to send and receive money, deposit checks, and transfer funds between banks - all through the mobile app.
Future use cases:
- The future of mobile payments isn't only going to be about using smartphones to access, send, and receive money. Users will be able to take advantage of many more functionalities like money management tools and financial wellness that are going to be part of these mobile experiences.
- Mobile wallets are going to become more popular as well - and remove the inconvenience of using credit cards when shopping online once and for all.
- The digital-only banks will spread as the regulatory circumstances improve too.
7. Transactions across borders
Traditionally, cross-border transactions were slow, expensive, and very time-consuming. When factoring in government regulation, no wonder that sending transfers across borders always took a long time. However, the industry is now rethinking the future of cross-border payments and finding new alternative methods to streamline payment systems.
The largest and most successful technology for making such international payments possible is blockchain. Blockchain is the technology behind Bitcoin and many other cryptocurrencies used around the world. It's a decentralized and shared ledger where an entire network needs to approve a transaction before it's recorded. And once documented, the record can no longer be edited.
The immutable and transparent nature of blockchain places it at the forefront of the payment industry trends. It's an excellent candidate for international cashless currency. Even Facebook is planning to create a virtual currency.
Goldman Sachs adopted blockchain for security and the ability to support cross-border transactions faster. Many other banks are using blockchain like Barclays and HSBC with the aim of speeding up international payments. In total, over 500 financial companies worldwide are piloting or have fully functional blockchain programs.
Future use cases:
- In the near future, many countries will be planning to create government-backed digital currencies.
- In response to that, companies are going to invest more in peer-to-peer payment platforms and other solutions that streamline cross-border transactions.
- And banks are going to make it all work through the use of APIs for faster real-time operations. Consumers will no longer have to wait for days before receiving their payments across borders.
8. The tech giants weigh in
Practically every tech giant has its own payment system - just consider Google Pay, Amazon Pay, and Apple Pay. That's why the returns are bound to influence the future of the payments industry.
Google now allows both offline and online businesses to keep up with the latest consumer payments trends and created special buttons that help customers place orders and pay through the app. They will use contactless payments that accelerate the checkout process. Amazon is also working on providing clients with barrier-free checkouts by implementing Alexa Skills into it for voice shopping.
Future use cases:
- Big tech companies are going to play the role of financial companies thanks to their streamlined and frictionless processes (not to mention the drive to innovation).
- To survive on the market, banks will have to emulate their innovations by embracing the digital payments trends and introducing customer-centric models.
9. Collaboration will become the key to success
Competition is the normal market situation, but collaboration is going to become even more popular as companies will be reaching outside of in-house technologies to partner with modern fintech ventures that have the right payment solutions.
For example, Amazon collaborated with a company called Kohl to increase its efficiency. And the parent company of Google comprises 200 different ventures and includes lots of collaborations as well. Some of the most interesting recent mergers and acquisitions include Total System Services and Global Payments, Fiserv and First Data, Visa and Plaid, and PayPal and iZettle.
Future use cases:
- Banks are going to collaborate with other banks and financial institutions as well as cutting-edge startups to offer a broader umbrella of services.
- The payments industry is going to inspire partnerships, especially due to trends such as increased use of mobile phones, cloud computing, and general changes in customer behaviors. It's going to become a truly collaborative market.
10. Legacy systems need to be disposed of
Innovation lag is going to be more dangerous than ever to a company's survival. But it's not only about failing to remain competitive in the financial services market. Many companies out there don't understand why it's so important to stay on top of the payment technology trends.
Using a solution that doesn't meet the latest standards poses many risks. You might end up alienating the existing clients or failing to attract new ones. Banks that insist on using their old tech are going to pay the price for this decision.
The future of payments? It's right now
In the near future, non-banking digital companies are going to transform the customer experience and payment systems but also the financial services in a broader manner. The industry has seen a large influx of non-bank additional players from both tech startups and technology giants that present more and more competition for banks.
In fact, fintech startups are transforming the banking industry by capturing trends like the prominence of smartphones and mobile channels, as well as rapidly evolving customer expectations. To keep their customer relationships relevant, financial services companies will have to respond to these changes with new capabilities, solutions, and operating models.
Cross-border payments and their efficiencies are an especially fruitful field for new players. Until today, banks haven't done much to improve the backend systems and processes involved in these payments. As a result, cross-border payments are still expensive for customers and involve many pain points. Non-bank players are encroaching in this area and forcing banks to rethink their approach to payments.
Are you planning to implement one of these payment trends in your solution? Are you wondering which ones are going to have the biggest impact on your local market in 2021? Give us a shoutout in the comments - let's start a conversation about how the payments industry is changing.