Payments are arguably the face of fintech. When you think about financial technology, it is easy to think about solutions which are making payments faster, easier and more accessible.
Having looked at some of the biggest technologies to impact the payments world, like buy now pay later (BNPL) and central bank digital currencies (CBDCs), we now look to the future and what the next trend may be.
Ensuring no delays and no failures through
An evolution of global marketplaces is going to catalyse payments according to James Butland, UK managing director, Mangopay, the licenced e-money solution. The key to success is going to be ensuring there are no delays and failures.
“By 2027, third-party sales via marketplaces will account for 59 per cent of all global e-commerce, and so we’ll see an increased demand for paytech built with marketplaces and platforms at the heart. Marketplace and platform businesses stand alone in the wider e-commerce sector as they have a two-sided ecosystem, which creates complexity and unique needs that cannot be met by generic payments platforms.
“In 2024, we’ll also see another evolution of user experience (UX) within the payments landscape by combining AI tools and human interaction. Today, users have little patience for poor UX, payment failures or delayed goods delivery, which is why it’s vital for businesses to prioritise improving this journey end-to-end.
“When making a purchase online, the user’s journey extends from browsing the website through to receiving the item. Marketplaces need to supercharge this experience, balancing the application of AI and human interaction for a seamless buying journey. This will help B2B, B2C and C2C marketplace and platform operators provide a more tailored user experience and better facilitate their customers’ ever-changing demands, which is essential for achieving customer satisfaction and building loyalty.”
AI will lead the way in transformation
Dan Dica, CEO of Lynx, the AI-powered fraud prevention fintech, explains how AI will transform risk management and compliance in payments. “The next big payment trend that will leave a significant impact is undoubtedly artificial intelligence (AI). In so many other industries such as agriculture and education, AI’s applications are still nascent, but it has already shown immense potential in payments, particularly in fraud prevention.
“Digital fraud is the fastest-growing type of fraud. It’s estimated that fraud loss is $5.4trillion globally and accounts for approximately $185billion in losses in the UK. Despite global financial institutions spending upwards of $206billion annually
on compliance with financial crime prevention regulations – the desired effect is not being realised.
“In 2024 and beyond, AI technology will transform payment risk management and compliance, bringing efficiency and enhanced risk identification. This development could not have come at a better time for financial institutions’ in-house fraud teams. They are grappling with increasing constraints on their resources while facing escalating automation employed by fraudsters, necessitating an ongoing effort to stay ahead of the curve.
“By analysing vast datasets to detect behavioural patterns and anomalies, advanced AI can deliver real-time risk scores at scale, reducing the likelihood of fraudulent transactions. This lightens the human load, allowing teams to concentrate on more complex and strategic tasks.
“The most effective AI fraud prevention solutions integrate insights from fraud prevention, anti-money laundering (AML) and cybersecurity risk identification capabilities to address evolving threats or regulatory requirements. Furthermore, by continuously adapting to evolving threats and regulatory requirements through regular model enhancements and daily retraining, these solutions fortify resilience against potential drifts in data distribution, ensuring consistent accuracy”.
Combatting bad usage of AI with AI
A similar sentiment was shared by Kjeld Herreman, head of strategy at RedCompass Labs, the fintech consultant and accelerator. He added that reducing costs using new technologies was imperative for paytechs.
“The most innovative changes that we see in payments is the use of AI and machine learning, which can help banks increase their straight-through processing rates, increase their insights into their client’s transactions, and also deliver on changes more cost-efficiently.
“As fraudsters start to use AI for nefarious purposes such as deep fakes, banks will quickly need to address these threats to protect their customers by developing their own AI systems.
“Soon, payments will be instantaneous, cheap, frictionless and interoperable, able to move along and across different payment rails. However, as was the case in the telecommunications industry, innovation doesn’t end because a product becomes commoditised. Payment service providers will need to find ways of monetising the data generated by payments and creating value-added services that elevate payments beyond a simple transfer of funds.
“The biggest trend will be payment service providers reducing the costs associated with their payment operations whilst simultaneously upgrading their real-time capabilities and looking for ways to connect the various payments rails and closed loop wallets. As the industry continues on the path towards commoditisation, it will become essential for payment service providers to leverage artificial intelligence to service their clients efficiently.”
Four possible trends to emerge
Alex Reddish, managing director of Tribe Payments, the paytech, identified four key areas which are likely to trend in the paytech world in 2024: SoftPOS, smarter data, A2A payments, and modular technologies
“According to a recent Tribe Payments survey, more than 80 per cent of merchants want to improve their customers’ experience, but keeping costs down remains a key priority. Merchants, especially smaller or micro-merchants, don’t want the hassle of hardware that’s time-consuming to install, expensive to maintain, and difficult to upgrade every time a new payment method or industry standard emerges, like PCI DSS.
“In contrast, SoftPOS solutions like Tap-to-Pay enable untethered payment acceptance, available wherever the merchant takes their iPhone, with remote updates delivered over-the-air.
“Additionally, cash can’t tell a merchant what items customers like to browse before buying, nor can it tell them their average spend or where they like to spend it. With SoftPOS, those cash-heavy merchants can now start accepting card and digital wallet payments with just their iPhone, boost their revenues, and gain new data-driven customer insights.
Smarter data
Data’s real value comes from being able to anticipate customer behaviour and create hyper-personalised experiences. And increasingly, that’s what customers themselves are demanding. It’s through enhanced data analytics and insights that innovations spring from.
A2A payments
The new Apple-open banking combo gives consumers the option to make account-to-account (A2A) payments and also cuts out cards altogether. For businesses, A2A payments promise higher conversion rates, reduced transaction costs, and real-time settlement. No need for customers to type in card or account details at checkout, as their payment details are securely stored to enable faster, smoother one-click payments.
Modular technology
Traditional banks have been held back by legacy infrastructure that can’t easily integrate new digital services and UX desired by their digitally native end users. This is where modular technology enables fast integration and distribution of new services. Additionally, this can be easily updated in line with new regulations and new customer use cases.
Managing new payment methods
The next trend to hit to payments world according to Stuart Davenport, chief product officer, Conferma Pay, the virtual paytech is offering a variety of payment methods.
“Within the travel industry, we’ve seen an explosion of virtual card payments, enabling businesses to benefit from spend controls, security, and automatic reconciliation to ultimately deliver streamlined enriched data into their ERP. Through adoption by global travel businesses, both corporates and card issuers have recognised the applicability of virtual cards for non-travel spend.
“A key element to the proliferation of virtual cards within travel was embedded nature of the payment to the purchasing process. Embedding payments into the procurement workflow is crucial to scale.
“Historically, B2B account procurement or online B2B marketplaces payment processes have been focused around A2A invoice payments, we’re now seeing an awakening to the benefits of embedding digital payments to bring broad efficiencies to both buyers and suppliers. Through education on the benefits of card, specifically cashflow, we’ll start to see increased card acceptance levels and higher ATVs.
“A new challenge for finance teams will be managing the broad choice of payment methods they’ll have available. They’ll need intelligent tools to automate how pay-outs are made to continue to the drive of efficiency, making decisions on whether to pay now, later, or avoid fees. Payment choice is driving innovation and efficiencies.”
Stablecoins will take 2024 by storm
The world of digital assets and cryptocurrencies will play host for the next big payments trend according to Marc Taverner, the CEO and co-founder of XEROF, a Swiss financial services provider specialising in cryptoassets.
Looking at stablecoins and CBDCs, he says: “The next big trends in payments will be the growing, global use of USDT, USDC, and other stablecoins. These have been around for some time, but their adoption, especially in the last year, shows that the industry is developing utility, and not speculative assets, which means they are poised to seriously impact the paytech world.
“There is, however, a competition emerging between CBDCs and stablecoins. The latter is proving utility in the void where CBDCs might be seen as the ones that are taking too long to develop, which is why stablecoins are also one of the most impactful payment solutions of the last five years. They have solved for a gap that central bank currencies and systems had not solved for decades.”
A focus on protection
James Lynn, co-founder, Currensea, the direct debit travel card provider pointed out how protection will evolve in 2024.
“Protection is an increasing priority for consumers and the industry is likely to focus heavily on this over the next 12 months. While card payments have a long foundation of consumer protection – supported and financed by merchants through fees to issuers, acquirers, and the scheme – protection of the next frontier of account-to-account payments, especially through open banking, is still in its early stages.
“However, the challenge lies in the lack of a clear funding strategy and a consistent international approach to protection. As a result, this presents a significant hurdle—the proverbial ‘elephant in the room’—that demands a speedy and effective resolution.”
