Even as we face global economic uncertainty, there is one thing we can depend on: ecommerce is booming. In fact, ecommerce grew by 19% just last year. While this number is exciting enough, it’s nothing new: ecommerce has grown consistently for years and will continue to do so. To meet this boom in business, the world of payment processing has also expanded.
Fintech companies and technology providers are racing to meet the increasing demands of ecommerce, as well as brick-and-mortar stores. As a result, we’re seeing new and interesting trends that are changing the way we think about payment processing. Here’s a look at the latest changes, as well as the data behind them.
6 Trends Affecting the Future of Payment Processing
1. Contactless Payments Are Here to Stay
Although contactless payments have steadily grown in popularity over time, the Covid-19 pandemic pushed them into overdrive. More and more people adopted contactless payments in the name of safety. However, even as caution lessened, the use of these forms of payment did not.
Consumers realized that the convenience and security of these alternative payment methods made them worth using instead of traditionally popular credit and debit cards.
Research shows that mobile payments will account for a third of all payments in 2024, according to the recent Global Payments Report from Fidelity Information Services (FIS). Meanwhile, the use of cash is declining as shoppers use more contactless payment methods. Experts project that people will use cash for less than 13% of all global payments within the next five years.
2. More Mobile Wallets Linked to Bank Accounts
People can add a variety of payment methods to their mobile wallets, including cash, debit cards, and credit cards. For a long time, credit and debit cards have been the primary funding source. However, there’s a growing trend of consumers funding their digital wallets by directly connecting them to their bank accounts.
In fact, it’s already the most common type of funding in some countries. Over 50% of users in Norway, Finland, Vietnam, South Africa, Thailand, and the Netherlands currently fund their digital wallets with bank accounts.
Most excitingly, this change supports global financial inclusion. A percentage of the world’s adults still don’t have access to the formal financial system. Without access to certain financial tools, like debit cards, they can’t send or receive payments. There are a number of initiatives that address this issue - including the use of bank accounts linked to digital wallets.
For example, Thailand now has PromptPay, which allows users to link bank accounts and digital wallets to their phone number, email, or national ID. By 2019, 43 million of Thailand’s residents adopted PromptPay - a country with a total population of about 70 million. This is a clear sign of the importance of providing payment options like this to developing nations.
3. Growth of Buy Now, Pay Later (BNPL)
Digital wallets and ACH transfers are often the highlight of conversation when discussing alternative payment methods (APMs), but BNPL will experience major growth in 2024. Experts estimate that shoppers will use this payment method to make $306.8 billion worth of ecommerce purchases in 2024.
For comparison, BNPL accounted for just $97.2 billion of ecommerce sales in 2020. BNPL is proving to be especially popular with Millennials and Gen Z, as they use this payment method to buy more expensive luxury items with little to no interest.
The success of BNPL could also allow for BNPL companies to extend into other areas. FIS predicts that BNPL will expand into other financial services, like retail banking. They’ll likely be successful thanks to the customer loyalty and brand equity they’re building today.
4. Non-Bank Global Payments
As fintech advances, we’ve become accustomed to faster payments with fewer fees - especially when it comes to cross-border payments. People are becoming more and more resistant to expensive, clunky bank payments.
In fact, 42% of respondents in a PwC survey said, over the next five years, they believe we will see advancements in cross-border instant and B2B payments. We can already see several developing advancements in faster cross-border, non-bank solutions. For example:
- UK-based Faster Payments Service recently made the fastest-ever payment in just 36 seconds.
- In the Nordic region, the P27 initiative brings four countries and 27 million people together under one instant payment system, allowing them to speed transactions despite the borders.
- PayNow and PromptPay, the national systems of Singapore and Thailand, recently linked together to allow users to send instant payments from country to country with just their phone number.
5. Changing Payment Infrastructure
On a similar note, we’re also seeing a rebuild of the payment processing infrastructure. Also referred to as “plumbing,” our infrastructure is currently geared toward payment initiation via bank accounts and cards. However, we’re using digital wallets more and more frequently - making our current plumbing outdated.
In response, card processors and networks are looking to adjust their offerings to ensure that they don’t become obsolete. One survey found that 80% of financial service organizations will outsource infrastructure by 2025 - likely to make room to focus on their offers.
Likewise, merchant services that initiate payments will also need to reposition. They may start opening up card rails to more payer and payee points, or add more premium services.
Card companies aren’t the only ones looking to remain relevant. Digital wallet providers must also ensure long-term, steady growth. They’ll use open-loop technology to allow them to operate via globalized payment rails.
6. Increasing Security Demand
Fraudulent transactions aren’t going anywhere anytime soon. Security.org’s 2023 Credit Card Fraud Report found that 65% of cardholders have experienced fraud at some point - up from 58% the year prior. The cost of fraudulent transactions went up by about 27%. The average fraudulent transaction costs $79, which is about $12 billion for the entire year.
Of course, those fraudulent transactions are a major concern for business owners. A Cybersource report finds that ecommerce companies spend 10% of all revenue on managing fraud. Plus, 91% say that fraud management is a major challenge.
Merchants and customers aren’t the only ones concerned. PwC’s survey found that banks, asset managers, and fintech companies are also looking for solutions to data privacy, compliance, and security risks. Between new fintech players and open banking, as well as the growing popularity of digital wallets, there are new opportunities for financial crime.
We’ll likely see more collaboration between organizations to protect against fraud. Payment providers and banks will need to work together to avoid money laundering and fraud, which may result in some limitations to customer convenience..
The Best Way to Accept Online Payments in 2023
While the latest trends in the world of payments are important, you’ve also got plenty of other work on your plate as a business owner. That’s why Pay.com provides a robust, full-service payment solution. We stay on top of the latest developments in payments so you don’t have to.
Our flexible solution allows your developers to integrate with our APIs, so they can easily add hosted payment fields to your website or app. You can keep your customers within your own environment, ensuring you maintain control over customer experience.
Plus, Pay.com supports a wide variety of payment methods, including popular digital wallets like Apple Pay, PayPal, and Google Pay.
Pay.com also provides advanced security measures, which are more important than ever. We maintain Level 1 PCI DSS compliance, which means we use industry-standard tools like tokenization and multifactor authentication to protect sensitive data and avoid fraudulent transactions.
Pay.com is here to support you as you grow, including helping you avoid denied transactions. Our system fetches information from Visa and Mastercard if someone enters expired card information. It can also provide partial approval when a customer has insufficient funds, allowing them to add another payment method so you don’t lose a sale.
Plus, our global payment gateway allows you to accept sales from all around the world, regardless of borders. You’ll also get access to a wide variety of customer insights with the Pay Dashboard. Retrieve and filter information about payment methods, cash flow, KPIs, revenue, and more next time you need to make an important business decision.
The Bottom Line
Like everything in the retail and ecommerce space, payment processing is changing quickly. As technology advances, our processes are becoming faster and more efficient. While that can boost customer experience, it also brings on its own challenges that payment organizations must work to address.
Let Pay.com manage the evolving world of payments for you. You can depend on our robust solution to support your business growth while keeping up-to-date with all of the latest payment trends. Click here to create your account now!