By John Mitchell
There’s no doubt the smartphone ushered in a new wave of payments all those years ago, but the past few years have brought about another wave of change across the industry. We’ve seen rapid adoption of contactless and real-time transactions, which together account for nearly 70 percent of all payments in the United States, analysts have found. And consumer payment preferences are evolving with the next generation beginning to make financial decisions on their own.
As you might expect, the market is bursting with innovation, from the integration of alternative currencies to overall advancements in payments technology. While the industry continues to evolve, five key trends are shaping the payments landscape for the rest of this year and beyond.
Widespread acceptance of alternative currencies will be the prevailing trend in the payments industry in the next few years. By 2030, 60 percent of global consumers will have made a purchase with a payment other than fiat currency, according to an IDC info brief commissioned by Episode Six. The industry is already making moves to accommodate these newer currencies.
According to S&P Global, merchant checkout, credit card companies and financial apps are all adding digital currencies to the payments ecosystem to respond to fervent customer demand. Adoption of alternative currencies is so important, S&P Global said, “any payments company that has not begun to take this market seriously by the end of the year is likely to be at a significant disadvantage”.
In the next five years, real-time and contactless payments will be central to the payments industry, accounting for a quarter of all electronic payments globally, researchers have noted, while 95 percent of physical non-cash payments will be contactless by 2030.
That future is rapidly approaching. Last year, global real-time payments totaled 118.3 billion, up a staggering 65 percent from the previous year. However, the United States lags behind the rest of the world. To catch up, payments companies must transform from legacy systems to more flexible, configurable, extensible tech that allows them to provide payments products based on consumer demands.
Along with product expansion, new entrants and innovators are contributing to the evolution of the payments ecosystem. Cloud-native virtual banks and non-FIs are the industry’s biggest disruptors, and these are not small-time players.
By 2030, non-FIs will handle 80 percent of consumer payments through mobile and connected devices. That’s not to say traditional FIs can’t remain in the race, but like other payments companies, they need to invest in the latest technology to meet consumer demands well into the future.
The payments industry is redefining what constitutes money, how money moves between parties, and what can be exchanged for purchase—and regulators and governments are starting to adapt to those changes. Open banking mandates in Europe have encouraged similar adoption in the United States, including a provision to Dodd-Frank that would allow for data sharing, a crucial component of open banking.
In addition, central banks and national agencies are increasing regulation before the launch of CBDCs to preserve consumer protection and the effectiveness of traditional monetary policy, according to the 2021 McKinsey Global Payments Report. Industry standardization is also driving change, including the adoption of ISO 20022 this year.
Technology is the backbone of payments industry advancement—and new systems are emerging to support adoption of such features as crypto, real-time and cross-border payments. Modern cloud-native core technology platforms, software-as-a-service, APIs, banking-as-a-service and the Internet of Payments are foundational to meet consumer demand for new payments models.
IDC expects that 60 percent of business-to-consumer ecommerce payments will be processed by a payments facilitator by 2030. Today, one in 10 merchants are already using an integrated processing service with significant growth expected over the next 12 to 24 months.
John Mitchell is the CEO and co-founder of Episode Six, a company that modernizes payment processing and banking infrastructure, removing the constraints of legacy technology. He is an expert and recognized leader in the global payments industry with decades of fintech and payments expertise in leading and growing companies and startups. Connect with him via LinkedIn at https://www.linkedin.com/in/john-mitchell-atx/ or via email to email@example.com.
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