By Dale S. Laszig
Pay-by-bank. Tap-to-phone. Embedded payments. Generative AI. What will the game-changers be in 2024? This article is the first in a series focused on the coming new year, with payments industry leaders looking ahead to new paradigms and possibilities.
Kate Hampton, chief strategy officer at NMI, advised payments industry stakeholders to design next-generation products and services for next-generation consumers, many of whom are driving adoption to mobile wallets, pay-by-text and biometric payment methods.
"Younger consumers are familiar with this type of technology since they perform actions like using their faces to unlock their phones every day and expect that same level of ease and security when it comes to payments," she said. "Gen Z consumers are also looking for biometric options to be available in ecommerce settings, making these payments even faster and easier."
Hampton mentioned that younger consumers, who seek alternatives to debit and credit cards, have been a driving force in the buy now, pay later (BNPL) boom. To reach this segment, merchants need to offer mobile, biometric and BNPL payments options, she noted, as Gen Z consumers continue to enter the workforce and acquire more buying power.
She also pointed out that Gen Z consumers who have a subpar payments experience have no problem abandoning a payment or taking their money elsewhere.
Hampton also expects embedded payments to take center stage in 2024, as embedded payments simplify and expedite merchant onboarding and more merchant accounts are issued through software. Software and payment convergence is nothing new, but these trends are making software-led offerings an industry standard, she added.
"Industry stakeholders must prioritize implementing embedded payments or risk getting left behind as more and more merchants seek these offerings," she said. "Any embedded payments technology must lead with flexibility, modularity and choice as more and more use cases will need to be supported by independent software vendors (ISVs) that each have unique payment needs."
Michael Seaman, CEO and founder of Swipesum, also expects to see more vertically focused financial services, retail and hospitality customer experiences.
"This trend is amplified as more software companies own the payment processing embedded into their offerings," he said. "Consequently, this evolution poses a challenge for non-tech-based ISOs and agents, as they struggle to compete with businesses that have seamlessly incorporated payments and fintech services into their software platforms."
In an August 2023 Datos Insights study, Embedded Payments: The Next Step in the Evolution of Payments, author Thad Peterson positioned embedded commerce as an evolutionary milestone for payments.
"While powerful, the complexity of the payment ecosystem creates challenges for implementation, particularly in cross-border scenarios," he wrote. "Merchants and the processors that serve them should develop friction minimization strategies and tools that include an embedded payments solution."
Carly Furman, CEO of Nayax North America LLC, predicts cross-border payments will continue to scale in 2024, stating, "With the globalization of business and increased international transactions, there may be a focus on improving cross-border payment systems to make them more efficient and cost-effective."
In January 2023, Juniper Research projected $40 trillion in global B2B cross-border payments by the end of 2024, largely driven by ecommerce marketplaces and their international shoppers. Noting that global cross-border payments have been difficult to track across the globe, Nick Maynard, co-author of B2B Payments Market Research, remarked that cross-border payments are becoming more agile and interoperable.
"While cross-border instant payments are not yet widespread, only accounting for 8% of cross-border transactions by value globally in 2024, significant progress is being made in linking up national instant payment schemes," he said in a statement. "This can unlock substantial improvements for B2B transactions. B2B payment vendors must be driving further integration of the instant payment rails they support on a national level to solve the difficult challenges with legacy payment channels."
Ofer Friedman, chief business development officer at AU10TIX, stated that disparate digital identity standards further complicate a fragmented global payments landscape. Apple and Google, for example, design digital wallets that are compatible with the mDL standard, he stated, while others build on other digital credentials, such as W3C, a proprietary Australian standard and eIDAS, which is popular in Europe.
Mark Brady, vice president, emerging product at AU10TIX, agreed that digital identity verification (IDV) needs to be interoperable across regions. Looking ahead, he expects to see more experimentation and collaboration among IDV service providers. "There are many different regional or professional standards out there, and we need to figure out how they can coexist together and be accepted universally," he said.
For Friedman, these incompatibilities among standards and regulatory hurdles placed by governments on verifying credentials make it difficult for local and cross-border IDV providers to identify people, but make it easier for criminals to attack infrastructures at scale.
"In 2024, we will see the first attempts to break into digital wallets," he said. "We have already heard talk about fraudsters either breaking into mobiles to change them, or creating a new type of fake—the faking of QR codes that can be used to get data out of the wallet."
David Mouatt, vice president, SOC operations at Arkose Labs, expects to see a plethora of volumetric attacks in 2024, many of which will be difficult to detect. "It's going to be a tumultuous, unpredictable year, as generative AI comes into its own in the security world and cybercrime-as-a-service empowers more rookie and novice attackers to use bots and human fraud farms to steal money from consumers' online accounts," he said. "We're at a moment of time where many things are changing, and payments companies need to be agile."
Prepare now for a revival of social engineering attacks, Mouatt added. Generative AI will continue to reshape phishing and in-product chat abuse. Its ability to write pristine emails, mimic real voices and create realistic images will make it harder to determine who is human and what's a bot.
Citing an Arkose Labs study, Mouatt noted that in 2023, bot-driven payment attacks increased by 30 percent in the second quarter, compared to the first quarter, and by 19 percent in the third quarter, compared to the second quarter. The gift card sector was particularly hard hit, he added, with a 7,319 percent increase in the third quarter over the second quarter.
Mouatt urged security teams to mitigate fraud by leveraging AI, which he called an accelerant for cybercrime and cybersecurity. As cybercrime-as-a-service puts off-the-shelf, ready-made bots in the hands of novices, AI and other advanced technologies can help stem sophisticated attacks that can be launched without expertise or coding, he noted.
Swipesum's Seaman has seen industry leaders leverage AI to detect and prevent fraud in real time and expects this trend to intensify in the coming year. "As fraudsters become more sophisticated, leveraging tools like AI, we must continue to adapt our strategies to counter new types of fraud, particularly those involving deepfakes and advanced phishing schemes," he said. "We're already seeing this with bogus applications."
Kevin Pettet, chief revenue officer, North American banking for Bottomline, expects multi-bank relationships to become a corporate staple in 2024, following a tumultuous year for banking in 2023.
"If you're a commercial banker, the best way to manage this trend is by owning the primary banking relationship," he said. "Maybe your corporate accounts have multiple banks, but they're going to have one primary operating account through which they will consolidate the majority of their services." To achieve that primary relationship, Pettet said, banks will need to offer new revenue streams to business customers, similar to credit card interchange models. Banks that enable corporate customers to make payments will solidify primary relationships and increase revenue, he added.
Pettet further noted that multiple bank relationships can complicate cash flow management. Financial institutions that provide a holistic view of a business's cash position across all banking relationships, coupled with meaningful forecasting tools, will make finance teams' jobs much easier and help these banks own the primary relationship, he added.
Insider threats at financial institutions and other corporations, are also on the rise, Pettet noted, stating that he expects banks to become more aggressive in detecting threats and defending against them. "And I'm not talking about insider trading here," he said. "I'm talking about employees who steal money, steal data, manipulate data and access privileged information."
Noting that Insider fraud has accounted for over one-half of all bank fraud and embezzlement cases closed by the FBI during the past several years, according to The Federal Deposit Insurance Corporation data, Pettet suggested the trend began with pandemic-driven hybrid workers, using connected devices at home, and subsequently spread to other use cases.
"Insider threats need to be met first with technology that can monitor employee interactions to core banking systems and privileged data usage," he said. "Second, they need to be addressed culturally by educating the workforce about the patterns inherent in insider threats, such as an employee who suddenly wants access to data or systems he or she did not previously have. Third, enterprise case management solutions need to be deployed that can help financial institutions organize, prioritize and manage insider threats in one system."
Pettet maintained that in the chess match between fraudsters and fraud defenders, it's important for financial service stakeholders to stay one move ahead of the bad guys, especially in the current economic climate, where higher interest rates and reduced commercial lending are impacting major profit centers. Digitalization can help reduce manual processes and increase payment monetization, and migrating check payments to electronic payments can reduce operating costs, create unique experiences and drive innovation, he advised.
Seaman emphasized the need for advanced encryption and tokenization in a digital-first world, with mass adoption of network tokens significantly enhancing payment security, customer experience and lower interchange costs. Since April 2022, Visa's tokenization program has helped participating merchants reduce interchange fees and heighten security, he stated.
"These tokens, designed to mask the Primary Account Number of a cardholder, not only bolster security but also streamline the transaction process," he said. "This innovation has led to notable improvements in authorization rates, with Visa reporting a 2 percent increase for merchants utilizing network tokens."
John Arato, senior vice president of sales at Pax Technology, has seen payments evolve from point of sale to points of interaction and from uniform hardware populations to secure, open source, cloud-enabled technologies that users can freely customize.
"We should continue to see growth in the use of payment terminals that utilize the Android operating system," he said. "Android will provide enormous flexibility for merchants who want to develop and run unique applications on their payment devices including their own POS software."
Looking ahead, Arato expects to see continued interest in tap-to-pay solutions among consumers and merchants, with more movement toward tap-to-phone, barcode-based POS solutions and AI usage in payment transactions. He advised payments industry stakeholders to embrace change, stating, "Don't be afraid to take on new challenges and offer new products and services that will make your solution unique in the marketplace."
Part 2 of this series will appear in our Jan. 8, 2024, issue and will explore additional harbingers of digital transformation across payments and financial services. Our year-end wrap-up article will appear in our last issue of 2023. 
Dale S. Laszig, senior staff writer at The Green Sheet and founder and CEO at DSL Direct LLC, is a payments industry journalist and content strategist. Connect with her at dale@dsldirectllc.com, LinkedIn www.linkedin.com/in/dalelaszig/ and Twitter https://twitter.com/DSLdirect.
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