With half the year gone, several exciting trends are shaping the payments industry and transforming the experiences for customers, merchants, and payment firms. Here, we assess where the biggest changes will come from this year.
AI
This year, Artificial Intelligence has captured the world’s imagination, and people discuss how it can transform new areas of business and daily life. Payments are no different, and people across the industry are excited by how this technology could drive accuracy, speed, and cost efficiency throughout sprawling payment chains.
Another exciting application is revolutionised analysis. Payment firms have access to vast amounts of data, which can be time-consuming to analyse manually. With AI, actionable and real-time insights can be instantly extracted, helping management teams predict cash flow, detect fraud, and analyse credit scores.
Blockchain
When blockchain is mentioned, most people assume it is restricted to cryptocurrencies. However, this technology is now changing how cross-border digital payments are made.
Traditional banks and payment systems struggle to keep up with today’s globally connected world with a growing number of digital natives. Blockchain offers something different – a 24/7 solution with negligible costs, full and final settlement, and internet access, which are the only requirements for engagement. The unique nature of the cryptographic identifiers generated in a blockchain also makes the technology secure, and the data tamper evident.
Traction is already happening, and adoption will soar in 2024. Leading research estimates that blockchain, responsible for $179bn of cross-border payments in 2019, will facilitate $4.4trn of these transactions this year.
Tokenisation
Tokenisation is vaulting a customer’s card and replacing it with a token, a string of numbers and letters. This allows businesses to process transactions without storing customers’ card data. Every transaction from the same card will refer to a corresponding token without the need to enter data again, which also means increased security for both the customer and the company.
Last year, it was estimated that tokenisation payments would record annual growth of 74% – reaching an estimated $1trn in total payment value by 2026. Now, major payment providers are increasingly exploring tokenisation. Most significantly, Mastercard recently committed to reaching 100% e-commerce tokenisation by 2030 in Europe as part of a global commitment to phase out manual card entry.
Digital wallets
These smartphone apps continue transforming transactions and have become increasingly popular with customers in various markets. They offer greater transparency, reduce processing effort, and keep transaction costs low.
Whereas these were once an alternative option for payment, they are now rapidly becoming the mainstream choice for many customers. In 2023, $13.9trn was spent in global transactions via digital wallets – representing half of online sales. This is forecast to continue gathering momentum and reach $25trn in 2027.
Interestingly, it isn’t just the private sector and many fintech apps driving this change. Since 2020, the European Commission has been working on its own digital wallet, called Wero, as part of the European Payment Initiative. This wallet is designed to eliminate intermediaries in the payment chain and make things cheaper for customers—a development to watch with interest.
Buy now, pay later
In recent years, the cost of living crisis has forced more customers to use Buy Now Pay Later cards. There are now more than ever to choose from, and these cards effectively work like micro-credit solutions, giving people the flexibility they need to deal with higher costs.
Inflation may be falling in 2024, but to the surprise of many, Buy Now Pay Later is expected to continue growing as a payment trend. Leading research finds the market value was $309.2bn in 2023, forecasted to grow at an annual compound growth rate of 25% until 2026. This suggests that Buy Now Pay Letter solutions are less about supporting customers during times of economic hardship, but instead how payment patterns are changing to reflect evolving customer behaviour.
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