Payment Solution Trends in 2024 and beyond
With technological progress, carrying a significant amount of cash for our purchases is no longer necessary. Instead, we can streamline our wallets and purses by opting for plastic cards or, even more conveniently, using our smartphones for transactions. This shift not only enhances convenience but also reflects the ongoing trend of reducing reliance on physical currency in favor of digital payment solutions. This article looks at current and future payment solution trends, the challenges that are faced, as well as success stories and strategies.
6 Emerging Trends in the Payment Industry
Buy Now, Pay Later (BNPL)
Buy Now, Pay Later services have been in existence for some time. Initially, major department stores led the way with their private-label Visa or Mastercard credit cards, allowing customers to make credit purchases and pay back within a specified period.
However, setting up such private-label credit cards was beyond the means of most small retailers, making BNPL primarily the domain of larger players for decades. This has changed with the introduction of new BNPL solutions. Affirm, a financial services startup, pioneered a different approach in 2012, followed by Afterpay in 2014, and now we have other players like ZipPay and Klarna.
For example, you can shop anywhere online and in-store with the Klarna app, enjoying the flexibility to pay as you like. Klarna offers the One-time card for easy bi-weekly payments with a service fee, allowing you to shop your favorite brands and earn rewards. With Klarna for Chrome, you can now split purchases directly from your desktop, hassle-free, and manage all payments conveniently through the Klarna app.
The essence of BNPL lies in introducing a middleman to the payment process. For instance, Afterpay acts as an intermediary between the retailer and the customer, handling the payment to the retailer and ensuring the customer adheres to the agreed-upon payment use terms.
BNPL services provide customers with a flexible, interest-free payment option, allowing merchants to secure sales even if customers don’t have the full amount at the time of purchase. BNPL has gained widespread adoption, becoming a familiar concept for consumers in many places. If you don’t offer it, customers might opt for alternatives elsewhere.
Cryptocurrency and Blockchain
The surge of Bitcoin and other cryptocurrencies has been a big financial topic lately. Digital payments, especially in this form, are getting a lot of attention from merchants. Bitcoin and blockchain emerged in 2008 but took some time to gain traction. Initially, dealing with them was tricky, and most people found it hard to grasp. However, things have changed.
Fintech companies have been actively developing initiatives to make it easier for merchants to adopt this technology. Various payment providers offer solutions that aim to enable merchants to accept cryptocurrency payments, usually through eCommerce integrations and open banking.
For merchants, this opens up a new way to attract customers. Crypto enthusiasts actively seek out merchants accepting crypto, and those who embrace these solutions early could gain an edge in securing this demographic before the competition heats up. While crypto and blockchain have become mainstream, widespread adoption of payment solutions might take some time. Jumping in now can provide a competitive edge, but it might be a while before it becomes a business necessity.
The pandemic sped up many fintech areas, but none more than the contactless payment trend. Although around for years, people used to see it as an option – use it if it’s there, don’t mind if it’s not. Now, it’s a must for touchless purchases. Unfortunately, if you’re not already using it, you’ll need a hardware update.
Using near-field communication (NFC) technology, contactless payments let you pay by holding your card, phone, or wearable close to the payment terminal. No need to search for cash, and no PIN is needed. During the pandemic, it became a safe way for merchants and customers to transact in person without the fear of transmitting germs. Contactless payments are for now. The pandemic changed how we do business, and people will expect a cashless, contactless option even after it’s over.
Many customers use biometric payment methods by tapping their fingerprints on their phones to verify their identity and access their digital wallet. This kind of biometric payment system is already part of the mobile payment tech on the customer’s smartphone, and merchants with NFC readers can accept these transactions at the checkout.
There are also newer and more intriguing forms of biometrics. Biometrics involves using a physical characteristic like a fingerprint or face scan to verify identity and authorize payment. Face scanning payments are becoming more widespread, with examples like facial recognition payments in Russian metro stations and a facial recognition payment system introduced by the LA-based startup, PopID, for restaurants and retailers in 2020. This system allows customers to authenticate payments without physical contact. Fingerprint-protected mobile wallets are for now, offering a fast and contactless way to pay. However, the future of facial recognition payments is still uncertain.
Cross-border payments are money transfers from one country to another, done by individuals, businesses, or even governments. These transactions often involve different currencies and can be vital for people supporting families across borders, especially for housing or healthcare.
Historically, these payment experiences have been slow, expensive, and complex. However, fintech companies have introduced solutions to make them quicker, cheaper, and simpler.
There are a couple of ways to achieve this. Online banks like Wise use the real exchange rate and charge a low, transparent fee, saving consumers money compared to traditional banks that typically charge 3-5% on international payments. Another option is blockchain technology, which eliminates middlemen and their fees, allowing for cost-free cross-border payments in cryptocurrency. However, this method might be challenging for users unfamiliar with crypto.
Cross-border payments can be for now or later as it depends on your business needs. If you require cross-border payments, it’s worthwhile to explore cheaper alternatives than traditional banks.
Peer-to-peer payment apps are transactions between two individuals, not businesses. Platforms like Venmo or PayPal have gained popularity, making it convenient for friends or family to send money quickly. Previously, settling a debt after dinner might involve getting bank details and waiting days for the transaction. Now, with apps like Venmo, users link their bank accounts for real-time payments.
While not ideal for established businesses, it’s great for small businesses or freelancers. If you’re a sole trader selling goods or services, peer-to-peer platforms simplify payment without requiring advanced technology. Peer-to-peer payments are for now, especially beneficial for small businesses and sole traders, but not practical for larger companies with multiple employees.
Challenges in the Payment Processing Industry
As the shift toward online and mobile payments continues, ensuring the security of transactions becomes a paramount challenge for payment processors. The dynamic nature of cyber threats requires constant innovation to implement robust security measures that can thwart emerging fraud tactics.
Payment processors must navigate a complex regulatory landscape, with various compliance requirements, including Know Your Customer (KYC) and Anti-Money Laundering (AML) laws. The challenge is heightened when conducting cross-border transactions due to the lack of uniformity in regulatory frameworks across different countries. Adhering to data privacy regulations further adds to the regulatory burden.
The lack of consistency in cross-border regulations poses a significant challenge. Each country has its own set of rules and compliance standards, making it challenging for payment processors to seamlessly adhere to multiple regulations when facilitating transactions across borders.
Intense Market Competition
The payment processing industry is highly competitive, with numerous companies vying for market share. While this competition fuels innovation and improved services for consumers, it creates challenges for smaller firms attempting to enter the market and establish themselves among established players.
Adapting to Changing Consumer Behaviors
Consumer preferences are rapidly evolving, and payment processors must align their services with changing expectations. Consumers now demand convenient, user-friendly payment options that require minimal effort. Adapting to these changing behaviors means payment processors need to offer simple and streamlined payment processes that enhance the overall user experience.
Successful Payment Solutions in 2023 and Their Strategies
Below are examples of some successful payment solutions and how they’ve achieved their success.
PayPal’s Winning Formula
PayPal stands out as one of the world’s largest payment processors, boasting over 400 million active accounts. Its success lies in its user-friendly interface, easy navigation, and robust security features. PayPal’s strategic expansion, including acquisitions like Venmo, has broadened its payment options, contributing to its widespread success.
Square’s Key Ingredient
Square, with a focus on small businesses, has thrived by offering innovative products like Square Reader, allowing small enterprises to accept credit card payments through their mobile phones. Square’s success extends to diversifying its services, incorporating financial solutions such as loans and payroll processing to cater to the unique needs of small businesses.
Stripe’s Path to Progress
Specializing in online businesses, Stripe’s triumph is attributed to its developer-friendly platform. This platform facilitates seamless integration of payment processing into websites and mobile apps, catering to the needs of online enterprises. Stripe’s evolution includes the incorporation of fraud detection tools, subscription billing, and other services, demonstrating its commitment to continuous innovation.
The success of these payment solutions stems from their dedication to creating user-friendly, secure, and innovative solutions tailored to their specific markets. Additionally, their expansion into other financial services and strategic partnerships with complementary companies have added significant value to their offerings, contributing to their overall success.
As next generation digital payments gain popularity, the payment processing market is projected to witness sustained growth. The emergence of new technologies provides payment processors with opportunities to innovate and introduce fresh solutions to meet evolving customer needs. This ongoing expansion highlights the dynamic nature of the industry, with ample room for advancements and enhancements in the realm of payment services.