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#Payment Technology

Digital payment trends and opportunities

9 Mins.

The payment industry is in a constant state of evolution, facing new challenges and opportunities on several fronts that are shaping the future of payment technologies. In an interview with Maud Prévert-Augustin, Market Intelligence Card & Digital Payments at G+D, and Kurt Schmid, Managing Director Digital Banking, Netcetera, we take a look at some of the biggest payment trends banks and payment providers should keep an eye on this year.

Spotlight interview

Spotlight interview with Maud Prévert-Augustin, Market Intelligence Card & Digital Payments at G+D, and Kurt Schmid, Managing Director Digital Banking, Netcetera.

What are the key payment trends to keep an eye on in the next 12 months?

Portrait of Kurt Schmid, Managing Director Digital Banking, Netcetera
Kurt Schmid, Managing Director Digital Banking, Netcetera

Kurt Schmid: Sustainability is certainly one of the overarching topics. The road to ESG (environmental, social, governance) is top of every bank’s agenda as they look to reduce their carbon footprint. It is a trend that isn’t going away and that consumers are increasingly demanding more of.

Another trend is the growth of neo-banks and digital wallets, which continue to disrupt the traditional banking industry. This somewhat overlaps with the topic of embedded finance, as we see more and more non-banking companies embedding financial services into their apps and products to simplify and enrich the customer journey.

Of course, artificial intelligence is an especially hot topic right now. There are several interesting use cases for AI, from improving user interfaces to personalizing lending options based on a customer’s data.

Maud Prévert-Augustin: I would add peer-to-peer payments and micropayments, which are becoming more popular, as it makes it easy for individuals to make fast payments for small transactions. Inclusive finance is also an emerging trend, driven by fintechs seeking opportunities in previously unexplored niche markets.

8 top trends in payment

That’s plenty of topics to cover. What are some of the ways banks can become more sustainable?

Maud Prévert-Augustin: At G+D, we pledged in 2022 to end the use of virgin plastics in all payment cards by 2030 to support our banking partners in their sustainability efforts. We were the first in the payment industry to make this commitment and surely it will inspire others to follow suit.

Kurt Schmid: Another concrete example is using ocean plastics for bank cards or, indeed, moving away from plastic completely and using bio-plastic substitutes. This is something many banks are already doing. Personally I would also like to see digital receipts become the norm. It doesn’t make sense that we can pay for everything digitally but still receive paper receipts. It’s a waste of paper and ink. And when we need them, we usually can never find them anyway.

In addition to being more sustainable, it would also be more convenient. Is that also the appeal of digital wallets?

Kurt Schmid: Exactly. Digital wallets, or super wallets, provide more than just payment capabilities; they offer a whole host of services within a single platform. A good example is WeChat in China, which offers everything from social media and instant messaging to making purchases on e-commerce sites and accessing credit. They have laid the blueprint for super wallet capabilities, though the model cannot be followed 100% in every region due to data privacy regulations.  

Maud Prévert-Augustin: Grab in Southeast Asia and  PicPay or Mercado Pago in Latin America are three more examples. We are seeing a lot of growth in the super wallet space, particularly in emerging countries. The big question is how these apps will continue to develop and what the implications are, in terms of banking infrastructure, personal data and fraud.

How can banks leverage the potential of the super wallet to stay competitive?

Maud Prévert-Augustin: We are working with our banking customers to identify ways they can adapt their business models and take a leading role in this space. Banks have the advantage of trust on their side, making them prime candidates to develop wallets and apps that go beyond just banking and payments. To do this effectively, however, they need on one hand to integrate agile partners, offering services like insurance, special offers, and loyalty programs. On the other hand, the convenience of a super app has to be paired with customer authentication and payment security.

How does this overlap with embedded finance?

Kurt Schmid: Embedded finance is essentially another way to become part of a consumer’s buying journey, specifically when it comes to financing. So, instead of offering e-commerce possibilities or insurance within their own app, banks would have their financial products embedded into the third-party provider’s platforms.

For example, imagine you are purchasing a new fridge online. You register with an online shop, give them your details and then you get to the payment, where they ask you if you want to purchase the fridge using credit. The credit itself is provided by a bank, but the full end-to-end user journey and data sharing are with the merchant. They are happy to make a sale and the banks are happy because they now have an opportunity to upsell other products to these customers. It’s a win-win and we are going to see more partnerships like this between banks and providers moving forward.

So, embedded finance is the opposite of a bank having its own wallet, but the two aren’t mutually exclusive?

Kurt Schmid: Exactly. It really depends on the situation. It’s unlikely that a consumer will log into their banking app and think “I need to buy a fridge” – this isn’t where the typical user journey would start. So, embedded finance would be the better solution here. But for ordering local products or taking advantage of services like insurance or special offers, it would be convenient for a consumer to do this directly from a banking app or wallet.

Sticking with the topic of lending, Buy Now, Pay Later (BNPL) is another trend that has exploded in recent years and is currently a big talking point. How can banks lean into this trend?

Portrait of Maud Prévert-Augustin, Market Intelligence Card & Digital Payments at G+D
Maud Prévert-Augustin, Market Intelligence Card & Digital Payments, G+D

Maud Prévert-Augustin: BNPL has had its ups and downs, but it remains an attractive option for many due to its speed and convenience, especially for the younger generations and those who don’t use credit cards. Unfortunately, many are still unaware of the potential pitfalls, such as being locked into lengthy and expensive installment plans. This has led to stricter regulation and many BNPL providers have learned some tough lessons in the last two years.

Banks can take back control of consumer lending by embracing trends like BNPL, but in a more sustainable way. For example, app data gathered from a bank’s own digital wallet could be used to determine which consumers use installment payments and how much they can likely afford to borrow.

What are some other security challenges in the payment industry?

Kurt Schmid: Over the past decade, contactless, mobile wallets, and smartwatches have made in-store payments more convenient, while biometric technology, PIN codes, and other forms of authentication have made them more secure. The challenge, or rather an opportunity, is to now do the same in e-commerce. Currently, 20% of sales are lost due to customers not being able to authenticate or the user journey being too complicated, resulting in abandoned carts. We are working hard with the industry to make payments both secure and convenient.

“Sustainability is top of every bank’s agenda. It is a trend that isn’t going away and that consumers are increasingly demanding more of.“
Kurt Schmid
Managing Director Digital Payment, Netcetera

How exactly?

Kurt Schmid: One way to increase security when making online payments is through tokenization. This is a process that allows us to store our payment data in a secure and trusted location, making it easier to manage and reducing the risk of card data theft. Essentially, it involves replacing sensitive payment information, such as credit card numbers, with a unique identifier known as a ‘token’.

Nowadays, many of us have payment credentials stored at dozens of online merchants. This can make it difficult to keep track of and control our data effectively. Tokenization solves this problem by allowing us to consolidate our payment information in one place, making it easier to manage and reducing the risk of fraudulent activity. By using a token instead of a credit card, a user’s payment data is protected from being compromised in the event of a data breach at the merchant.

The payment process itself is also streamlined. All you need to do is use your banking app to register your card at a merchant and push the payment token from the app. We are proud to be jointly providing many good services to the market in this space.

The other is a technology called EMV®® Secure Remote Commerce (SRC), a new standard that enables customers to ‘Click to Pay’ instead of entering credit card details with every merchant. SRC simplifies the checkout experience in a more secure way with automatic recognition of users and their devices.

Are instant Account-to-Account (A2A) payments becoming also popular?

Maud Prévert-Augustin: In some regions, indeed. Once again, it’s about speed and convenience. Previously, it would take several days, or even weeks, to transfer between bank accounts. Since the neo-banks came on the scene, the payment industry is more digitalized, transactions can now be made instantly.

Adoption is driven by merchants who want to lower their payment acceptance costs, given the high fees in some regions. It is cheaper for them if consumers use alternative payment methods like A2A or BNPL rather than traditional credit cards. Additionally, where POS-terminals are less available, QR-code front-end may also facilitate instant payments.  Finally, government influence is also a factor. Demonetization and digitalization in India were a driving force behind the Unified Payments Interface (UPI), while in Brazil, the Central Bank created Pix to roll out instant payments. Meanwhile, in regions like Europe or North America, instant payments aren’t really picking up.

Artificial intelligence is another huge trend right now. How can AI be used to enrich the payment industry?

Kurt Schmid: Every customer has different financial needs, which means banks need to be more flexible. AI can help banks and payment systems make better use of customer data to provide more personalized services, in real-time.

Maud Prévert-Augustin: AI will especially enhance open banking, which is already a powerful tool that increases personalization opportunities. For example, payment providers could use AI to analyze and gain a comprehensive understanding of their customers' spending habits and tailor offerings for products like mortgages and loans. Of course, for this to work the customer must agree to embrace open banking and allow their different banks to share all their account data with each other, but it opens up plenty of opportunities.

Is financial inclusion also a form of personalization? By catering to the needs of all customers?

Maud Prévert-Augustin: You could say that. Diversity is a huge trend and we are seeing a lot of fintech companies offering products to niche groups. For example, to small-to-medium businesses, ethnic minorities, or senior citizens – the ‘silver aged’, as Kurt likes to call them! It’s an opportunity fintechs have seized well and that traditional banks need to look at more closely. Some banks are even buying these fintechs to grow their own portfolios. At G+D, we are working to develop more accessible payment solutions.

Is there also an accessibility issue here?

Kurt Schmid: Indeed. Older people still prefer to go to branches to do their banking, but many of the branches are closing. Especially in the countryside. Some people don’t like using digital apps because it’s too difficult or the lettering is too small. Young people are fine; they grew up with technology, but it takes longer for things like online banking to become a learned process among senior citizens. There’s no one-size-fits-all solution; there needs to be a mix between human and digital channels when it comes to banking and payments. I think this is something we will see more consideration of moving forward.

Published: 28/04/2023

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