A number of key themes are impacting the payments sector and will continue to do so over the coming years. According to GlobalData’s latest research, the companies that choose to invest in those themes are the most likely to succeed. Evie Rusman writes
Over the past 12 months or more, tech giants such as Amazon, Ant Group, Apple and Visa have been investing in key themes as well as acquiring companies within these sectors.
GlobalData argues that the companies that are able to dominate these themes will be able to control the payments industry and push out competitors.
Payment disruption is largely driven by new technologies such as AI, mobile payments and cloud services. “As a result, technology companies are taking the lead ahead of traditional banks and payment providers in many of the key themes,” notes GlobalData’s report.
GlobalData has identified several key themes impacting payments:
The main application of AI and machine learning technologies in payments is for fraud detection and prevention.
These technologies are able to identify suspicious behaviour patterns that may indicate an account is being accessed by someone other than the registered user.
AI is also being used to make more data-driven decisions based on customer usage patterns. The aim is to provide more personalised customer experiences.
Global Data predicts that AI will be one of the most important themes over the coming years. The report notes: “People want a more personalised service when it comes to their finances. Through the advent of AI, payment companies can offer this hyper-customisable experience to their users by employing algorithms that learn a user’s spending habits.”
The current interest surrounding blockchain is mainly due to cryptocurrencies. Some payment companies are looking to provide access to cryptocurrencies to customers or play the role of exchange platform to facilitate access to cryptocurrencies.
For instance, PayPal has added cryptocurrencies as a payment method. Central banks are also developing their own digital currencies.
GlobalData says blockchain can help the payment industry by providing infrastructure that is difficult to hack and enabling RTP.
The crypto sector is also expected to see new regulations due to its volatile nature. India has announced it will propose a bill that banks cryptocurrency.
Due to the pandemic, cybersecurity is a critical area for payment companies to invest in, because country lockdowns meant the volume of online transactions increased significantly.
And with the increase, the levels of online fraud also rose. For example, UK banks such as Barclays have reported that customers are being targeted with email and SMS scams that deceive them into giving up money or sharing private information.
GlobalData recommends companies invest in technology such as AI to prevent fraud. In addition, biometrics such as facial recognition are an effective way to reduce payment fraud.
“The importance of cybersecurity will keep growing as more people get used to transacting digitally – a transformation that is being accelerated by Covid-19,” says GlobalData.
The company also warns that payment companies need to be one step ahead of fraudsters and hackers to ensure the safety of their operations, and the way to do this is through AI.
Mobile payment adoption has accelerated at the hands of Covid-19, with payment methods including QR codes and NFC becoming more common.
Mobile money is primarily being adopted in developing countries in Africa, Latin America, and Asia. The adoption of mobile money is mainly due to the fact large proportions of the population are unbanked and don’t have access to payment cards and so on.
QR code adoption in Asia has also been boosted by the low setup costs for merchants. Meanwhile, NFC is the primary mobile payment method in Western countries
The report predicts mobile payments will continue to increase in regions where cash is still the main payment methods, such as Africa.
“There will be further development of solutions that allow remote contactless payments with digital wallets by using phone numbers or emails,” adds GlobalData.
More regulations for fintechs are coming into effect – in Europe and North America, fintechs that aim to provide lending services have had to apply for online banking licences and are being fully regulated. Some countries, including the UK, are also looking to regulate sectors such as BNPL.
China has shown strong signs of regulating fintech companies and imposing bank-like restrictions if they want to provide financial services.
The report outlines that new regulations in fintech are expected to be introduced, which will force them to work within the same framework as banks. It also says fintechs that provide loans will need to improve their KYC procedures and loan approval rating systems.
Similar regulations are likely to be imposed on the BNPL sector, making it more difficult for applicants to be approved for BNPL loans.
Covid-19 forced many retailers online and this meant they had to improve their digital platforms. As a result, many partnered with payments companies to help streamline the payment process for online shopping, integrating more efficient checkout services.
By making more payment options available, retailers are likely to experience lower levels of cart abandonment, driving revenue up.
In addition, more companies are adding BNPL services to their portfolios in order to remain competitive.
“After the pandemic is over, consumer behaviour is not expected to change for the majority who adopted online purchases, which are ultimately quicker and more convenient. This will lead to further growth in ecommerce market share as more consumers switch from physical stores to online merchants,” says GlobalData.
Covid-19 is still impacting the world economy. It has forced the adoption of electronic payments among individuals who were still dependent on cash. Businesses adapted to facilitate online payments, as well as contactless payments in stores.
Many of the habits consumers have developed due to the impact of the pandemic are expected to persist going forward. Changes to expect include a gradual decline in cash transactions in favour of cards, contactless payments, and online payments.
Cloud technology has been widely adopted across most payment companies. It helps them develop new features and quickly deploy them.
Tech companies that developed their own cloud systems benefit from adoption of cloud technology, as they are becoming the main providers for banks looking to improve their systems.
Cloud tech is also effective in developing and implementing cybersecurity solutions and providing POS software to businesses.
Sustainability has become a hot topic in all sectors not just financial services. Customers now expect payment companies to up their sustainability measures in order to reduce their carbon footprints and battle social issues.
The report notes: “Companies are facing increasing pressure from consumers to adopt more ethical and environmentally conscious business practices. This is likely to make companies integrate environmental, social, and governance solutions as part of their business strategies.”
So far, companies including Mastercard and Visa have introduced sustainable bank cards, while others are promoting virtual cards.
Furthermore, a number of banks have joined the Glasgow Finance Alliance for Net Zero (GFANZ), which aims to transition the finance sector to net-zero emissions by 2050.