The third in our series, A Deeper Dive in Payments 2024 that further explores the top four key focus areas outlined in our Future of Payment’s Top 10 List based on the ongoing evolution of the payments industry.
Focus Area #3: Fundamentals & Flexibility Surrounding Interoperability
Increasing focus will be placed on creating flexible, frictionless systems that allow smooth money movement across different payment platforms and borders. There will be significant investment/development of open-loop systems and collaborations between digital wallets and technology platforms to enhance P2P payment apps and real-time payouts. There is an ongoing trend towards the convergence of different payment methods or the integration of various payment services to provide more comprehensive solutions. Six main areas stand out when it comes to interoperability within the payments industry:
- Digital identity/wallets;
- Cybersecurity/cyber resilience;
- BNPL;
- Real-time payments;
- New retail payment solutions
- Regulatory technology (RegTech).
While digital identity/wallets will continue to evolve in the payments industry, there are currently real business needs for further innovative solutions in wealth management and investment strategies built on blockchain technology providing a secure, transparent platform for digital asset transactions which will benefit the payments industry through use cases and investment scenarios. Financial institutions/payments entities are clearly exploring blockchain-based tokens for liquidity and transparency in markets and this effort will continue in centers of excellence and think tank type environments. A good market example of collaboration in this area is the Open Wallet Foundation that is working towards global adoption of interoperable digital wallets, with a focus on user transparency, choice and control. Digital wallets are evolving to include non-payment essentials like IDs, health insurance cards, and transit passes, moving towards comprehensive digital identity solutions.
Across the financial services/payments industry, there is an even more pronounced business need for comprehensive cyber resilience strategies for protecting data and maintaining trust and technology groups are in heavy development of automated cyber defense systems and integrated security frameworks. During 2023, BNPL grabbed a lot of fintech/payments headlines and provided end consumers with new/expanded ways to handle their transactional/cash flow needs. This trend will continue in 2024 with growth in sophisticated BNPL services and POS financing, tailored to specific retailer requirements and customer needs. There will be focus on creating bespoke POS financing programs and monitoring the regulatory landscape, particularly in the areas where fintech/payments face heightened regulations.
Without question, the U.S. is seeing growth in the “pay by bank” methods, driven by open banking-based technologies and account-to-account payments under the umbrella topic of “real-time” payments, emphasizing accessibility in payment processing. There is also growing demand for faster cross-border payments, especially among small businesses, with expectations of instant payments and guaranteed delivery amounts with the integration with new payment solutions to move towards a reality of nearly instant international transactions in addition to the move toward domestic U.S. solutions.
When it comes to new retail payment solutions, businesses need to adapt to consumer preferences to extend financial services accessibility with an increasing preference for digital payment methods, driving fintech innovation while ensuring technology is leveraged to provide efficient and user-friendly engagements. Development of unified platforms for shopper recognition, simplified returns, and enhanced checkout experiences, including biometrics and Tap-to-Pay solutions will be key. Additionally, the integration of payment systems across consumer-facing channels, emphasizing omnichannel experiences like “buy online, return to store” and the increasing significance of Shopper ID and loyalty programs. As the financial services/payments landscape continues to evolve, development of technology solutions for streamlined compliance processes need to emerge and entities will need to turn more and more to RegTech solutions for compliance, risk management, and adhering to regulatory frameworks.
To adapt to these trends, businesses should invest in new technologies and focus on customer-centric solutions. The overarching themes for 2024 emphasize speed, convenience, and security in payment processing.
