What Does Payments' Future Hold? Trends to Pay Attention To

The future of the payments industry is clearly moving towards digital solutions, driven by rapid changes in the fintech world. In the United States, the common sight of people making payments with their smartphones using contactless technology highlights the shift in payment methods. Other countries have adopted alternative digital payment methods, such as sending text messages or using QR codes for instant debits.

Traditional forms of payment, like checks, have been on the decline for years and are unlikely to regain widespread popularity. In the UK, checks account for less than 1% of all retail bank payments, and cash makes up only 6% of the market. In some parts of northern Europe, checks have become entirely obsolete. The move towards digital payments is driven by consumer convenience, but it also offers benefits to merchants and financial institutions. Processing physical cash is costly and time-consuming, while digital payments require minimal human input with the right infrastructure in place.

Digital payments bring advantages in terms of security, compatibility, regulatory compliance, and speed. These factors contribute to the ongoing evolution of the payments industry as it continues to embrace and adapt to digital technologies.

The willingness and behavior to use digital payments have been subjects of extensive research, often grounded in models like the Technology Acceptance Model (TAM) and psychological theories. Previous studies have examined factors such as perceived ease of use, perceived credibility, perceived self-efficacy, accessibility, convenience, individual mobility, age, external influences, usefulness, perceived risk, trust, and emotional factors in influencing users' decisions to adopt digital payment methods.

Empirical studies on mobile payments in Taiwan, Germany, and Korea have explored different factors affecting early and late users, revealing that early users focus more on perceived ease of use, innovation, and confidence, while late users prioritize practicality and convenience. The impact of credit card incentive schemes, age, and perceived risk have also been identified as determinants of mobile payment willingness. Incorporating psychological factors, such as attitude, influence, and expected regret, has been recognized as crucial in understanding the operational behavior of mobile payments. Studies based on psychological account theory and social cognition theory have highlighted the positive impact of attitude on the intention to use electronic payment and the influence of expected regret on behavioral intention. In addition to individual behavior, macroeconomic factors and institutional considerations play a role in the adoption and use of digital payments. Quantitative analysis has shown that entrepreneurs with higher productivity and access to trade credit are more likely to adopt mobile money. The two-sided market theory has been applied to understand the market power of electronic payment networks, explaining slow absorption and asymmetric price changes. Security and privacy concerns have emerged as challenges influencing the public's willingness to use electronic payments. Preferences for specific payment methods, such as bank cards over mobile and biometric payments, have been observed, with consumers' positive attitudes towards high-tech products influencing their payment preferences.

Overall, these studies contribute to a comprehensive understanding of the factors influencing individuals' willingness and behavior to use digital payments, encompassing both individual and macroeconomic perspectives.

Financial inclusion

The 2021 Global Findex Database provides valuable insights into global access to financial services, offering a comprehensive view based on surveys of approximately 128,000 adults in 123 economies conducted during the COVID-19 pandemic. Key findings include:

Global Account Ownership: Worldwide, account ownership has reached 76 percent of the global population, with 71 percent of people in developing countries having access to financial accounts. Gender Gap: The gender gap in account ownership across developing economies has decreased from 9 to 6 percentage points, indicating progress in financial inclusion for women. Digital Payments Impact: Receiving digital payments, such as wages, government transfers, or domestic remittances, plays a catalytic role in encouraging the use of other financial services like saving, storing, and borrowing money. Utility Bill Payments: In developing economies, about 40 percent of adults who paid utility bills (18 percent of all adults) did so directly from an account. In China, 80 percent of adults made digital merchant payments, while the figure was 20 percent in other developing economies. Impact of COVID-19: The pandemic accelerated the adoption of digital financial services. Approximately 40 percent of adults in developing economies (excluding China) who made digital merchant payments and over one-third of adults who paid utility bills directly from an account did so for the first time during the pandemic. Mobile Money in Sub-Saharan Africa: Mobile money has emerged as a crucial factor in financial inclusion in Sub-Saharan Africa, particularly for women. It serves as both a driver of account ownership and a facilitator of account usage through mobile payments, saving, and borrowing. Financial Resilience: Around half of adults in developing economies could access extra funds within 30 days if faced with an unexpected expense, highlighting a level of financial resilience. These findings underscore the importance of digital financial services in advancing financial inclusion globally and demonstrate the significant impact of the COVID-19 pandemic on shaping payment behaviors.

Cryptocurrencies and blockchain technology have become prominent topics in the payments industry. Cryptocurrency is a decentralized digital currency not controlled by any government or institution, while the blockchain is the underlying technology that securely validates cryptocurrency transactions. The significance of cryptocurrencies in the payments industry is driven by the appeal of a decentralized system in an increasingly globalized world. Despite being relatively new concepts, cryptocurrencies and blockchain have gained traction since 2008, with over 12,000 cryptocurrencies in existence. While cryptocurrencies are often viewed as investment opportunities, their acceptance for regular transactions is limited, and few high street stores currently offer cryptocurrency payment options. However, the potential for popular cryptocurrencies to become more commonly accepted for day-to-day purchases exists. The widespread acceptance of any payment method depends on the number of people holding and using it. As more individuals prefer using cryptocurrencies, more merchants may become eager to accept them. Although Stax, as of now, does not offer acceptance of cryptocurrencies, staying informed about emerging payment trends is crucial for businesses to stay competitive and potentially expand their accepted payment methods. Menda Sims, Stax Chief Payment Officer, emphasizes the importance of businesses aligning with the right fintech firms and banks to thrive in the long term. While many organizations are still exploring use cases for cryptocurrency payments, the expectation is that more use cases will come to light in the future. Keeping an eye on developments in the cryptocurrency space is essential for businesses looking to adapt to evolving customer preferences.

Digital wallets have become a well-established and increasingly popular method of online payment, with projections indicating significant growth in their usage. According to a report by FIS, mobile wallets are anticipated to become the primary method of online payment by 2024, surpassing the usage of physical cards. In the United States, digital wallets are expected to overtake physical card usage within three years.

While Apple Pay and Google Pay are familiar digital wallet options in the U.S., there are numerous alternatives worldwide, each dominating its home market. Notably, China's Alipay and WeChat Pay together account for over 90% of all domestic mobile payments. In Africa, MTN MoMo and Orange Money provide mobile digital wallet services to users across various countries.

The widespread adoption of digital wallets reflects a shift in consumer preferences towards convenient and secure online payment methods. As the digital payments landscape evolves, digital wallets are likely to play an increasingly central role in facilitating financial transactions.

In recent years, there has been a notable shift in consumer credit preferences, with Buy Now Pay Later (BNPL) providers gaining popularity over traditional credit cards and personal loans. BNPL services allow consumers to spread the cost of their purchases with minimal or no interest, providing advantages such as improved cash flow and reduced risk of accumulating unmanageable debt. Merchants also benefit from increased sales as more customers gain access to otherwise expensive goods.

The rise of BNPL services has been accelerated by the COVID-19 pandemic and subsequent global financial instability. The convenience and flexibility offered by BNPL options have made them particularly appealing to consumers. As inflation rates increase, consumers, especially millennials and Gen Z, are becoming more budget-conscious in their everyday spending. BNPL services, with their ability to divide payments into smaller, manageable installments, align well with the changing preferences of consumers, making products more affordable and accessible.

The future of payments is undergoing significant transformations, driven by various factors and technological advancements. Here are some key trends shaping the future of payments:

Cross-Border Payments: Traditional banks and state-controlled currencies have made international money transfers cumbersome. The adoption of ISO 20022, a data exchange standard for financial institutions, is simplifying cross-border, cross-currency payments. Standardization is expected to improve the speed and efficiency of international payments.

Payment Security: The increasing prevalence of digital transactions has led to a rise in fraudulent activities. As payment methods evolve, there is a growing need for advanced fraud-prevention measures. Financial institutions and third-party providers are expected to invest in technologies that enhance payment security and protect consumers from scams.

Telemedicine and Digital Therapeutics: The rise of telemedicine and digital therapeutics has led to increased adoption of digital health solutions. The integration of technology in healthcare not only improves patient outcomes but also influences payment models and reimbursement systems.

Wearable Technology and Biometrics: Wearable devices and biometric technology are experiencing continued growth. The global market for wearable technology is expected to reach significant levels, providing consumers with tools to manage their health and well-being.

Focus on Financial Literacy: As digital financial services become more prevalent, there is an increased emphasis on enhancing financial literacy. Educating consumers about responsible financial practices and the implications of digital transactions is crucial for fostering a financially savvy population.