The past two years have transformed the payments landscape significantly. Learn what the “new normal” for payments looks like and how to adapt.
The past two years have revolutionized how the world gets things done and payments are no exception. With the onset of an accelerated period of digital transformation, businesses and consumers are opting for digital channels at greater rates than ever before. For organizations, this means incorporating new technology infrastructures into their platforms, to support a whole new range of digital service options. For consumers, this means adopting new mediums of engagement.
In payments specifically, consumers are opting for mobile wallets and contactless payments more than ever before. The development of better technology has also made it easier for companies to integrate new products and offer multiple services within a single platform.
Consumer shifts happen regularly, but the pandemic has accelerated the normal pace of digitization. Statista reports that digital payment transactions are expected to reach $7.86 trillion in 2022, at an annual CAGR of 10.88% — which means a market worth $10.78 trillion by 2025. Looking ahead, it’s clear that no one is moving away from this digital future. Instead, we’re moving full speed ahead, towards cashless, contactless payments.
The Evolution of Consumer Preferences
E-commerce was popular long before the pandemic, but it was the restrictions placed on in-store activities that really pushed many consumers towards digital purchasing. As a result, today it is not just younger consumers who are embracing these modern systems; McKinsey reports that only 38% of those over 55 years of age, are digital holdouts and it was those in age groups 35-54 and 50+ who were the most likely to adopt a second digital payment method during 2020.
Even as physical storefronts and banks opened up again, consumers have shown that they are likely to continue using digital channels. Their experiences over the last 18 months revealed the convenience and efficiency of paying online — when done correctly. Now, consumers expect their merchants and service providers to have the capacity to support digital services.
In particular, consumers increasingly want to be able to pay with mobile wallets, A2A transfers, and contactless cards. Not only have these options been more hygienic and safer during a viral pandemic, but they are quick and easy to use. In a global consumer survey, Mastercard found that 74% of consumers planned to use contactless technology post-pandemic, signaling its relevance far beyond pandemic safety. The same survey reported that contactless payments are up to ten times faster than manual methods, while 82% see it as the “cleaner” way to pay.
Beyond contactless, consumers are also increasingly asking for digital options when it comes to banking and payment services. Whether checking a balance, sending a transfer, or applying for a loan, customers are no longer willing to go in-branch or speak to a human representative to receive these services. Instead, they want to be offered a similar customer experience on desktop and mobile as they would in person. For most financial organizations, this means a significant overhaul of their backend technical infrastructure and front-end user interface.
How Fraud Is Evolving
Fraud is also a growing risk for the payments industry — for E-commerce transactions, primarily. This is due to the rapid growth in volume and the inability of many merchants to suitably verify each transaction. Without a suitable automation system in place, providers are letting questionable purchases slide through the cracks — to the detriment of the bottom line.
E-commerce is not just vulnerable due to its large volume. Cybercriminals have been able to leverage the lower security associated with card-not-present transactions, such as online checkouts, to commit unprecedented amounts of fraud. A recent study by PYMNTS found that over 10% of consumers reported an incident of fraud in connection to digital debit or credit cards, while the Federal Trade Commission reported a 45% increase in fraud attacks between 2019 and 2020.
This makes it more important than ever for organizations to be proactive and introduce new safeguards. Old fraud prevention practices are still important for analog processes, but digital transactions require their own protocols. Investing in the appropriate software to help automate fraud prevention will be a gamechanger for businesses. This will aid in freeing up their employees to focus on more important, high-level activities.
The Evolution of Payments Companies
The consumer is different, the fraud threat is different — it stands to reason that payments companies must also be different in this new normal. A successful evolution looks like an updated technology infrastructure that is built to support new integrations both today and tomorrow. The fast rate of change means that no organization can build a static platform and expect it to work forever. Instead, the priority must be flexibility and agility.
With the right infrastructure in place, companies can then look to specific third-party solutions to enhance capabilities. Whether integrating “buy now, pay later” services or other FinTech programs, forward-thinking financial institutions will leverage existing solutions in the field and learn how to embed those into their own platform. This ensures their customer experience is seamless and contained within their branded environment, without the need for individual product development.
Crucially, payments companies should make digital transformation a state of mind, not a single activity to complete. Technology is here to stay. By establishing digital transformation and investment as a company priority, payments organizations can ensure they stay competitive in the market.
The New Normal
Infrastructure modernization and digital transformation have enabled payments companies to innovate and scale. Payments continue to be a dance between changing consumer preferences and evolving technologies. Digital payments are table stakes today, and a modernized infrastructure can ensure that payments companies are built to withstand the changes that are certain in the future.