With high-paced digital adoption, frontier technologies such as artificial intelligence (AI) are sparking new opportunities in all sectors, including financial services. This transformation is evident in contactless, secure, embedded, and intuitive customer experiences. From predictive customer analytics, digital-only banking, and peer-to-peer (P2P) transaction technologies to paperless processing and “zero UI” interactions, customer experience is at the center of it all. As the cost of devices and data is decreasing, one can witness sharp increases in adoption of digital payments and acceptance of contactless/touchless commerce. Ubiquitous AI-powered predictive analytics have enabled institutions to better serve digital natives and ‘digital converts’ to provide seamless omnichannel experiences.
Here are the marquee trends that stand out and will see an uptake in the near future:
Distributed Ledger Technology (DLT) and Central Bank Digital Currencies (CBDC) taking center stage
DLTs will allow everything about cash, computing, governance, and identity management to be reimagined. Use of the blockchain in digital identity management (DIM) provides high security for both ends of the transaction funnel. DLT is being used increasingly to prevent fraud and manage regulatory and audit needs. It can accelerate asset transfers, payments, and even investments, while simultaneously eliminating errors that cause delays. DLT application in simplifying trade finance is very well known. DLTs will continue to provide an infrastructure for trusted computing and is a trend one cannot ignore.
CBDC has moved from concept to experimentation stage with numerous leading central banks. It is expected that the introduction of CBDC will spark a more robust, efficient, and trusted legal-tender-based payments option. Apart from improving financial inclusion and curbing money laundering, other use cases such as cost effective cross-border payments can be potential outcomes.
Open banking driving richer experiences
The global trend towards open technologies using Application Programming Interfaces (APIs)and micro-services has enabled third party developers to build applications and services that deliver smart, agile, and secure experiences for users. The flexibility to make payments from anywhere at any time will lead to adoption of new payment methods that place more control in the hands of the consumer. This certainly also exposes data privacy concerns that organizations need to watch for when publishing APIs for external consumption.
Real Time Payment (RTP) infrastructure popularizing Digital Payments Services
Based on the initial public offerings (IPOs) and acquisitions seen in the payments and fintech space in the last decade, one may assume that further investments are not likely to have similar large payoffs. But this could be proven wrong with a selection of technologies such as identity intelligence, DLT, IoT, and AI coming together, meaning payment authorization delivery and real-time payments will require little or no human interaction. RTP infrastructure has long been seen as a game changer for payment services. Open banking maturity and a regulatory drive will see payment services such as request to pay (R2P), variable recurring payments (VRP), and account to account (A2A) payments grow in familiarity with consumers. Taking friction away from digital, real-time payments will require all the above and an improved payment gateway integration. IoT and AI will enable more financial activities to be performed through smart devices, wearables, electronic home assistants, and mobile devices. These devices will arrange for real-time payments, assist with demand-based pricing, and help consumers keep costs in check through payment method optimization.
Buy Now Pay Later (BNPL) adoption in commerce
Following another year of rising e-commerce adoption, consumer interest in installment-based payment options has rapidly increased. Like credit cards, Buy Now Pay Later (BNPL), offers unsecured credit to consumers, but differs in terms of accessibility as well as the placement of the service itself, at the checkout stage (either online or in physical stores). To be successful, BNPL providers must carefully balance their cost of funds with their ability to assess credit risk, manage bad debt and cope with increasing regulation, while financial institutions need to focus on partners and solutions that can allow them to enable these purchases.
Metaverse creating immersive experiences
The Metaverse is creating a new shared space between different digital worlds, blending virtual and augmented reality. It will create new online spaces in which a consumer’s interactions can be more multi-dimensional, where users are able to immerse themselves in digital content rather than simply view it. While the Metaverse presents enormous opportunities and creates an entirely new sales platform, defining how to effectively enable new and emerging forms of commerce within it presents a new challenge for merchants and financial institutions alike.
With the continual development and evolution of technology for payment and commerce, there are definitely exciting times ahead for consumers, fintechs, banking institutions and businesses alike.
Authored by – By Srini Krish, President, Global Services, Fiserv