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In today’s fast-paced and highly competitive business environment, payments providers face the dual challenge of optimising payment efficiency while creating value for their customers.
How the payments industry can optimise efficiency
This heightened attention towards the customer experience will continue through 2024 – writes Jeroen Hölscher, Global Head of Payment Services at Capgemini.
Capgemini’s World Payments Report 2023 projected a remarkable growth of non-cash transactions, estimating a year-over-year increase of almost 16.6%.
Anticipated volumes are expected to reach 1.3 trillion in 2023, and forecasted to double by 2027, surging to an impressive 2.3 trillion.
As providers place a premium on prioritising customer convenience, notably catering to the needs of a younger generation, the range of shoppers’ choices, such as the ‘buy now, pay later’ model, will expand.
Instant Payments
This exponential growth is sparked by the arrival of instant payment infrastructure, continued adoption of the open banking framework, and the evolving landscape of customer expectations, regulations and industry initiatives.
Projections for instant payments and e-money is slated to climb from 17% of global non-cash transactions in 2022 to an estimated 28% by 2026.
Account-to-account (A2A) payments, also known as pay-by-banks, are gaining momentum due to their convenience and relatively low fraud risk.
This trend is particularly evident in major economies such as India (UPI), and Brazil (PIX). A2A payments hold broad appeal for banks, issuers, and fintech companies alike, due to their convenience, cost-effectiveness, and robust security features.
The need for fast and reliable systems becomes paramount amidst the proliferation of payment methods and high transaction volumes.
DeFi
Enter decentralized finance (DeFi), leveraging blockchain technology to lower payment processing fees by reducing intermediaries, and enhancing transparency and auditability in the process.
As providers embrace DeFi and a hybrid payment processing system, where merchants and buyers share partial control over transactions, watch out for the industry to be nimble and prepared to adapt to changing transaction volumes more efficiently.
The integration of automated smart contracts further fortifies payment processors, reducing errors and misdirection, while evolving transaction security from encryption key-based mechanisms to robust tokenization approaches.
In addition to backing up other forms of payments, the central bank digital currency (CBDC) is on track to complement cash and boost payment systems’ resilience.
The endeavour by central banks’ to develop digital versions of fiat currencies is nearing completion, with 98% across the globe actively engaged in development.
However, CBDC pilots are being conducted in silos and in isolation from existing traditional payment rails.
Successful and scalable implementation of CBDCs require interoperability between multi-CBDCs.
Recent initiatives such as the collaboration between the Bank of International Settlements (BIS) and central banks demonstrate the unified cross-border CBDC system, addressing interoperability challenges.
Notable players in this space include the Saudi Central Bank (SAMA), European Central Bank (ECB), and People’s Bank of China, all actively developing CBDCs to mitigate settlement and counterparty risks, enabling cross-border transactions within seconds.
As payment modes evolve and demand rises, complexity increases, increasing payment process management costs and labour-intensiveness.
AI Rising
The integration of AI-powered procedures alleviates these challenges.
Automated reconciliation of transactions, identification of risks and fraud, streamlined tasks, error minimisation, and real-time transaction processing are all benefits of AI in the payments ecosystem.
It gives me hope to see the industry rapidly evolve to integrate new-age technologies.
Moreover, AI’s ability to harness consumer data enables payment providers to deliver personalised experiences.
Generative AI-powered chatbots, offering contextually relevant responses and recommendations, are becoming integral to user interactions, conducting transactions seamlessly through natural-sounding conversations via text and voice.
As AI becomes deeply integrated across the entire payments value chain, advancements in fraud management, customer experience, document management, and regulatory compliance are anticipated.
The Future…
The payments landscape is evolving at an unprecedented pace driven by technological innovations, regulatory shifts, and changing consumer expectations.
To thrive in this dynamic environment, industry players must strategically embrace trends such as DeFi, CBDC, and AI-powered solutions to optimise efficiency, enhance security, and deliver personalised experiences to users.
The future of payments is not just about transactions.
It is about providing seamless, secure, and tailored financial interactions that meet the evolving needs of businesses and consumers.
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