The payments landscape – and the financial services sector more broadly – is evolving rapidly. The pandemic further accelerated the pace of change and innovation, with digitisation and cashless payments two fundamental forces driving the industry’s transformation.
Electronic payments are at the core of this evolution. Consumers and businesses have thoroughly embraced cashless payments, with Australians leading the charge towards a cashless society. Fintech company FIS Global’s 2022 Global Payments Report predicts that Australia will be the most cashless society in the Asia Pacific region by 2025, with digital wallets the most popular way for Australians to pay within the next three years.
Globally, PWC predicts that cashless payment volumes will grow by more than 80% between 2020 and 2025, from about 1 trillion transactions to almost 1.9 trillion. Their report – Payments 2025 and beyond – explores six emerging themes influencing the payments sector that financial institutions should be aware of to successfully navigate the future of payments.
1. Financial inclusion
The growing use of digital technology has real implications for the more vulnerable members of society, particularly those in developing countries. Financial inclusion must be considered from both the consumer and merchant perspective, with access to mobile devices and affordable and convenient payment methods critical to achieving this aim.
Mobile wallets, QR code payment and low-cost payment solutions are two ways financial institutions and merchants can drive broad reach in less sophisticated markets. Central banks will play a key role in ensuring privacy, stability and trust in new payment providers, payment methods and financial systems.
2. Digital currencies
CBDCs (central bank digital currencies) are a new form of money issued by a country’s central bank. CBDCs could include digital tokens or electronic records that represent the virtual form of that nation’s currency.
60% of the world’s central banks are exploring the merits of digital currencies. In Australia, the Reserve Bank is actively researching CBDC as a complement to physical money (banknotes and coins) and digital money (balances held in accounts at financial institutions).
Private cryptocurrencies are another high-profile form of digital currency predicted to have a disruptive impact over the next 20 years.
3. Digital wallets
The compound annual growth rate (CAGR) for mobile payments is expected to be 23% between 2019 and 2024. FIS Global predicts that more than half of all ecommerce payments worldwide will be made using digital wallets by 2024.
Traditional payment providers will continue to collaborate with fintech and technology providers to create innovative solutions that drive the adoption of digital wallets, with user convenience crucial to ensuring digital wallets become the payment method of choice. Mobile technology that supports B2B payments and the digitisation of supply chains is the next frontier in this space.
4. Evolving payment systems
The way we pay is changing from traditional cards and bank accounts to digital wallets supported by open banking. In emerging markets, consumers are skipping cards and moving directly to mobile wallets and account-based payments.
Payments infrastructure will evolve to accommodate changing needs and meet strict regulatory requirements. Traditional card networks and domestic wallet solutions will be challenged to connect open-loop payments with cross-border payments to stay relevant.
5. Global payments
Traditional banking models are under pressure from new non-bank providers and emerging payment solutions offering instant, low-cost payments. Blockchain technology and digital currency growth are allowing new players to tackle the existing inefficiencies associated with cross-border payments processes.
Emerging architecture that connects payments systems across countries and global payments standardisation will enable seamless cross-border connectivity, which will drive an inclusive, sustainable and equitable society.
6. Financial crime
The pandemic-driven shift to ecommerce saw a boom in financial crime. Open banking, new players and instant payments provide compelling benefits to users – but they also open the door to increasingly creative and sophisticated cybercriminals.
Security, compliance and privacy risks are top of mind for banks and fintech companies as we move into the future. Artificial intelligence (AI) will play an important role in detecting and preventing financial crime in the future. Xetta is a powerful payment solution that enables simple, flexible, and secure online and in-person payments. It empowers higher education, healthcare and local government organisations to expand their payment capability and reduce their operations’ cost, risk, and complexity.