As the payments industry has evolved over the past decade, it has regularly embraced new technologies to open new avenues for serving customers – moving from paper-based to card-based, to accounts-based, and eventually, to Web3 digital or tokenised payment formats.
For consumers, emerging technologies play a crucial role in fostering innovation as payments become more embedded into shopping and social media journeys, helping to create an increasingly seamless and accessible user experience.
But what technologies are set to dominate the payments industry this year? We outline the top three below.
AI has ushered in a transformative era in financial services, presenting enormous opportunities to the way we work and serve customers.
It is important to note the combination of great technology and great people is critical. By striking the right balance between AI algorithms and human judgment, we can ensure that data is processed and analysed effectively, leading to better decision-making and positive outcomes.
In the long run, it is also relatively early days for AI. So, while we are excited by the opportunities we are already seeing in payments, the next few years should deliver greater clarity on where the big impacts are, and what has been overhyped.
DLT can achieve simultaneous consensus across a database that is distributed to multiple users. It can validate, track and trace transaction movements across that networked database.
There are several DLT use cases in payments. The first is in PvP (Payments vs. Payments) FX transactions, where a specialised DLT platform can help participants efficiently settle bilateral cross-border obligations across multiple onshore and offshore currencies. It can also add the flexibility of extended settlement widows to optimise PvP risk reduction opportunity. Another example is the use of DLT platforms to develop Delivery vs. Payments capabilities for the settlement of tokenised assets (e.g. gold, bonds and treasury papers) across different blockchain platforms.
The financial industry is also experimenting with DLT complete near-real-time exchange and final settlement of tokenised digital currencies and securities assets, across multiple parties, improving operational efficiency and reducing settlement risk.
To improve DLT application usage, inter-ledger interoperability across different DLTs with varied capabilities needs to be tested, and the operational resilience of DLT-based systems needs to be proven over time. This is where the concept of Regulated Liability Networks (RLN) – shared multi-asset ledgers for sovereign regulated money – could help solve the interoperability questions.
APIs can be used to embed payments by connecting various stakeholders in a cohesive financial ecosystem. An embedded payment is a payment that takes place within a non-banking platform, without asking the user to login again or redirecting them to a third-party platform.
Embedded payments benefit both businesses and their customers by making the payment experience fast and frictionless, while removing a number of barriers preventing a customer completing a payment. Centralising payment data can also help businesses get better insight into their customers’ payment habits, within the appropriate governance and data privacy frameworks.
China is a great example of a market combining its ‘super apps’ – which combine several apps into one – with embedded payments. Users can simply scan a merchant’s QR code to pay using cash from the bank account in their digital wallet and send payments to each other via digital messages.
Advancements in APIs mean payments are not the only financial service that banks can help embed. We are increasingly seeing embedded loans, investments and insurance and expect more innovation in this area in 2024.
Similarly, the growing global adoption of Open Banking is providing opportunities for financial institutions to develop creative overlay services on top of the payment rails through API-based services. There is growing interest in the UK, for example, where 1 in 9 British consumers are now active users and 17% of small businesses are leading the way in Open Banking adoption.
Overall, as emerging technology advances and customers’ preferences evolve, we will continue to see ongoing innovation in the payments industry. AI, DLT and APIs in particular offer opportunities to improve convenience, security and efficiency for both businesses and consumers. Through this evolution privacy, security and regulatory considerations will remain key to ensure widespread adoption and trust in these emerging payments solutions.
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