Payments are ubiquitous and conceptually simple. We exchange money for goods or services. And yet, how payments actually work is so fastidiously niche, obscure, and complicated. If you’re anything like me, you leave many presentations about the future of payments feeling one of two ways: completely overwhelmed by the nuance and the relentless pace of change or completely underwhelmed because we’re talking about decades-old “innovations” in digital payments or consumer trends. I’d like to strike a different and, hopefully, more balanced note with you to understand the trends shaping the payments industry in the US today, and those that will shape the future. To do so, I’m borrowing a tool from another industry I love – art and its iconic colour wheel. Why is the colour wheel so useful to understand the future of payments?
There are primary payments trends that are akin to primary colours. Discussions about the future of payments can seem like old news because we overemphasise primary payments trends like digital transformation, security enhancements, and personalisation.
There are advanced trends because the primary trends influence each other. Primary colours, when mixed, create secondary colours (e.g. red and yellow make orange). When our primary payments trends mature and converge, our advanced trends come into focus. If we underemphasise the role of our primary payment trends in our discussions of the future of payments and focus too much on these advanced trends, we can quickly lose track of what is feasible or even likely.
First, a step back: what is the colour wheel? It is a circular diagram that maps colours’ relationships to one another and is a framework for understanding our perception of light and colour. And what are primary colours? The primary colours are red, yellow, and blue. These foundational colours can be mixed to create all other colours. Similarly, the primary payments trends are ever-present and continuously evolving. They play a major role in shaping our payments market today on their own and will define the future too.
Red: digital transformation. Yes, digital transformation is still relevant. We’re seeing new payment methods, new payment channels, new ecosystems, and new monetisation strategies emerge continuously. And there’s still quite a bit of runway for more digital commerce and digital payments. By 2029, Forrester expects US online retail sales to reach USD 1.8 trillion and make up 29% of total retail sales. But we’ve learned the hard way that digital transformation is a practice, not a project. Today, our digital transformation imperatives are about embracing change at the core of our operations: reducing complexity, increasing connectivity, flexibility, transparency, and interoperability.
Yellow: enhanced security. In Forrester’s 2024 Security Survey, only 39% of security decision-makers estimated their company experienced zero sensitive data breaches in the past 12 months. Twenty-one per cent estimated they had a three to five breaches. While transactional fraud is a core focus for payments teams, non-transactional fraud management is a growing area of focus. For example, returns fraud resulted in USD 101 billion in losses in 2023 for US retailers according to The National Retail Federation. Free, open-source artificial intelligence (AI) tools have unlocked a frenzy of innovation, but are also forcing payments firms to rethink identity verification, authentication, and fraud management in a world of deepfakes and more sophisticated social engineers.
Blue: data-driven personalisation. Getting personalisation right in customer experiences shouldn’t feel like personalisation to the customer, it should just feel like a good experience. We’re still in the early stages of using payments data and AI/ML models to improve customer experiences, and businesses should proceed with caution. In Forrester’s ConsumerVoices Market Research Online Community (MROC) in September 2024, 418 out of 565 surveyed online adults said it did not appeal to them that retailers were using data to tailor their checkout experiences. In fact, consumers could be uncomfortable if they became aware of existing efforts to personalise payments: Forrester's 2024 June consumer pulse survey found that 34% of online adults were not comfortable with retailers using their IP address to identify which country they were in to recommend a payment method when completing an online checkout process, which is a common practice today.
Once companies have embraced and matured their digital transformation practices and have enhanced security measures (i.e. “red” and “yellow”), they can begin processing payments closer to real-time (i.e. “orange”). In the future, we will have automated payment infrastructures that enable instant, secure, transactions between institutions anywhere across the globe. However, there are several obstacles delaying our arrival to that future. One the one hand, geopolitical tensions and wars challenge cross-border cooperation. And for the US, real-time payments progress is slow. Despite the arrival of real-time payments rails in 2017 (The Clearing House’s RTP) and 2023 (the Fed’s FedNow), real-time payments only make up 1.2% of the country’s total payment volume, per a study by ACI Worldwide and Global Data. The same study predicts a healthy 31.7% CAGR from 2023 through 2028.
But real-time payments in the US face significant headwinds. Forrester’s 2024 data shows that fewer US business and tech decision-makers in financial services say that their firm will invest in real-time payments in the next 12 months than their counterparts in Europe and Asia-Pacific. In the near term, US financial institutions face a significant competing priority in meeting ISO20022 changeover deadlines this year. Meanwhile, Same Day ACH and synthetic real-time offerings from fintechs are meeting many of the time-sensitive payment use cases. We can expect to see real-time payments gain momentum in the US for use cases in which Same Day ACH is too slow, or that require processing outside of business hours.
What do you get when you mix enhanced security (“yellow”) and data-driven personalisation (“blue”)? You get intelligent identity management (“green”). Today, consumers can get a Tidal subscription when they buy a Sonos speaker through Best Buy or cancel their Disney+ subscription through their CapitolOne app. Amazon automatically adds repeat items to their grocery orders every week. This multifaceted, multiplayer, interconnected, and increasingly automated environment is, and will continue to be, the omnichannel reality our digital transformation efforts must grapple with. As virtual assistants evolve, and as more businesses partner to improve reach or competitive differentiation, more payment experiences will be orchestrated across these layered commerce environments by the virtual assistants on behalf of the consumers, sometimes without the explicit involvement of the consumers at all.
Who owns the customers' digital identity in this environment? Who is responsible for authenticating them? How do identity management and authentication evolve in a more fragmented ecosystem and with more automation? How can identity management improve personalisation while maintaining trust and security? Why do these questions matter? Well, data insights will power the competitive edge in the future – and drive loyalty and value-added services. In such a multidimensional digital ecosystem, decentralised digital identity (also called self-sovereign identity) will underpin these future experiences.
As we expand our business models in our digital transformation efforts and modularise our products/services (“red”), and while we improve our customer insights and personalisation (“blue”), we begin to recognise the opportunity to evolve what payments mean for our businesses. Simple “money-in and money-out” flows give way to customer-focused solutions that ensure short-run financial capability and long-run financial security: Embedded Finance (“purple”). The fundamental shift of where and how consumers access financial services is well underway. However, the integration of financial services into non-financial platforms and apps, through open APIs and event streaming, can and will enable seamless financial experiences within existing customer journeys. Through Embedded Finance, a property management technology company can enable its property manager and landlord customers to serve their tenants and partners (plumbers, electricians, etc.) new and varied financial products from loans to insurance. Or a coffee company could offer loans to coffee farmers/roasters or offer fractional ownership of farms/crops to consumers for investment purposes.
At the core, nothing ever changes in the world of payments. Our primary trends, like the primary colours, will be interminably relevant. Our advanced trends will grow and reach full saturation and converge with each other. Over time, they will also merge with our primary trends, and this convergence will help shape the future of payments in the US.
Lily Varón is a principal analyst serving digital business strategy professionals. Her research focuses on the evolving role of payments and billing technologies in winning, serving, and retaining customers in the age of digital business. She helps consumer-facing businesses understand the merchant payments processing landscape, evolving consumer payments behaviours, and how their payments acceptance strategies must adapt to serve their customers.
Forrester is a global research and advisory firm that helps leaders across technology, customer experience, digital, marketing, sales, and product functions use customer obsession to accelerate growth. Through proprietary research, consulting, and events, leaders worldwide are empowered to navigate change and put their customers at the centre of their leadership, strategy, and operations.
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