Home Slider The Key Trends Shaping Innovation in Payments

The Key Trends Shaping Innovation in Payments

by internationalbanker

By Megan Oxman, SVP Product Experience, Paysafe

 

 

 

 

Innovation in payments is driven by a rich mix of elements that are combining to push us into a brighter future. The desire to identify the single overarching trend catalysing change remains. This is a relatively simple task for payments: Evolution is being powered by the need to provide seamless, friction-free user experiences for both merchants and consumers.

Other trends may impact the ability to deliver this type of experience—from evolving technologies such as AI (artificial intelligence) and digital assets to changing consumer expectations around security and convenience—but it all boils down to removing friction for customers.

Here, we look at how this can be achieved, how technology can help along the way and how local payment methods (LPMs) will play their part in delivering the future of payments.

Balancing security and experience

Merchants must offer customers safe and secure payments without sacrificing a smooth transaction experience.

Paysafe’s recent report outlined how important this is for customers—68 percent of consumers felt more comfortable using a payment method that didn’t require them to share financial details online with any business, regardless of size. A previous report found that 52 percent of consumers felt uncomfortable sharing financial details online.

Other developments are also pushing payment innovation. In the United Kingdom, the Financial Conduct Authority’s (FCA’s) Consumer Duty requires firms to deliver good customer outcomes, including fair and reasonable pricing, ample customer support, and products and services appropriate for target markets. The Revised Payment Services Directive (PSD2) and multi-factor authentication (MFA) have also been pivotal.

These are all positive steps for merchants and consumers alike. But there are downsides: Such measures can introduce more friction into the user experience. The need to provide a thoroughly secure but also friction-free experience is a key trend impacting payments.

But what exactly do consumers expect from their payment experiences?

What do payments mean for the customer experience?

Besides security and seamlessness, customers also expect choice from their payment experiences—and businesses must take note. In fact, our research found that 73 percent of consumers expected large businesses to offer a wide range of payment methods online. But this expectation is no longer limited to larger merchants—the same research found that 59 percent of consumers anticipated small businesses to offer all payment methods.

So, what exactly does “all payment methods” mean? For merchants, it means allowing consumers to pay how they want—extending beyond traditional methods, such as cash and debit and credit cards, to LPMs, such as digital wallets, eCash and more. Indeed, emerging payment trends, such as digital assets, will also play a part in broadening the payment field.

LPMs and the future of payments

The growing importance of LPMs in delivering a smooth, secure and varied payment experience is reflected in consumer behaviour. Paysafe research conducted in April 2023 found that while debit and credit cards remained the two most popular payment methods, mobile- and digital-wallet usage had shot up.

This same research found that more respondents (52 percent) felt comfortable leaving home without a physical wallet and paying for everyday purchases with a mobile wallet—Apple Pay, Google Pay or another app that enabled them to pay with their smartphones. And 55 percent of consumers believed mobile wallets would replace physical cards in the next 10 years. Digital-wallet adoption was also on the rise, with 40 percent of consumers paying online with digital wallets more often than they did the year before.

eCash, too, is growing in prevalence. Now the most popular online payment method for consumers after debit cards, credit cards and digital wallets, it’s also increasingly important to those who use it. In our survey, 23 percent of those who chose eCash as their preferred payment method would abandon their cart if they couldn’t pay with it.

How LPMs tackle different needs

Offering a variety of payment methods delivers on consumers’ expectation of choice, while LPMs such as eCash and digital wallets also provide the seamlessness and security now demanded—neither of these methods requires purchasers to enter financial details when paying online.

But they also tackle broader issues consumers face. They can help with budgeting, for example. The increased use of eCash has been greatest among consumers who changed their payment habits due to the cost-of-living crisis, with 60 percent using eCash more often. This makes sense with online cash—after all, you can’t spend £30 if you only have £20 in your pocket.

Digital wallets are similarly helpful for those looking to keep a closer eye on their outgoings, offering insights into what these consumers are spending on and where. Fifty-one percent of research respondents said they valued the financial insights they gained from digital wallets.

The growing popularity of these LPMs is instructive of the future of payments and where innovation is leading—balancing experience, security and choice. Offering a variety of choices also allows merchants to deliver more tailored approaches to consumers, who can pay the way they want.

That said, offering true personalisation also comes with challenges.

Encouraging loyalty among consumers

A merchant’s ability to offer an experience that speaks directly to each customer can make the difference between an abandoned checkout and long-term loyalty. Payment platforms understand this and aim to empower businesses to offer this personal experience.

But this again means striking a tricky balance: knowing enough about a customer to offer a tailored experience while ensuring data privacy is respected. So, how can businesses anonymise and use data to deliver an effective programme while driving loyalty among increasingly demanding consumers?

Many payment platforms use anonymous data and customer research to get to know consumers and merchants, better understand pain points and offer the kind of loyalty programmes they want. This approach helps the platform understand, for instance, whether customers would rather earn points or cashback, serving up whichever option is appropriate.

The future of payments will no doubt see businesses nailing the balance between gathering consumers’ data and ensuring data privacy in ways with which they are comfortable without bothering them or hampering their experiences.

The future starts here

Customers’ needs and demands have evolved along with payment developments, and expectations are higher than ever. One-click payments, for example, demonstrate just how easy it can be to make a transaction. This and other developments have meant the bar is constantly being raised as merchants and payment providers fight to deliver that frictionless journey.

It’s also important to note that the future of payments isn’t a single global picture. Payments are local, and customers expect different things depending on their locations. In certain regions, security is the greater consumer focus, so developments such as 3D Secure, which introduces an additional layer of verification while still delivering a seamless experience, are important.

As for the technology that can make a real difference and pave the way to a brighter future, AI can offer security and seamlessness in equal measure. How can we use AI to better predict and deliver what consumers want?

If this sounds overwhelming, it shouldn’t. The road ahead is simpler than it seems, and the destination remains the same. By offering a variety of LPMs that offer the choice, security and friction-free transactions consumers now expect while embracing emerging technologies to enhance their experiences, a bright future for payments will be assured.

 

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