The only true constant in digital payments is disruption and the future is set for continued innovation as the demand for efficiency grows. Payments services companies are constantly working to adapt their solutions to accommodate Fintech’s fast-paced onslaught. The ones that can’t keep up may lose, as revenue generated by mobile payments is expected to surpass the $1 trillion mark.
To keep ahead of the curve, merchants and financial institutions should tune in to these seven trends:
- Mobile wallets break the online barrier
The popularity of mobile and digital wallets is undeniable. And, with the speed of Fintech advancements, a trillion in revenue looks like just a blip on the radar. It is estimated that total transaction value for mobile and digital wallets will hit nearly $14 trillion by 2022. Mobile wallet adoption rates in the U.S. have lagged behind countries such as China, Norway, the United Kingdom and Japan, but that could soon shift as capabilities expand.
Specifically, mobile and digital wallet acceptance is moving beyond in-store transactions. Today’s top mobile payment and digital wallet services allow for in-app payments. Some are also equipped to work in-browser, while others include online payment features. As acceptance broadens, mobile wallets may have an opportunity to grow their footprint online, as well.
- Artificial intelligence and machine learning ready to fight
Over the next four years, it’s estimated that card-not-present fraud alone will cost retailers $130 billion globally—resulting in losses big enough to affect financial institutions and debilitate some merchants.
Artificial intelligence (AI) and machine learning represent an emerging line of defense against payments fraud. In a payments processing landscape, these technologies are equipped to analyze behavioral patterns and pinpoint anomalies. The result is faster fraud detection in real-time, with lower risk of triggering false-positives.
A study published in the Journal of Payments Strategy & Systems, for example, found that AI-driven solutions increased fraud detection rates by 5 percent, while reducing the alert rate for false alarms by 30 percent. Payments providers are already moving toward AI and machine learning. According to accounting firm Deloitte, the challenge now lies in integrating these technologies within the existing payments ecosystem seamlessly.
- Retail-branded wallets jump forward
Gaining ground fast are retail-branded digital wallets, which saw a spike in 2018. It’s estimated that of the 55 million people who made an in-store mobile wallet payment last year, 40 percent of those transactions were completed using the largest retail coffee company’s mobile payment app.
Another one of the largest retailers is working to carve out a niche of its own in the payments space. Looking ahead, there’s room for retail-branded mobile apps to expand, although some may fare better than others. Despite launching Wallet in 2017, one retailer recently announced that it would begin accepting payments outside of their own retail-branded wallet, suggesting the company may have more fine-tuning to do to corner market share.
- Next-gen payments security drives confidence
For merchants and consumers, enhanced payment security is a win-win. More secure payments can generate greater customer trust, potentially increasing revenues while at the same time, resulting in fewer chargebacks. And consumers may have fewer worries about their personal information being compromised. New payment security technologies—which include EMV (the chip that lets customers pay with their credit card by inserting it into a card reader instead of swiping), tokenization and biometrics — has arrived to address those needs.
The numbers point to an upward trend. The National Retail Federation estimates that 99 percent of large merchants and 81 percent of small retailers have moved toward EMV adoption. That’s a sharp turnaround from just a few years ago, when less than 400,000 U.S. merchants accepted EMV. The global tokenization market is expected to grow by more than 22 percent through 2023, totaling $2.67 billion as merchants seek innovative payments security solutions.
Fingerprint and facial recognition technology also continues to grow more attractive as a security measure, for businesses and consumers alike. In the U.S., two-thirds of consumers say they’d prefer biometrics to replace signatures, PINs and passcodes for card security.
- Gen Z goes fully digital
Whether you call them Gen Z, iGen or post-millennials, the latest crop of young adults is already making an impact on the payments industry. The oldest Gen Zers are around 22 years of age and are the first entirely digital generation, which is evident in how they spend and manage money.
Gen Z is four times less likely to use cash than other generations and use it for only 6 percent of transactions. Gen Z’s attitude toward cash is reflective of a larger movement to digital and card payments. Twenty-nine percent of Americans now say they make no cash purchases in a typical week, compared to 24 percent in 2015.
- Alternative payments gain quick adoption
Contactless payments may be the fast-approaching dark horse of the payments space, as retail transaction value is estimated to top $1 trillion worldwide. Consulting firm A.T. Kearney predicts a huge push in contactless payments over the next several years as speed and efficiency improve. With more than 95 percent of new payment terminals now contactless-capable, the firm forecasts a significant increase in adoption through 2022.
Person-to-person (P2P) payments are also picking up steam, as more than 75 percent of millennials and 69 percent of Gen Xers use services like Zelle and Venmo to send and receive money.  More apps are set to be contenders in the fight for P2P market dominance.
- Smart cars automatically pay at the pump
The Internet of Things (IoT) has been applied to the smart home and it’s now carrying over to vehicles. The concept of the connected car could soon make paying at the pump automatic and completely hands-free.
A few car manufacturers were early adopters of in-car payments technology while others are taking it to the next-level. One in particular allows drivers to use voice controls to make gas, parking and food purchases while another is currently developing connected car technology that would offer a similar range of functionality.
So fasten your seatbelts, the spread of mobile devices like smartphones and tablets have triggered a technological movement leading to strong growth in both e-commerce and m-commerce. These seven trends offers only a glimpse of what lies ahead for us in payments technology.
For more information on how Discover is innovating in the emerging technology space, explore DiscoverGlobalNetwork.com.
- Statista, “Global Mobile Payment Revenue 2015-2019” https://www.statista.com/statistics/226530/mobile-payment-transaction-volume-forecast/
- Rolfe, Alex. “The rise of digital and mobile wallet: Global usage statistics from 2018,” Paymentscardsandmobile.com, November 2018. https://www.paymentscardsandmobile.com/mobile-wallet-global-usage-statistic/
- Sorrell, Stefan. “Online Payment Fraud,” JuniperResearch.com, November 2018. https://www.juniperresearch.com/researchstore/fintech-payments/online-payment-fraud?utm_campaign=onlinepaymentfraud18pr2&utm_source=businesswire&utm_medium=email
- Soviany, Cristina. “The benefits of using artificial intelligence in payment fraud detection: A case study,” Journal of Payments Strategy and Systems, Summer 2018. https://www.ingentaconnect.com/content/hsp/jpss/2018/00000012/00000002/art00002
- Deloitte. “Payments trends 2019: What do you want to be?”, Deloitte.com. https://www2.deloitte.com/us/en/pages/financial-services/articles/infocus-payments-trends.html#
- Molla, Rani. “Starbucks’s mobile payments system is so popular in the U.S., it has more users than Apple’s or Google’s,” Redcode.net, May 2018. https://www.recode.net/2018/5/22/17377234/starbucks-mobile-payments-users-apple-pay-google
- Heun, David. “Target’s surrender to Apple Pay shows the struggle of retailer-only wallets,” PaymentsSource.com, January 2019.
- NRF Stores. “EMV is here to stay — but has it helped?,” Stores.org, December 2018.
- Research and Markets. “$2.67 Billion Tokenization Market – Global Forecast to 2023,” PRNewswire.com, January 2019. https://www.prnewswire.com/news-releases/2-67-billion-tokenization-market—global-forecast-to-2023–300784939.html
- Gladis, Ralf. “Biometrics to impact future of mobile payment authentication,” Mobilepaymentstoday.com, December 2018. https://www.mobilepaymentstoday.com/blogs/biometrics-to-impact-future-of-mobile-payment-authentication/
- Griffin, Riley. “Move Over Millennials, It’s Gen Z’s Turn to Kill Industries,” Bloomberg.com, August 2018.https://www.bloomberg.com/news/articles/2018-08-07/move-over-millennials-it-s-gen-z-s-turn-to-kill-industries
- Perrin, Andrew. “More Americans are making no weekly purchases with cash,” PewResearch.org, December 2018. http://www.pewresearch.org/fact-tank/2018/12/12/more-americans-are-making-no-weekly-purchases-with-cash/
- Juniper Research. “Contactless Retail Payments to Exceed $1 Trillion n Transaction Value by 2019,” JuniperResearch.com, May 2017.
- A.T. Kearney. “Contactless Cards Set to Deliver Substantial Benefits across the US Payments Ecosystem,” PRNewswire.com, July 2018.
- Early Warning. “Zelle Study Finds Growing Use of Digital Payments Across Generations,” EarlyWarning.com, July 2018.
- Jones, David. “Automakers expand connected car ecosystems with payment technologies,” Mobilepaymentstoday.com, January 2019.