A Digital Dictionary
The future of payments has never looked so exciting. From biometric authentication through new encryption technologies to wearable payments, numerous developments are in the works already.
The Future of Payments: A Digital Dictionary offers a comprehensive, dictionary-style collection of the most important terms and trends that all players in the field of payments must look out for to get ready for the next age of the sector.
Read from A to Z or jump around the letters as you wish.
This is the DeLorean of the payments industry: get in!
The worldwide spending on artificial intelligence is expected to double in four years, reaching $110 billion in 2024, according to IDC (International Data Corporation). Retail and banking are set to spend the most on AI solutions, the latter focusing on fraud analysis and investigation, along with program advisors and recommendation systems.
Ernst and Young (EY) also projected the banking sector’s most spendings to be targeted at the payments sector in 2019, and without doubt, artificial intelligence (AI), and its subsets, machine learning (ML) and deep learning (DL), are already beneficial in combating fraud, improving security, better decision making and increasing efficiency in finance.
But apart from automating workflows of a payment process, collecting customer information more efficiently or using it for image recognition in banking, for instance, there are other highly exciting territories where AI can be implemented, such as voice payments, conversation commerce and intelligent chatbots which are likely to become as popular as mobile payments in the near future.
Now, it is projected that 8.4 billion digital voice assistants will be used by 2024 globally, a double jump compared to the 4.2 billion in 2020. In 2018, 90 percent of Americans surveyed said they were familiar with voice assistants and 72 percent of those have used one before but when compared to other forms of shopping, voice assistants fell behind. In the survey, respondents chose visiting a physical store overusing a voice assistant to shop (64 percent vs 36 percent) and preferred shopping through a mobile app (65 percent vs 35 percent) and shopping online just the same (76 percent vs 24 percent).
Nevertheless, 80 percent of consumers who tried voice assistants for shopping were satisfied with the results and happy to share their experience with friends and family (39 percent) and 39 percent were confident to use that same retailer again. Most of the respondents used voice assistants to order a takeout meal or groceries and books, so these industries are likely to lead the way in adopting this technology.
For merchants, AI can certainly open new doors. According to EY, “data sharing between payments providers and merchants will allow customers to pay and redeem rewards at point of sale (POS) to further enhance the potential of loyalty-driven revenue”. This means that AI will help merchants to offer dynamic and personalized rewards based on their preferences and transaction history. Furthermore, AI will reduce the cost and time spent on payment disputes, handling chargebacks or onboarding customers which will help create and nurture a better customer experience, as well.
As for conversational commerce, voice assistants also belong under this umbrella, but let’s not forget about the rise of intelligent chatbots, too. Messaging apps in commerce can be considered as the lobby area leading to the cash register or putting your final products in the cart. We are already in the era where some businesses urge customers to start chatting with retailers in a messaging app, instead of being on hold on the phone when they have questions related to their products or services.
In a BCG (Boston Consulting Group) & Facebook conversation commerce report, 2 in 3 people reported that they had messaged a business in the previous holiday season. While 45 percent of people start a chat with a business to gather product or pricing information, it’s clear that conversation commerce, or c-commerce, can also mean a quick and personalized experience for customers: 35 percent of them choose this form of messaging because of the instant responses, 33 percent because it is an easy way to shop and 31 percent because they receive personalized advice.
Artificial intelligence has already woven itself into our conversations and daily commerce, and we’re likely to see more developments in this field — reducing the need to stay on hold.
Biometric authentication, as a way of identifying a person by comparing data for their characteristics to their biometric “template”, is concerned with five main fields, all of them becoming more and more important territories in payments: fingerprints, voice, facial, eye scan, behavioral and vein pattern recognition.
These types of processes are usually considered to be easy to use (no need to remember a PIN), highly secure (more accurate than PIN codes) and a great option to provide an instant process of payment authorization (faster usage). The related developments, therefore, aim for ensuring a better customer experience, as in increased usability, safety and security.
It is projected that biometrics will be used for more than 18 billion transactions by 2021 and the value of biometrically-verified smartphone payment transactions are expected to exceed $210 billion in 2021. Juniper Research has found that mobile biometrics will authenticate $2 trillion worth of in-store and remote mobile payment transactions annually by 2023. The research added that over 80 percent of smartphones will have a form of biometric authentication by 2023, accounting for more than 5 billion devices, highlighting that “this has traditionally meant fingerprint sensors, but facial recognition and iris scanning will become more prominent over the next 5 years, with adoption exceeding 1 billion devices”.
A 2017 Visa study found that people see fingerprints as the most secure form of biometric authentication (92 percent), followed by eye scan (89 percent) and “password and code” in the third place (85 percent), ahead of facial (84 percent) or vein pattern (74 percent) recognition.
One could jump to the conclusion that with passwords in the top three, there’s still no need to abandon those four digits we grew accustomed to. However, the same study put a highlight on why merchants could benefit from implementing biometric authentication in their payment processing: 59 percent of customers abandon their online purchase because they simply didn’t have their card on hand, 49 percent because they couldn’t remember their passwords and 16 percent said they felt it was a “hassle” to enter their password.
It’s no surprise that facial and voice recognition are set to revolutionize checkout processes.
In the Nordics, a region leading the way to a cashless world, 42 percent of people using biometric recognition, use it to authorize money transfers to people and organizations, and 54 percent to authorize payments and purchases. Another example is Visa that has started a test pilot developing an on-card biometric sensor for contactless payments.
Behavioral biometrics, perhaps not looking familiar at the first mention, is also with us for years now. The most common form of behavioral biometrics is voice recognition [see also, A: artificial intelligence] but can be as simple as a keystroke or a signature, too. The software used by The Royal Bank of Scotland, for instance, starts recording more than 2,000 different interactive gestures when users log in to their accounts, measuring the angle people hold their device, how they swipe and tap, the pressure they apply and the speed of their scroll. For computers, they check the rhythm of their keystrokes and how they move their mouse.
As for vein pattern recognition, it’s already on the market, too. The world’s first technology in this area was provided by Hitachi’s VeinID and is used by companies like Barclays in the UK or the biometric identity authentication startup FinGo, for one major reason: while simple fingertips can fool biometric systems with a copied fingerprint, and voice and facial recognition by recordings and high-resolution images, the blood vessel patterns are “almost impossible to counterfeit” and can “only authenticate the finger of a living person”.
With the ever-growing safety concerns in the payments sector, it’s not hard to see the gripping potential of this or any other biometric authentication form when it comes to our everyday lives and transactions. The future of payments is at least one part biometric.
Commerce-as-a-Service (CaaS) is bringing together commerce and content, allowing merchants to simultaneously build e-commerce and content solutions on the same platform. Before, merchants had to have one or the other and use an integration option to combine the two, adding extra challenges to the mix. CaaS today creates an online experience that customers favor and the opportunity for brands to gain more revenue through a custom (e)commerce system.
From a more technical point of view, CaaS means the overlap of an e-commerce platform and a content management system, both of which should work perfectly synchronized when using the right tools that provide a great user experience. It can be a brand website that is more content-led but with e-commerce capabilities, it can be providing checkout functionality in videos or a kiosk app for tablets that lets customers browse the site in-store.
CaaS is also often mentioned in the context of headless commerce that focuses on platforms where the storefront can be separated from the back-end — “headless” because the result doesn’t have its own UI but relies on external tools for some of its elements and functions, i.e. checkout. It all comes down to a custom digital experience for users and allowing merchants to connect to different systems both on the front and the back end to have a more versatile system in the end, supporting their business needs.
Essentially, CaaS is a multi-channel or omnichannel [see also, O: omnichannel payments] strategy that brands can follow – and should, as 73 percent of customers are now omnichannel shoppers. It also helps in avoiding selling through restrictive external marketplaces or having time-consuming struggles with hosted checkout pages.
Nonetheless, this path does require owning a strong business vision from merchants, understanding and planning all e-commerce processes which then will be translated into a CaaS system by a developer team or a player in the market specializing in the matter. That is the price of a customized system: the puzzles must fit and come together. Freedom and control over creating a system that suits the business the best: that is the advantage of CaaS.
The digital shelf is an important concept in e-commerce – it’s the way a brand is present online, showcasing itself and its products and services.
From a broader perspective, this applies to the whole of the consumer journey covered by the merchant, meaning every digital customer touchpoint along the way, from a Google search results page to the category pages of their website. A digital shelf — or part of a digital shelf, depending on how you approach the concept — can be a mobile app or a single product description, too.
The growing importance of a digital shelf is clear. Keeping up customer engagement, creating consistent and targeted, product-related content, standing out from the competition are just some of the key issues merchants face today — and they all meet at the digital shelf. If a brand gets it right, building its brand image properly and providing all functionalities, not neglecting any touchpoints along the customer journey, it will be rewarded.
According to research, even though shoppers are shown multiple pages of options during a search, 45 percent of them won’t scroll past the second page. Displaying at least five reviews for a product is increasing purchase likelihood by 270 percent as opposed to no reviews. Google’s own research found that six in 10 internet users start shopping on one device and continue or finish on another, and 82 percent of smartphone users do research on their phone before making a purchase in a store.
These are just a few of the examples proving the necessity of a digital shelf: customers’ shopping journey is versatile, almost never the same, whether we consider platforms or paths. What brands need to take away is that they must be present in some form at all times and places and control their presence to an extent that is possible and beneficial for shoppers. 2021 is certainly not going to end people’s migration to online shopping and with that, building and managing a digital shelf is more than a piece of advice for brands — it’s a must.
Simply put, end-to-end encryption (E2EE) is a communication system where only the communicating users can read the messages as those are encrypted, and a third party has no means to decrypt them. From another perspective, it is also the safest way to communicate privately and securely online, frequently used therefore in messaging apps for instance, and in the payments industry, it provides a solution for the vulnerabilities of payments processing.
Encryption includes cryptography, meaning that specific codes are generated in order to keep the information encrypted, and then, the sender uses an encryption key while transferring data. On the receiving end, the other user must have the corresponding key to access it.
The same applies to payments. When a customer uses a credit card, from the first second the data from the card enters the payment system of that business, it’s encrypted and remains that way until the payment is fully processed.
Encryption technology is becoming increasingly important today and will continue to be a talking and action point for the future as sensitive user data must be protected from the increasing number of attacks by cybercriminals. Verizon’s 2020 Data Breach Investigations Report found that 86 percent of data breaches today happen for financial gain, while 70 percent of breaches are caused by external actors, organized crime accounting for 55 percent of these.
Cybercriminals’ number one target is small and medium-sized businesses who are mostly victims of phishing (30 percent of the breaches), followed by stolen credentials (27 percent) and password dumpers (16 percent). The attackers’ goal in most cases was to steal credentials, personal data, internal business-related information, and payment information.
Another Data Threat Report by IDC, commissioned by Thales Group, revealed that 100 percent of the respondent businesses have some sensitive data in the cloud not encrypted, with only 57 percent of the data protected. All despite the fact the 99 percent of them also had data security concerns with mobile payments, personally identifiable information (PII), and payment card exposure being the top concerns. According to the report, wide-ranging solutions are available to address this, including account data encryption and encrypted wireless network protocols.
Is end-to-end encryption an issue for the future of payments? Let the numbers speak once again: the average data breach, according to IBM’s annual Cost of Data Breach Report, now costs $3.86 million, a number that is the highest in the United States: $8.64 million. Surely, businesses have better means of using that money which gives plenty of room to start investing in encryption technologies.
Frictionless or invisible payments are part of what provides a seamless shopping experience for customers in our age which they expect more and more as they become easily frustrated by payment solutions that require enrollment, entry of payment data, and/or additional effort of any kind. This demand for a frictionless payment experience is defining the emergence of next-generation technologies where lines between shopping and purchasing continue to blur with the payments system operating in the background.
Frictionless payments are about the ease of doing commerce. It reduces the waiting time for customers and allows faster checkout, both in a physical and an online store, and lets them forget the frustration of remembering a PIN code or a coupon number, and it provides merchants with a better analysis of customer spending, reduces churn and shopping cart abandonment.
Amazon Go’s Just Walk Out Technology is one of the latest and most progressive examples of frictionless commerce in action. Amazon uses computer vision, deep learning algorithms [see also, A: artificial intelligence] and sensor fusion in the background which allows customers to just walk in a shop using the Amazon Go app, and then anything they pick up is automatically updated in their virtual shopping cart — upon leaving, the app charges their Amazon account. “No lines, no checkout”, as advertised.
Another example is from Mastercard which partnered with General Motors and IBM to provide in-car payments, using vehicle consoles and voice assistants to provide a frictionless customer experience.
When payments become invisible like this, life gets easier for consumers, but more complex for payment providers who have to increase security measures, including implementing end-to-end encryption [see also, E: end-to-end encryption] and tokenization[see also, T: tokenization]. On the more intriguing side of it, combining the latest technologies from deep learning to virtual assistants, EY points out that merchants will be able to provide omnichannel shopping models to their customers [see also, O: omnichannel payments], giving way to new opportunities for developing loyalty programs, gamification and much more for enhancing the experience. The lines are already blurred or non-existent if you ask Amazon, and they wouldn’t be mistaken about that: invisible payment technologies will process over $78 billion in transactions by 2022.
The gateway in payments is what is responsible for transferring information such as credit card data between the platform where the payment is made and the bank that processes that information. Essentially, payment gateways are what make sure that customers have a seamless shopping experience, while these end-to-end solutions run in the background.
The benefits of gateways are that they can process huge amounts of data and do it securely, even in different currencies. Gateways have three main categories, hosted, self-hosted and API-powered, and are the spine of payment processing for businesses accepting both card-present and card-not-present transactions.
According to a Research Nester study, the global market for online payment gateway is expected to grow at a moderate Compound Annual Growth Rate (CAGR) of 16 percent during the forecast period 2018-2027, and is anticipated to generate $89.5 billion in revenue by the end of 2027.
The importance of payment gateways in authentication is expected to increase as other related trends break forward too, such as biometric authentication [see also, B: biometric authentication], or simply the growing demand for online and social shopping services [see also, S: social shopping].
Not surprisingly, some of the leading companies in this market such as Amazon, are keeping their eyes on the horizon, especially on emerging markets where the population favor online transactions, holding back the black economy.
Whether it’s about economic growth or driving the FinTech revolution, gateways are already the sweet spot of payments and will only become more significant in the future as the glue to hold together all actors and processes in the market.
The Internet of Things aims for establishing a network operating an automated life or smart environment where the devices, machines, vehicles and objects are connected via the internet, NFC, RFID, sensors and software. This also refers to M2M or machine-to-machine communication or M2P, machine-to-person communication. IoT could become the base of our future society and its development goes hand in hand with what’s possible in the fields of payments.
By 2027, the IoT market is projected to grow to over $2.4 trillion annually, according to Business Insider, and more than 41 billion IoT devices, up from about 8 million in 2019. Juniper Research also estimates that IoT payments will total $410 billion by 2023, which will be more than 450 billion transactions processed globally.
On the other hand, we are already living that future. Groceries by MasterCard enables consumers to order groceries directly from Samsung’s Family Hub refrigerator. With the Amazon dash buttons, people can order products with a push of that button. Honda debuted an in-vehicle payments system, to make paying for gas and parking easier. IoT reached retail banking too: thanks to the collaboration of Bank of America and FitPay, the bank’s credit and debit cardholders can make contactless payments directly from their wearables at NFC-enabled [see also, N: NFC] POS locations and more than 9,000 Bank of America ATMs. With initiatives like this, “phygital banking” is unfolding its wings, aiming for the cohesion of the physical and digital banking experience.
In essence, every innovation in this field is about creating a frictionless payment [see also, F: frictionless payments] environment where transactions are invisible and save customers frustration. However, 60 percent of consumers are afraid of their data being leaked and 54 percent of hackers accessing their private information through these IoT systems — yet, more than half (54 percent) already owns an average of two IoT devices.
In IoT security, experts are constantly implementing and looking into the further options of end-to-end technologies [see also, E: end-to-end encryption], artificial intelligence for real-time security monitoring and blockchain.
New innovations will accelerate the development of products and services in the IoT payments sector for the benefits of consumers and businesses alike, and with that, IoT is certain to revolutionize how we spend our everyday dollars.
Before defining the “Know your transaction” (KYT) solution, it’s inevitable to start with “Know your customer” (KYC).
KYC is implemented by financial institutions and regulators regarding the customers who have to meet a series of requirements before any transaction or financial process could happen. One of the problems with this system is that it occurs only in the beginning or ahead of the process, without a follow-up or in fact, a continuous supervision of risk-related or any activities. The main challenge here, according to banks and other institutions is that they do not want to hurt the customer experience by creating an ongoing process from something that was a one-step and workable solution.
However, today’s financial market is completely different now with cybercrime ever-improving and the newer and newer ways of easily risking sensitive customer data. Combating money laundering and countering the financing of terrorism is on the flag of many countries and their regulators, and with that, ”knowing your customer” doesn’t seem to cut it.
Instead, the next step of evolution here is to “know your transaction”, namely to have information on each transaction to protect both the consumer and the financial institutions and any third parties participating. This is the future way of detecting suspicious behavior, fraud or corruption, and an overall more solid way of analysis, in some cases using machine learning [see also, A: artificial intelligence] and blockchain technologies.
A loyalty app is a mobile app where customers can collect and keep track of their loyalty points. It’s also a valuable data source for merchants and a tool to engage their shoppers any time they see it fit. In 2021, when visiting physical stores is becoming a rarity, it happens more than you might think.
Juniper Research has found that membership of digital loyalty programs are expected to reach 48 billion by 2023 and the total value of redeemed mobile coupons will be $67.6 billion, compared to last year’s $51.6 billion.
As customers keep using branded mobile loyalty apps, merchants receive more and more useful data about who they are, what purchases they make and how often. Brands can send push notifications and other messages to them to let them know about special deals or just remind them that they haven’t bought anything in the last week.
The reason why loyalty apps are becoming an important part of the future of payments is endeavors like Starbucks’. In their Starbucks Rewards program, loyalty members can use cash, credit or debit cards, or pay directly through the app and get Stars in return which they can redeem for several rewards. The “Starbucks® Rewards Visa® Card” grants customers even more advantages.
The coffee brand updated its loyalty app this way because their customers wanted more options to pay and earn stars in the app. This clearly signals how loyalty apps can take up their own space in the field of payments. Even though the company experienced a third-quarter loss in 2020, they also reported a rise in digital engagement as a further 3 million customers downloaded their loyalty app, accounting for a 17 percent increase from a year before.
This shows that loyalty apps become more appealing for customers when there are payment integration options — after all, a smartphone is always on their hands and if their proven loyalty to the brand can directly and “physically” pay out this way, there really is no argument to bring up against these apps.
The only thing missing yet is a higher number of loyalty apps with payment capabilities in the market such as the Starbucks one but looking at its increasing popularity, surely other brands will follow suit.
“A mobile wallet is a virtual wallet that stores payment card information on a mobile device,” describes Investopedia. In other terms, it’s a smartphone app or in some cases, a built-in feature of the phone, used for payment.
When a customer makes a payment with a mobile wallet, NFC (near-field-communication) technology [see also, N: NFC] is used to communicate the payment information between the phone and the merchant’s POS (point-of-service) terminal — all triggered by holding the phone over the NFC reader. In other cases, customers can scan a Quick Response (QR) code to start the online bank transfer.
The popularity of mobile wallets is growing for several reasons. First of all, convenience is a major factor as they make the checkout process much faster and easier. Furthermore, they are safer than carrying around a credit card or cash, as all information stored in the mobile wallet is encrypted [see also, E: end-to-end encryption]. Mobile wallets also show an increasing acceptance rate by merchants. Consumer Reports noted that Samsung Pay™ can be used at more than 10 million stores, Apple Pay™ at more than 3 million, and Android Pay™ at more than 1 million stores in the US.
According to Business Insider, the US mobile wallet volume is set to reach an estimated $1.33 trillion in 2023 across mobile commerce, mobile P2P (peer-to-peer) payments, and mobile proximity payments, a rise from $662.3 billion in 2019. Mobile wallets are now a $1 trillion worth industry globally, securing a spot for themselves in the future of payments..
NFC (near-field-communication) is a common technology embedded today in credit cards, smartphones, smartwatches, fitness trackers, wristbands and other wearables [see also, W: wearable payments]. NFC enables two devices to communicate through radio waves in a small range, around two inches, hence the term “near field”. When it comes to payments, it’s usually a smartphone storing credit card details and a point-of-sale terminal where contactless access is enabled.
According to Technavio’s latest research, NFC mobile payments will account for more than a 27 percent market share by 2021. The research company also noted that the increasing penetration of smartwatches and other wearable devices prompt businesses more and more to install NFC POS terminals in their stores for customers to make contactless payments.
In other terms, merchants adjust to the trends as paying by smartphone and other smart devices become the new consumer normal. A 2018 study found that 37 percent of them already supported mobile payment at the Point of Sale (i.e. via NFC, mobile wallets, etc.) and 31.4 percent planned to add to this feature or increase it.
In 2020, the NFC-enabled mobile wallet market was set to become a $1 trillion worth industry, growing by 36.5 percent year-on-year, and is forecast to continue in the coming years reaching 2.1 $trillion in value. NFC is staying for the future of payments.
The consumer journey today is dynamic. Consumers use an average of almost six touchpoints, with nearly 50 percent regularly using more than four when buying an item.
A Harvard Business Review also found that 7 percent of customers are online-only shoppers and 20 percent are store-only shoppers. The remaining 73 percent use multiple channels during shopping, in fact, 42 percent of in-store customers conduct online research while in the store. In short, these omnichannel consumers thoroughly blur and in fact, completely delete the lines between the traditionally laid down borders of commerce.
Looking at these numbers, it becomes clear that merchants who can provide a seamless customer experience throughout their shopping ecosystem, win the game, and the data speaks the same. Businesses with omnichannel strategies in place, retain on average 89 percent of their customers, and customers who buy from a business both online and offline, have a 30 percent higher lifetime value than those who use only one channel.
From the perspective of payments, omnichannel payment processing promises a user experience that is integrated and consistent throughout multiple payment channels. To achieve that, businesses must ensure that data integration, marketing, customer service payment processing and all other operations work together in a frictionless manner.
Omnichannel payment or commerce is essentially about consumer centrism, from gathering intelligence about each step the customer has ever made in the shopping journey to providing ubiquitous shopping cart functionality. Wherever the customer is, the business will be there, too.
POS lending or financing is connected to the “buy now, pay later” (BNPL) trend. It allows consumers to split the cost of a transaction into smaller fractions and regular installments, at no added cost if the payments are made on time. “POS loans are also different from credit cards in that borrowing limits and interest rates are determined for each individual purchase, as opposed to using an overall credit limit. In turn, POS loans often come with lower interest rates than traditional credit cards”, explains the market research firm IBISWorld.
POS loans in the past were mostly relevant when seeking a loan for a home remodeling, for instance, but today with new market entrants, such as Afterpay, Sezzle or Klarna, POS lending takes the place of credit card spending. According to McKinsey, amounts as low as $200 to $300 are shifting to shorter-tenure (four- to six-week) POS financing.
Interestingly, Cardify’s data showed that only 21 percent of consumers did not have enough funds in their savings accounts to cover the full price of their purchase and most had 5x the total amount, signaling that using POS lending is a “matter of choice, not desperation”. Nevertheless, in times of crisis, such as the ongoing pandemic, bank accounts can run dry and more consumers might be willing to look into BNPL options.
Furthermore, customers tend to make repeat purchases more often with BNPL: Afterpay BNPL shoppers make purchases more than 20 times per year on average.
The BNPL industry is predicted to grow 9.1 percent in 2020-2021, reaching $741.5 million as online shopping revenue grows 6.4 percent this year to $31.2 billion, with more and more retailers offering BNPL services in the future.
Quantum-proof encryption is concerned with designing the payment security systems of the future where quantum computing will be a little more everyday than it is now. Today, quantum computers are mostly known for solving complex mathematical problems, such as the achievement of Google’s Sycamore processor which was able to perform a calculation in 200 seconds that would have taken the world’s most powerful supercomputer 10,000 years — and something practically impossible to do for a traditional computer.
However, quantum computers are moving into the limelight for another reason other than being an excellent calculator which is not hard to imagine: if a machine is capable of these number “tricks’, what is going to stop it from cracking encryption methods we now believe to be secure?
This all comes down to how cryptographic algorithms protect everything in our lives from online banking transactions to private emails, and how these algorithms rely on “the difficulty conventional computers have with factoring large numbers… Quantum computers [...] may [...] factor these large numbers relatively quickly, revealing our secrets,” summarized the NIST (National Institute of Standards and Technology).
Researchers say, our best defense against this, is quantum-proof or quantum-resistant encryption. This is why NIST started a Post-Quantum Cryptography Standardization project to find the best potential encryption tools to protect electronic information from attack by computers. In 2019, the Institute narrowed down solutions to a bracket of 26 encryption tools and the research and development are ongoing.
There are no certain estimations about when the first commercially available quantum computer would be built but voices are getting stronger in the industry projecting that it might be possible within a decade. Even if it’s just strictly government-owned devices, which are already in the making, the power to crack encryption will soon be an option. This is the reason why developing quantum-proof encryption is already biting the future’s tail.
Real-time payment systems offer “an instant, 24/7, interbank electronic fund transfer service that can be initiated through one of many channels: smartphones, tablets, digital wallets, and the web,” summarized Deloitte’s paper on the subject.
The most pressing reason to develop a real-time payment system is the need to improve the efficiency of the payment system (83 percent), while market demand for a better payment service (51 percent) and end-users’ demand for the same (47 percent) are also on the list.
For customers, besides the always-on availability, real-time payment means a frictionless payment opportunity [see also, F: frictionless payments] as well, while for businesses, better liquidity management and optimized working capital management. Financial institutes are moving in the same direction: globally, 85 percent of banks believe that real-time payments are the foundation of growth and new product enhancements.
The adoption of real-time payments is getting faster worldwide. In the US, 46 percent of the 4,000 consumers surveyed had used a real-time mobile P2P service, with 15 percent using them regularly, and in the UK, almost half (45 percent) of 2,000 people surveyed said they would even change banks to get immediate access to payments.
Not surprisingly, the global real-time payments market is forecast to reach $25.9 billion by 2023, at a CAGR of 30.6 percent. Real-time payments are the present but the future of payments, too.
Social shopping, the means of buying items directly on social platforms, has been a significant trend in recent years. Social referral to retail e-commerce sites has grown 110 percent in two years, outpacing all other referral channels, according to eMarketer, and the percentage of retailers in North America using social media as a source of e-commerce nearly doubled in a year — from 17 percent in 2017 to 33 percent in 2018.
There are differences in the shopping functions of each social platform, however, the golden rule is the same: allowing customers to buy what they want instantly, without ever leaving the app.
According to Facebook data, 70 percent of shopping enthusiasts turn to Instagram for product discovery, and once they’re there, there’s no need to think twice.
The Instagram shopping feature lets businesses tag their products that are featured in their posts and their audience can tap away to instantly purchase them. Facebook Shops provides a quick and easy way for merchants to enable users to purchase products without leaving the platform. Another example is Pinterest’s “Shop the Look” feature that enables shoppers to buy products in the images that they pin.
From a demographic perspective, Gen Z spends 2-3x more shopping on social channels than the average consumer, with Instagram and Snapchat shopping in the lead, while Gen X, for instance, is most likely to vote for Facebook for the same purpose.
According to Forbes, the rise of social commerce is inevitable, and with social media giants such as Facebook even wandering to the territory of cryptocurrencies, social shopping is likely to face exciting times in the future.
The concept of tokenization was created by TrustCommerce in 2001, to protect customers’ credit card information. Today, it’s often spoken of together with blockchain as well, and as a quite powerful technology.
“Tokenization is the process of turning a meaningful piece of data, such as an account number, into a random string of characters called a token that has no meaningful value if breached”, summarizes the computer security company McAfee, why tokens are generally beneficial.
Unlike encryption, tokenization is not a mathematical process, there is no key or algorithm to derive the original data, but there’s the use of a database, called a token vault, to store everything between the value and the token in which the real data is then secured via encryption.
Since the number of assets that can be tokenized is limitless, tokenization of assets on a blockchain provides countless opportunities in many industries, but the most common use case is protecting payment card data and sensitive consumer information for merchants, payment processors and banks from criminals. When the user pays at a point-of-sale, for instance, their payment details are instantly substituted with tokens or non-specific IDs in essence, randomly generated, and only the merchant’s payment gateway [see also, G: gateway] will be able to match the two.
Whether we look at the everyday lives of merchants or the growing number of cryptocurrency holders, the increasing presence of cybercrime shows tokenization’s justification for existence as cybercrime is projected to cost the world over $6 trillion annually by 2021, up from $3 trillion in 2015.
A KPMG study also found that tokenization or digital tokens can transform interactions between customers and businesses but first, education must come as only one-third of consumers are highly familiar with the definition of tokens. However, 63 percent of that group perceives tokens as an easy way of payment and if tokens are proven to be simple to use, 79 percent of Americans would be more willing to use them, too.
KPMG concluded that tokenization opens doors for businesses, “entirely new process improvements, revenue streams and customer engagement opportunities”. Without a doubt, tokenization is part of the future of payments.
The payments industry quickly learned the term Unified Payment Interface (UPI) in the last couple of years. UPI is an initiative by the Government of India in order to accelerate the digital payments scene and the efforts for a cashless economy and became a sensation for one simple reason: simplicity.
UPI enables instant and secure payments in a user-friendly interface where all is needed is to type the person or merchant’s UPI handle, the amount and a PIN. No lengthy bank account numbers or other identification points are necessary, and users can have a single UPI account for multiple bank accounts, as well.
In 2019, there were 143 Indian banks live on the UPI platform and it reached 1 billion transactions with over 100 million active users. These numbers would be impossible to show by any other financial institution in the world for one single platform.
Even Google started to pay attention and launched its own UPI-based payments app in India, called Tez, later renamed as GooglePay. The app saw more than a 3x growth and 67 million monthly users within a year. Google then even recommended the US Federal Reserve to implement the real-time payments platform — the service, called FedNow Service, may be rolled out in 2023 or 2024, based on their latest paper.
All in all, the scale and speed of UPI are practically unimaginable but if nothing else, a definite point on the horizon to follow.
The virtual reality (VR) market was estimated at $6.1 billion in 2020 and is expected to reach $20.9 billion by 2025, equaling a growth at a CAGR of 27.9 percent from 2020 to 2025. When consumers think of VR, they usually think of games or perhaps Oculus, purchased by Facebook in 2014, and with Mark Zuckerberg being more than optimistic about VR’s potential in providing us “the ability to be present anywhere”.
VR now also provides customers with virtual showrooms. In 2017, Swarovski’s home decor line collaborated with Mastercard on a virtual shopping app where users could use a VR headset to browse and purchase the items they saw in the virtual room, through Mastercard’s MasterPay platform.
Furthermore, let’s not say an idea is not scalable with VR commerce. In China, a Shanghai high-end shopping mall launched a virtual store where users could walk around the place and purchase from not less than 46 different brand stores. Amazon experimented with a similar approach, building virtual kiosks that reflected the online store sections from Bath & Beauty to Prime Video.
As reported by Business Insider, despite 42 percent of Americans having security concerns about VR payments, 37 percent believe VR will become regularly used and 65 percent that it will particularly change the way people shop. 54 percent surveyed said that they would like to see VR in physical stores and 59 percent in shopping apps, considering it as a more fun way of shopping. If that weren’t enough, merchants must become even more interested now: 30 percent of respondents said that the ability to visualize a product in VR would make them more likely to impulse buy.
VR payments are certainly not a mainstream payment option today but with more and more brands experimenting with it, its adoption rate is going to increase, and if customers’ growing curiosity is met with the needed security systems in place, it has a reserved spot in the future of payments.
The global wearable device market is expected to grow to over $1.1 trillion in 2026, representing a 15.3 percent CAGR from 2018’s $312 billion. In the nearer future, by 2022, the market is expected to grow to $89 billion and the smartwatch market specifically, to $25 billion.
Cashless transactions, IoT [see also, I: Internet of Things (IoT)], contactless payments, the reducing costs of NFC technology [see also, N: NFC] and the emerging demand of wearable devices are confidently showing the path for wearable payments.
According to PwC, 45 percent of US consumers own a fitness band, 27 percent a smartwatch, 15 percent smart glasses, 14 percent some smart video/ photo device (i.e. GoPro) and 12 percent smart clothing. Generally speaking, 57 percent are excited about wearable tech in their everyday lives.
When it comes to paying with wearables, in Europe, the Netherlands is the leader in wearable payments as a third (33 percent) of all wearable transactions came from there, followed by the UK (18 percent), Switzerland (8 percent) and Russia (7 percent). As for US consumers, more than 60 percent said in a Visa study that they would like to pay for products more efficiently and quickly and 44 percent preferred to automatically pay without having to manually checkout online or physically stop by a counter. This signals that invisible payments, a trend boosted by wearables as well, are “to become a consumer expectation rather than a nice-to-have convenience”, concluded Visa.
Meanwhile, consumers have their concerns about the data security of wearable transactions as well. In a TNS (Transaction Network Services) study, 65 percent expressed security concerns that would stop them from using a wearable device for payment, with Australians being the most concerned (68 percent), followed by Americans (64 percent) and Britons (63 percent).
This surely highlights the need for developing better data security systems and using technologies such as end-to-end encryption [see also, E: end-to-end encryption], to avoid fraud and other threats concerning sensitive information.
However, the wearable train is not stopping in the meantime. As 78 percent of the world’s POS terminals will be NFC-ready in 2022 and more than 88 percent in 2024, a technology going hand in hand with wearable payments, the latter is surely about to explode in the future as well.
Zero-knowledge proof (ZKP) is a form of digital authentication without using passwords or any type of sensitive data. Simply put, this way, a payment app can check the amount you store in your bank account and whether that is enough to fulfill the transaction but couldn’t access any other information about your balance.
ZKP is also used by governments for determining data origins without the need to prove how and where they had access to it, but from the perspective of payments, today they are more and more helpful in making crypto transactions secure, too. Since cryptocurrencies by nature are concerned with the lack of centralized control, the high-level encryption ZKP can provide is a perfect match for crypto: validating the transactions but not revealing any data related.
The benefits of ZKP are several. They can help with the end-to-end encryption challenges of messaging platforms [see also, E: end-to-end encryption] and authentication with better security throughout the payments industry.
The field’s top minds have only just begun exploring its further implementation possibilities, but zero-knowledge proof is likely to be not only the future of payments in general but, according to MIT, a technology that will integrate into our lives, “the beginning of a revolution in how we handle our most personal information”. This is going to be the future of our digital privacy.
Any suggestions you would add to this dictionary?