7 Ways the Future of Payment Technology is going to Affect Your Business
Let’s climb in the way-back machine for a minute and think about how people paid for goods and services in the past. In the ‘80s and ‘90s, telephone bill pay was considered cutting edge, and it wasn’t uncommon for someone to write a check at the grocery store. And you never saw anybody pay for fast food with a credit or debit card!
As much as payment methods and technology have changed over the past few decades, future payment technology is poised to change even more. Exciting new payment mechanisms and virtual currency have become common over the past few years, such as mobile payments using Apple Pay and Google Pay and online payment platforms like PayPal and Venmo.
“Technologies that were formerly in the realms of science fiction will become science fact as consumers change the way they make payments,” said Alexandre Albarel, the head of strategy at Worldline in an article published in the Payments Journal. While payment processing changes are still focused primarily on human interaction, Albarel said he believes that “the natural next step in the development of real-time payments will be the Internet of Things and Artificial Intelligence (AI).”
Trends in Future Payment Technology
Given the rapid pace of change in the payment industry, it’s critical that your business stay on top of the latest trends in payment processing.
So what are some of these payment trends that could affect your business? Here are seven big-picture trends that are driving the future of payment processing for small business.
1. New advances in mobile payments
Despite the love affair that many people have with their mobile devices, mobile payments have so far been fairly slow to take hold. But this is about to change, according to Driving the Future of Payments, a study of 10 payment technology megatrends conducted by Accenture.
“Mobile payments is poised to finally have its day thanks to application program interfaces (APIs) and open banking,” states the report. “These advances make it possible for payments players to deliver more valuable, consumer-focused payments experiences — with immediate rewards, proactive balance alerts and more — that bring the power of mobile, the ecosystem and data sharing to life.”
As a result, mobile payments are positioned to be the breakout new payment method over the next few years. For example, total mobile pay volume is projected to hit $503 billion by 2020, according to BI Intelligence. And about one-third (64%) of consumers say they plan to use a mobile wallet in 2020, according to the Accenture study.
2. The rising influence of Generation Z
For many members of Gen Z, carrying cash or writing checks is about as foreign as writing on stone tablets. In fact, the Accenture study predicts that Gen Z is “likely to be the first generation to forgo the leather wallet for the digital wallet.” It calls Gen Z “the payments industry’s future customer base.”
The members of Generation Z have never known a world where they couldn’t buy anything they want with the click of a button or swipe of a card or smartphone, so it’s no wonder so few bother carrying cash. According to the Accenture study, seven out of 10 (68%) Gen Z-ers are interested in making instant person-to-person payments using social payment platforms like Venmo.
3. New digital payment technologies
In 2015, the U.S. payment system began switching from magnetic stripe technology on credit cards to computer-chip technology, also known as EMV. The new credit cards we all received from our banks a few years ago contain computer chips that generate a unique code for every transaction that’s executed, increasing payment security exponentially.
When combined with other new digital payment technologies like tokenization, this has the potential to disrupt the future of payment processing for small business even more. For example, it’s conceivable that physical credit and debit cards could eventually be phased out altogether as payment credentials are virtualized and can be embedded anywhere.
4. The popularity of rewards programs
Consumers love to receive rewards for making purchases, whether it’s airline miles, cash back or reward points. Almost half (48%) of consumers say they would switch their primary rewards card to get more value, while 42% say they would switch cards to receive a large signup bonus, according to the Accenture study.
Convenience is also becoming more important when it comes to redeeming rewards. The Accenture survey found that three-quarters (76%) of consumers want to be able to redeem rewards right at the point of sale instead of waiting. Consumers also value more personalized rewards — half of those responding to the Accenture survey said they could be convinced with the right incentives to give away personal information in exchange for more personalized reward offers.
5. New types of payment acceptance devices
It used to be that accepting any type of payment other than cash required expensive point-of-sale equipment like a POS terminal and software. Not anymore. All that’s needed now to accept credit and debit card payments is a simple portable card reader or a smartphone. As a result, your business can accept payments of practically any kind from anywhere, at any time.
This trend is resulting in universal card acceptance, which will alter the future payment technology landscape drastically in the years to come. This is true for both consumers and businesses.
6. Partnerships between banks and fintech companies
Fintech companies have revolutionized all aspects of financial services in recent years, from home mortgages (think Rocket Mortgage from Quicken Loans) to payment processing. PayPal, Square, Venmo, Stripe and BitPay are just a few of the dozens of fintech businesses that are turning the payment processing world upside down with disruptive digital technologies.
While fintechs are bringing exciting innovations and technology breakthroughs to payment processing, most lack the infrastructure, customer base and brand name recognition needed to scale. This is where traditional banks come in. New partnerships between leading fintech firms and traditional banks hold tremendous promise for further advancements in payment processing.
According to the Accenture report, Bank of America and PayPal have teamed up to make it possible for BofA customers to link their bank cards into PayPal so they can make PayPal payments at the point of sale. And TD Bank and Moven have joined together to make Moven’s money management app available to the bank’s retail customers.
7. Evolving types of payment fraud
One thing you can be sure of when it comes to payment processing is that thieves and criminals will always be looking for new ways to commit payment fraud. For example, while EMV went a long way toward increasing the security of credit and debit card transactions, it hasn’t eliminated card fraud entirely — not even close. Many fraudsters have simply shifted their attention to card-not-present transactions where the security features of EMV cards are irrelevant.
Another new threat is the creation of so-called synthetic identities by thieves that exist only in the digital realm. Existing fraud detection models aren’t equipped to combat this type of theft. Some fraudsters are even creating fake fingerprints that can fool the fingerprint sensors on smartphones, according to the Accenture report. Efforts by the payment industry to stay one or two steps ahead of thieves are sure to have a significant impact on future payment technology.
Stay on Top of Payment Industry Trends
All businesses accept payments from customers in one form or another. Therefore, it’s critical to stay on top of future payment technology trends and the future of payment processing for small business, in particular.