We’re experiencing more changes in the digital payments sector than we’ve seen during the past two or three decades. This seems like an exciting time as consumers across the globe are increasingly using innovative digital platforms and services. Accuity’s payments experts have identified four important digital payment developments and trends that could significantly impact the industry in 2021.
Accuity’s latest whitepaper notes that the point of online purchase will become really crowded for payment solution providers. When a customer accesses an online payments point or portal on a merchant’s website, they’re required to choose their preferred payment option. This year, customers will be provided even more ways to settle transactions, like highly customized products such as short-term loans. These options completely remove the requirement for bank-issued credit cards.
With the widespread use of many different payment options, providers will have to effectively communicate their main value proposition. But quite often, there’s very limited space in which they can actually do this, meaning consumers are more likely to use strong or prominent brands.
This year, large digital or online marketplaces are expected to increasingly develop and manage their own virtual payments infrastructures to process transactions via their platforms. This trend is now being called “embedded finance.’’
Local Buy Now Pay Later or BNPL products could become more widely-adopted, particularly at the online point of purchase. Will people decide to pay in 12 monthly instalment plans at 24% APR with a particular brand, or choose to make payments in 48 monthly instalments at 16% APR with another brand? This may become quite challenging to communicate, because financial literacy still remains a significant challenge.
Another trend identified in Accuity’s report involves payment service providers that are expected to compete to handle Strong Customer Authentication (SCA) with the least amount of issues during checkout (in Europe).
Physical card transactions are using fairly strong customer authentication processes, as people have to input their PIN number. But contactless and online payments have not asked consumers to complete secondary forms of authentication, which may leave accounts more susceptible to fraudulent activities. The fast-growing adoption of digital payments during the COVID-19 pandemic has led to an increased number of transactions being completed without going through secondary customer authentication.
This year, in Europe, digital retail payments could become a lot more secure and less susceptible to fraud because of the introduction of Strong Customer Authentication (SCA).
The best scenario or ideal situation might be for payment service providers and merchants to use SCA protocols while causing limited customer friction. Payment service providers that create the most seamless SCA payment flows with minimal customer friction could have a competitive advantage. Biometric-enabled authentication is considered one possible way of reducing customer friction, thus improving the overall user experience (UX).
As noted in Accuity’s report, neobanks could go “niche” with products developed specifically for certain customer segments.
The Coronavirus outbreak has led to socioeconomic uncertainty which could make it challenging for Fintechs to access funding, especially smaller startups. Even more established neobanking platforms have been forced to complete investment rounds at considerably lower valuations. The rising uncertainty in markets may continue this year, as some countries continue their recession period.
As digital banks continue to look for creative ways to monetize their services to generate more revenue, it’s quite likely we could see many new financial products and services this year.
As banking-as-a-service (BaaS) providers keep lowering technical barriers to entry for new challenger banks, Accuity expects 2021 to see smaller, more agile banking challengers enter the markets.
As mentioned in Accuity’s report, incumbers could increasingly begin using APIs provided or developed by Fintechs in order to enhance their payment services.
Open Banking related developments could be a major driving force for banking institutions, leading them to move their systems and data over to Cloud-hybrid infrastructures. These IT systems will be interoperable, which means they’ll be able to easily link up with other systems like hosted APIs. This year, this momentum is expected to accelerate in nations with solid Open Banking initiatives, and an increasing number of incumbents in these jurisdictions are expected to begin sharing customer data via hosted APIs.
In some areas, it has become a legal requirement for certain banking service providers to share customers’ data via standard APIs, and in other places legislation is expected to be introduced soon so that consumers are able to take advantage of Open Banking solutions. These developments may lead to banks benefiting from using API-powered services, which are expected to become increasingly adopted, as even banking platforms that don’t legally have to share data via API decide to update their technology stacks.