Since the time of the Stone Age, money, economics, and the manner in which we make payments has continually evolved and has gone through several changes. These advancements in the current payment methods are powered by the continuous innovation that leads to cutting-edge technology. The advanced methods of payments make our lives easier by providing us with the most efficient, convenient, fastest, and secure ways of dealing with money. In the span of four to five years, there have been some massive developments in the digital payment methods and some might argue that we have achieved it all. However, the truth is that we are about to see even more changes in the coming future.
What are digital payment methods?
The payment methods that are contactless, cashless, and paperless are known as digital payment methods. Technology like AI or machine learning has helped the world to embrace these more convenient exchanges of payments. According to Statista, the number of people that use digital payments has grown by 5.4% in 2020. Thus, it is evident that the payments market is growing rapidly and quite a large number of the population is familiar with these payments systems.
As the problems of identity theft and fraud are increasing, the need for security is also rising, customers are moving towards digital payment methods. One such method is biometric authentication. It is a verification method that involves structural and biological characteristics of a person. It utilises fingerprinting scanners, iris recognition, facial recognition, vein mapping, and heartbeat analysis to prevent fraud and identity theft.
Nowadays, many phones that have digital wallets like Apple Pay or Google Pay use fingerprint or facial recognition. Companies are also developing other alternative methods for the same. For example, instead of entering a PIN code or signing a receipt, Visa is piloting a biometric payment card which will allow its users to verify a transaction. The user can touch the sensor on the card which will then determine if the fingerprint is a match or not. As per Biometric Update, approximately 2.5 million payment cards will be issued by the end of 2021, and it is also expected that there will be over 18 billion biometric transactions each year.
Mobile point of sales (mPOS)
Convenient payment processing is becoming a top priority for customers as well as businesses since there will be 27.7 million mPOS devices in 2021, as compared to 3.2 million in 2014. Mobile-point-of-sale (mPOS) systems work like a cash register but the difference is that they are mobile phones, tablets or other wireless devices that require an app and a card reader to process payments. This technology is revolutionary as it offers freedom to the businesses to eliminate a central checkout area or in-store payments and accept payments seamlessly from anywhere in their store, even off-site! According to Global Market Insights, mPOS will have a CAGR of approximately 19% between the year 2020 to 2026.
Contactless payments are another method that is growing rapidly and will continue to do so. There are a lot of different mobile payments apps that allow their users to purchase products, transfer money, pay bills, and virtually complete any other kind of financial transaction, all with the tap of a finger. This method is way faster, more efficient, and more convenient than inserting a card. It is also much faster and way more secure than the PIN technology as it transfers the encrypted data to the point-of-sale device in real-time.
In order to make electronic payments, the customer can either wave their card across the reader or can use apps or digital wallets (example Google Pay, Apple Pay, Venmo, and PayPal) on their phone to do so.
The credit and debit cards are equipped with the RFID technology which is used for contactless payments. Other such contactless payments are possible with the help of NFC (near-field communication) technology. This is the reason why they are also known as NFC payments. UK finance has projected that around 36% of total payments will be made through NFC powered contactless cards by the year 2027.
It is also considered as a much safer and convenient method for consumers. And it is also much quicker than counting cash or swiping a card.
Home assistants or smart speakers like Google Home, Apple HomePod and Amazon Echo can also be used for making payments through voice commands. These smart speakers use solutions like P2P payments, which allows to transfer money from one user to another. Although some consumers are sceptical about this type of payment services, according to Statista around 35% users shop online through their smart speakers. Furthermore, this digital trend is forecasted to grow to 77.9 million users by 2022 (up from 18.4 million users in 2017). Due to security reasons, some smart speakers for instance, Alexa allows their customers to make a voice pin on the Alexa app to make transactions more reliable and secure.
The smart assistants were primitively restricted to just phone devices, however, with the automation and development of such devices, smart speakers have also become mainstream. And surprisingly, around 28% of the users have used smart speakers for exchanging money or for making direct payments. Although, this is not a huge percentage because this digital payment method is not considered much secure.
Since security is imperative when it comes to payments, people mostly prefer to use methods that are highly secure. To make smart speakers more secure, companies are using Machine Learning Algorithms that take a set of limited transactions data from the banks (example central bank) and learn to identify fraud transactions. It is believed that AI based software is still under development to make this method much more secure.
Social media payment options
In this era of social media, many companies and networks have tried to expand their reach in order to include payment solutions. For instance, direct payments within the network from consumers to retailers or P2P payments. A study by Animoto suggests that 75% of millennials purchasing decisions are influenced by the company’s presence on social media, and thus, a large number of these millennials turn to social media before or during a purchase.
As a result, Facebook, Instagram and Pinterest all allow brands to open their business accounts to sell to their consumers. These transactions on social media are done with the help of digital payment methods that are conducted directly on the site for a small fee. Besides, in 2018, a study from Avionos stated that about 55% of the online shoppers had bought products through social media channels. The study also suggested that the use of cash and physical cards will continue to decline in the future.
From cards to codes
The EMV technology (Europay, Mastercard, Visa) has gradually introduced customers to more computerized and secured mechanisms for payment, as compared to the previous bank accounts that were simply recognized by random combinations of unique digits present on debit or credit cards.
This technology is known for using codes that vary each time a transaction takes place. The use of temporary codes improves the security of the bank accounts by leaps and bounds.
Nowadays, there is another familiar technology that we might have used for the purpose of bank transfers and payments. It is recognised as QR codes and can be easily used by simply scanning the code with the mobile camera. The QR code scanning apps or mobile wallets will immediately identify the code and open a push notification that can be clicked to finish the transaction.
Such technologies can lead the future of plastic cards to be overshadowed by advanced payment methods that will offer more seamless and convenient methods of money transfer.
Digital payment methods | Conclusion
Digital payments have evidently become the reality and are also the future. In the coming years we will also see how payment methods will transition from physical cash to digital payment services. However, before this transition, we will witness many more new trends that will appear and disappear, according to their usage and security. The current trends and technologies are playing a vital role in shaping our future payment methods and many of the aforementioned trends will play a major role in making more advancements in the payment systems.