Definition: Digital payments are changing the world. Given the crucial role of digitization in the financial lives of an increasing proportion of the world's population, digital payments are at the very center of this transition. The future is based on two parallel trends - evolution and revolution, all determined by how banks, technology companies, regulators, governments, and consumers react to how money is transacted.
The future of Digital Payments explained
Digital payments have transitioned from being rare to standard practice In just a few decades. In many instances, society has now moved on from considering the use of digital payments, and now towards the improvement of these transactions - how can payments be made faster, more convenient, transparent, and more secure?
The future transformation of the digital landscape is likely to include:
- An acceleration of cross-border and cross-currency payments, including B2B payments
- Digital wallets will be widely adopted, removing payment friction. They will also start to be widely used for the B2B segment
- The use of Buy Now, Pay Later (BNPL) will continue to increase as consumers continue to budget and control their finances
- eCommerce transactions will increase as consumers value online business
- Enhanced security - encryption and multi-factor communication will be used across all payments to safeguard sensitive financial information and to prevent fraudulent activities
- Financial institutions will utilize payment data to gain insights into consumer spending patterns and preferences, driving new business opportunities
- An increase in countries developing their own digital currencies
- Universal utilities are likely to be introduced for digital identity verification
- Traditional payment providers will partner with fintechs and technology providers as a primary avenue for driving innovation
- Regulatory impact - There will be a considerable amount of regulatory changes over the coming years which will need to be considered cross-border. These will largely focus on:
- Cybersecurity and Data Privacy
- Use of new technology
- Digital identity authentication
- Know Your Customer (KYC)
- Anti-Money Laundering (AML)
- Open Banking
- Digital payment systems, such as Bitcoin may present risks to nations and could lead to legislative barriers for adoption
- Central Bank digital currency
- Various business models such as peer-to-peer payments and crowdfunding
- Customer communication
Some countries may have different legislation and banking structures which could create further obstacles for digital payment types. Also, other national payment systems may also be developed.
The future of digital payments will revolve around the concept of "digitize to optimize," where organizations and individuals increasingly leverage digital technologies to enhance and streamline digital payment processes.
