The financial services landscape has undergone a huge transformation in recent years; and, ‘payments’ is one such area that has seen accelerated growth. With the cashless payment trend, consumers are now making transactions through alternative online payment gateways, like mobile payments, e-wallets, prepaid cards,
As a result, more and more SMBs start relying on it to scale their businesses. Local, as well as new businesses, like utility bills, etc., are embracing online payments, leading to the innovation of new platforms. So, what is in store for online or contactless payment gateways systems in finance? In this article, we’ll look closer at how online payment gateways will dominate the industry in 2021 and beyond. Let’s get started!
Digital or Online Payment Gateways Today: An Overview
Be it using a QR code to pay at a store, or tapping a sales terminal with a mobile phone, digital methods of paying for products and services were there even before the pandemic. Spurred by the virus outbreak, a steady shift to online payment would ultimately lead to a cashless society. According to an analysis by PwC, global cashless payments are believed to increase up to 80% by 2025. Also, Asia Pacific will grow fastest with these transactions.
What is the reason behind this growth?
During the lockdowns, people adopted digital behaviors. This shift to digital behavior would continue to increase, requiring more investment in secure online payment solutions. Also, this shift to cashless brings with it a more profound change. With new business models emerging every day, the payment infrastructure is being reshaped. Below are some more reasons behind the growth of online payment options-
Pandemic Accelerates Digital Payments
With the increased use of contactless payments and IoT payments, the payment industry saw a dip in the use of cash. In the pre-pandemic era also, digital currencies were growing rapidly. However, when the pandemic became a serious issue, authorities recommended a shift to cashless transactions to curb the spread of the virus.
Customers’ Demand For Frictionless Experiences
When it comes to online payments, it makes the transaction process frictionless. It minimizes the barriers involved in the offline checkout process. A user can make transactions with one of the most convenient online payment solutions, like digital wallets, one-click payments, or other invisible payment methods.
Real-Time Payments Adoption
Merchants across the world are adopting real-time payment, which enables them to send or receive the money within seconds. But what is the reason behind the adoption of RTPs (real-time payments)? Well, the driving force behind real-time payments is rooted in the increased use of P2P apps, smartphones, digital currencies, and more! The immediate need to meet the growing customers’ demands pushes the buyers, merchants, and individuals to use RTP. Also, the competition among business players with innovative business models also contributes to the growth of RTP.
AI And Machine Learning In Payment System
If a business has multiple payment integrations, AI and machine learning can benefit a lot. Many businesses are leveraging the power of these intelligent technologies in many ways, like fraud detection, facilitating digital transformation, improved customer service, etc.
For a financial entity, AI-based fraud detection is crucial. Given the high fraud rates due to the growth of online transactions, this is something every business that accepts online payment should have. With AI and machine learning integrated into payment gateways, businesses can detect and block potentially fraudulent cases.
Companies are often overwhelmed by the transactions. To top it, customers inquire about delays, processing issues and expect quick answers to their questions. With AI in online payment systems, chatbots can tackle the basic questions of customers and provide quick responses. Several businesses are using chatbots to improve their customer service and will continue to do so in the future too.
AI and ML can be a game-changer for digital payment, making online payment gateways smarter and faster. With these technologies, businesses can get useful insights and revenue-generating patterns. AI inclusion will also optimize sales, improve inventory processes, or more!
Open Banking Supporting Innovation
Open banking is a growing trend worldwide and is expected to grow in the coming years. Large corporate enterprises and companies use open banking. Moreover, traditional banking can no longer fulfill the requirements of a digitized world. Thus, shifting to open banking has the potential to open a business to many opportunities.
Some Macro Trends Dominating The Future Of Online Payments
Now that you know the most important reasons behind the growth of online payment solutions, you need to know how the upcoming years play out. Below are the top macro trends that will impact the future of online payments-
Digital wallets enable users to access funding sources, load or store payment methods on their smartphones. With the rise in the use of Google Pay, Apple Pay, and other super apps, like Alipay (China), digital wallets will be an important ‘front-end’ payment solution. The use of digital wallets is perceived to account for more than half of all e-commerce payments by 2024. Consequently, banks and other financial institutions are partnering with/investing in digital wallet businesses to create better payment platforms.
Frustration with the time-consuming traditional banking model has resulted in the rise of non-bank providers. New solutions, like the P27 initiative, are competing against the card-based solutions that integrate over 25 million inhabitants across 4 countries and currencies across a single instant payment system.
With an increase in e-commerce, there has been an increase in fraudulent cases, such as data breaches. Open banking, digital wallets, mobile payments, etc., is opening doors to financial crime. Moreover, some payment providers that support merchants and customers to move money across borders are also involved in money laundering cases.
Security, data privacy, and compliance are the top concerns for banks, financial managers, and fintech. Thus, there is an urgent need for better collaboration among banks, financial institutions, payment providers, and cybersecurity measures.
What Does This Shift To Online Payment Indicate?
With the increasing use of the internet and smartphones, people are becoming tech-savvy. This creates endless opportunities for mobile or digital payment markets. In the post-pandemic era, online payment gateways are expected to flourish in the coming years. Though cards remain the top choice for payments across the world, digital wallets are gaining traction.
As a result, traditional cash flow is declining, pointing towards a cashless society in the near future. Still, there are countries that are dependent on cash due to a lack of internet infrastructure or trust in financial institutions. Cybersecurity and data privacy are other concerns. However, voice-activated payment, biometric payment, or other forms of digital payment will likely become mainstream.
Banks, fintech, and card companies should understand the emerging online payment trends. In order to survive in a world where digital wallets and super payments apps are so important, businesses need to work with banks and integrate payments directly into their services. Cross-border offerings, bill payments, etc., could also provide larger banks with some great opportunities.
Payment service providers need to ensure a transparent global structure to create trust among users. They should have the ability to bear credit risk and master data in order to win the global scale race. Also, central banks need to improve their knowledge to get insights into the global players that are not banks. Besides, card providers need to consider steps like partnering with reliable digital data providers to ensure relevant merchant services space.
The Future Of Online Payments Gateway In Finance?
In the upcoming years, non-banking institutions will transform the payment systems and customer experience. There is an influx of non-bank players from tech giants, as well as startups that are giving tough competition to banks. Moreover, with the evolving trends, like changing customers’ expectations, the dominance of mobile channels and smartphones, etc., fintech startups are transforming the banking industry.
Thus, if financial service companies must maintain their customer relationships, they need to embrace and respond to these changes. They need to look for new solutions to tackle online payment issues customers struggle with. Banks or other financial institutions have done a lot to improve the processes involved in digital payments. Much remains to be done, though.
For example, cross-border payments are beneficial for the new non-bank players. As cross-border payments are still expensive for customers, non-bank players are focusing on this area. This causes banks to reconsider their payment approach.
So, what is the scope of online payment for the future? As the online payment ecosystem flourishes, it is going to make the future of payment gateways brighter than ever. However, in order to stay at par with technological advancements, payment gateways also need to evolve constantly. The digital payments industry needs to pick pace with the latest technologies to reap the benefits online payment gateway can bring in the future.
The report forecasts the digital payment market to more than triple to $10 trillion in the next five years, with non-cash contributions constituting nearly 65% of all payments, wherein 2 out of 3 transactions will be digital in the next five years as opposed to 2 out of 5 transactions today.What are the benefits of payment gateway? ›
A Payment Gateway (PG) enables merchants, corporates, and government entities to process online transactions processed through debit (ATM) cards. A robust PG ensures security while supporting online payments, whether initiated on the internet or through mobile apps.What is online payment gateway system? ›
In simple terms, a payment gateway is a network through which your customers transfer funds to you. Payment gateways are very similar to the point-of-sale terminals used at most brick and mortar stores. When using a payment gateway, customers and businesses need to work together to make a transaction.Why is payment gateway used what is its function? ›
A payment gateway is the mechanism that reads and transfers payment information from a customer to a merchant's bank account. Its job is to capture the data, ensure funds are available and get a merchant paid. Online, a payment gateway is cloud-based software that connects a customer to the merchant.What could be the future state of digital and mobile payment? ›
Use and adoption of digital payments have increased dramatically over the past few years, especially as convenience and technology have relegated cash to the sidelines. By 2025, gross transaction value driven by digital payments is expected to climb to US$1.2 trillion.How digital payments have changed our financial lives? ›
Since digital payments reduce the costs of providing poor people with financial services, they have become a vital tool in improving financial inclusion. The convenience and safety of using insurance, payments, and savings products also increase by using digital payments.How many types of payment gateway are there? ›
There are 4 types of payment gateway:
Hosted payment gateway. Self-hosted payment gateway. API hosted payment gateway. Local bank integration gateway.
Merchants send batches of authorized transactions to their payment processor. The payment processor passes transaction details to the card associations that communicate the appropriate debits with the issuing banks in their network. The issuing bank charges the cardholder's account for the amount of the transactions.What is a gateway in credit card processing? ›
A credit card processing gateway is a connection point within the payment journey. A gateway connects your shopping cart, point of sale system or virtual terminal to the next point in the payment authorization process.Will digital payments replace cash in the US? ›
Luckily, it's unlikely that we will completely do away with cash — at least not any time soon. This means more time for small businesses to get comfortable before they take the mandatory leap into digital payments. 71% of consumers intend to continue using cashless payments in the future.
Cashless payment solutions are the current demand of the situation and digital wallet is the future of e-payment solutions.What is the future of mobile wallets? ›
Innovations in technology have diversified how and where mobile wallets can be used which has led to their rapid growth in the past 5 years. As per a report, the mobile wallet transaction value is set to reach a staggering figure of nearly 14 trillion USD by 2022, worldwide.What is the future of UPI payments in India? ›
Over the next few years, it is expected that UPI India will continue to play a significant role in the digital payments space. India has created a vast, safe, effective, and scalable public digital infrastructure, laying the groundwork for a powerful, globally significant 'Digital Payments Revolution.