The Season of Predictions

There aren’t usually many changes in payment technologies within a single year, but a lot can change over 5-10 years. It is often observed that the most effective changes develop gradually over the years rather than making an immediate impact when they first appear.

An example of this can be seen with contactless payments. The first major driver occurred with contactless payments in the UK before the 2012 London Olympics. At that time, many businesses were skeptical about investing in the technology required to accept contactless payments. However, by 2022, contactless payments accounted for 27% of all payments in the UK, and this percentage continues to increase today.

Conversely, blockchain technology might be an example of this trend. Blockchain is frequently emerging as a rising trend that could have a significant impact on payments. There are differing opinions on the exact impact blockchain has had so far.

Global Mega Trends and Payment Trends

Technological progress reflects the broader society. With this in mind, it is necessary to look at the big picture and understand the key factors shaping the world in the long term. PWC considers these Mega Trends as five global shifts.

Deep and profound trends are those with global scope and long-term impacts, affecting everyone on the planet and shaping our world for years to come.

Mega Trends include climate change, technological disruption, demographic shifts, a fragmented world, and social instability. Often, these Mega Trends overlap with each other. Key payment trends are connected to these global Mega Trends. Global changes also directly affect the payment technologies that businesses and consumers interact with daily.

To understand the impact of Mega Trends, we have closely examined three trends for you.

Payment Trends

1- Software-Based Payments

SoftPOS technology has matured this year compared to the previous year. Accepting payments via a standard Android device without extra payment hardware has now become a familiar technology. Reaching this point took a few years, with various regulations evolving over the past few years. However, last year was the year of SoftPOS for the mass market.

With SoftPOS, a business can download an app and start accepting payments directly from its device within minutes, thanks to a quick setup process.

In the UK, major competing banks such as Revolut and Monzo introduced SoftPOS in 2023. These banks have access to over 13 million personal accounts and many business accounts. The ability to accept contactless payments is now among the core banking functions of mobile banking apps.

Although we are still in the early stages of SoftPOS adoption, these two banks have demonstrated that any bank could become a payment company by offering SoftPOS. This technology can enhance customer loyalty and create new revenue streams. Over time, accepting contactless payments will become a standard part of retail banks’ product ranges.

The importance of software in payments is not limited to SoftPOS. When a consumer or business owner has this app on their Android device, a wide range of services and use cases can be opened up. New solutions can also be added to the original app in a modular approach. Embedded Finance and Buy Now Pay Later (BNPL) are other examples benefiting from this.

Key Mega Trend: Accept contactless payments everywhere. Integrate contactless payments into any app. Adopt a modular approach for new functionalities and solutions, allowing companies to expand access across the payment value chain.

2- Sustainability in Payments

With the recent conclusion of the COP28 summit in Dubai, climate change has again become a top news item. All participants made the following commitment:

To triple global renewable energy capacity by 2030 and double energy efficiency improvements… phased reductions of unchecked coal energy, gradual removal of inefficient fossil fuel subsidies, and other measures to move away from fossil fuels in energy systems will be carried out fairly, systematically, and equally, led by developed countries.

Contactless payments can also play a significant role in scaling the adoption of electric vehicles (EVs). They are the most efficient way to pay for EV charging stations. Organizations like Siemens may prefer contactless and QR code options while expanding EV charging. Having various payment options can accelerate adoption across networks.

How Payments Can Save Our Planet

In the US, it is expected that 50% of new vehicle sales will be EVs by 2030. And despite some recent exemptions, only zero-emission vehicles will be allowed to be sold in the EU by 2035. Accordingly, payment technology will play a crucial role in accelerating this growth.

Additionally, plastic payment cards, credit or debit cards, have an environmental impact.

For example: Producing a plastic payment card generates carbon emissions equivalent to five plastic shopping bags, which is something many of us are trying to reduce.

Many Scandinavian banks have started providing cards made from recycled ocean plastic. This change could have a significant global impact, as 70% of a payment card body can be made from ocean-recycled plastic.

Plastic is also removed from the ocean in this process. Thus, it provides environmental benefits in two ways.

Key Mega Trend: Climate Change. Technology is helping businesses meet their goals on this issue. Consumers view focusing on sustainability not just as a nice feature but as a necessity.

3- Real-Time Payments (RTP)

Real-Time Payments (RTP), sometimes known as Account-to-Account payments or Open Banking payments, allow for payments directly from one bank account to another, with the money arriving in the other account within seconds. Payments can be sent and received instantly, even outside of bank operating hours, such as weekends or bank holidays.

RTP takes different forms in different countries. In the US, a significant development came with the launch of FedNow in the summer of 2023. FedNow provides the possibility of real-time payment infrastructure for all banks. Many banks have signed up, and more financial institutions will be added soon. Non-bank organizations like Plaid have integrated FedNow into their systems.

In the UK, hundreds of companies are authorized to offer Open Banking services, and approximately 12 million transactions are conducted through Open Banking monthly. Compared to Sweden, the UK is lagging in RTP. Swish, created by a bank consortium in Sweden in 2012, now processes over 85 million transactions per month. Swish’s extraordinary success comes from strong local cooperation and a user-friendly app interface.

However, the biggest story regarding RTP is the UPI (Unified Payments Interface) scheme in India, which reached 89.5 billion transactions in 2022. UPI’s growth has been a major leap for financial inclusion in the country. Many citizens are now making cashless payments for the first time via UPI. FinTechs are working to build additional products and services on top of the core UPI offering.

Key Mega Trend: Technological Disruption. Both existing and new use cases can be enhanced with RTP. Use cases that benefit all participants in the ecosystem will generally be cheaper and show clear growth compared to card payments.

What About Artificial Intelligence?

Artificial Intelligence (AI) has become the biggest star across all industries and sectors over the past year. AI has been termed the “Mega Trend of Mega Trends” and will be a part of payments just like everything else.

Just as with the emergence and normalization of the Internet—at some point, we will stop thinking of AI as a standalone technology and see it as a facilitator for everything. Therefore, I didn’t discuss AI as a fundamental trend shaping payments right now. However, the impact of AI on the payments industry will be the topic of a future article.