For all the talk of developments like real-time payments, central bank digital currencies (CBDCs), and AI-powered smart wallets (see below), evolving consumer behaviours are driving big changes in the payments landscape. The readiness of organisations to embrace such change and place users at the centre of design-first systems and for regulation to address unwanted, unforeseen consequences, will affect the industry over the next five years as much as software.
With this in mind, here are three industry-defining trends to monitor.
The impact of distributed ledger technology could be crucial, in two areas
One of the most significant shifts by 2030 will be the widespread adoption of real-time payments, even for cross-border transactions. The shift will be supported by the added security and transparency of distributed ledger technology (DLT), while the real-time nature of payments means businesses can operate more efficiently and speedily. To that end, this is why NatWest is participating in the Bank for International Settlements’ Project Agorá to explore how DLT could improve cross border payments.
APIs will continue to improve both the user experience and the overall security of financial systems. Given the obvious benefits, the opportunities for fintechs to get involved in areas such as FX, expect real-time payments to blossom exponentially.
Secondly, several nation states may introduce digital currencies by 2030, in order to retain control over economic policy and keep pace with evolving payment technologies. But rather than challenging cryptocurrencies, CBDCs will complement them and further reduce the reliance on cash.
Data-driven payment systems, AI, and Smart Wallets
Data will become the mainstay in the future payments value chain. As more payment solutions are integrated with data analytics, businesses will be able to offer more personalised, efficient, and secure transactions.
This reliance on data will not only streamline payments but enhance fraud detection, credit assessment, and customer experiences. Payment systems powered by data can anticipate consumer needs and automate many of the routine decisions associated with payments.
Similarly, AI will become central in payment decisions, improving user experience, and profiling fraud. By 2030, smart wallets powered by AI (such as Apple Pay, Google Pay, and PayPal) could handle most of a consumer’s day-to-day financial activities. These wallets will have the power to learn from users’ habits and preferences to suggest or make payments, to budget, and offer financial advice. As consumer wallets grow in popularity, businesses will need to ensure that their payment systems are compatible with an evolving array of smart wallets, enabling smoother transactions for consumers and businesses alike.
As AI encroaches into our spending behaviours, the act of making payments will become increasingly invisible. The Buy Now, Pay Later (BNPL) solution is one example of how a payment can become part of the broader consumer experience. If we put users at the centre of the systems we design for them, payment technology can reduce financial exclusion and promote financial services among people who were previously out of reach.
Regulation that keeps pace with technology
Scared yet? Of course, introducing the above begs regulation. An AI-enabled smart wallet that nudges a problem-gambler to an online casino is obviously problematic. And yet identifying the desired level of regulation needed to ‘protect people from themselves’ is no easy debate to settle. Ultimately, who or what should decide what is in the consumer or business’ best interests?
Aside from such dilemmas, the EU’s Payment Services 3 proposals and the introduction of a new digital identity (elDAS2) will influence both the European and, by extension, the UK markets. The end goal is that regulators will focus on ensuring consumer data, held by financial institutions, is protected and accessible in a controlled manner. Yet the speed at which this will happen, the sensitivity of the regulation to industry versus the end user, and the inventiveness of solutions that both comply and compel are questions we can’t yet answer.
To learn more about the future of payments, get in touch with your usual bank representative or contact us here. And if you’re attending Sibos 2024 in October, please join us on Stand J11 to learn more about the future of finance.
