The payments industry is one of the most dynamic and innovative sectors in the global economy, as it constantly adapts to the changing needs and preferences of consumers, businesses, and regulators.
The industry has witnessed significant transformation in recent years, and improved user experience, real-time account-to-account payments are becoming a more attractive option for online shoppers and merchants.
The best payroll software tools also also evolving, offering a different world of services, from direct payments and automatic accounting, than we were used to even a few years ago.
Although the impact of COVID-19 shook up the industry in the recent past, it’s made a reassuring recovery and, speaking strictly of payments revenue, is estimated to exceed $3 trillion by 2027 based on McKinsey’s prediction. The industry is highly competitive and diverse, with various players and stakeholders, such as banks, payment service providers, and merchants, vying for a share of the value and opportunities.
As 2024 kicks into full gear, we explore some of the payment industry trends and predictions for the year ahead. This will be based on the insights of various industry experts and sources.
Top 5 Payment Industry Trends
5. Instant Payments Will Take a Dominant Trajectory
Instant payments, also known as real-time payments, are not a new idea, but they are gaining momentum in the US and Europe. This is coming after the US Federal Reserve, in 2023, launched an instant payment infrastructure known as the “FedNow Service“, which allows financial institutions to offer real-time payments to their customers, regardless of the time of day.
According to experts at IXOPAY, these developments are part of a global trend of open banking, which enables account-to-account (A2A) payments and new payment methods that bypass traditional credit cards. With the help of digital wallets and improved user experience, real-time account-to-account payments are becoming a more attractive option for online shoppers and merchants. The best payroll software tools also enable companies to make direct payments to their employees so that they receive salaries directly to their bank accounts.
Similarly, Nilesh Vaidya, Global Industry Head for Retail Banking and Wealth Management at Capgemini, told Techopedia that “real-time payment systems using daily batch processes are rapidly replacing conventional cash management and payment reconciliation methods.” He anticipates that real-time treasury services will be instrumental in driving competitiveness and growth for payment firms in the months ahead
4. AI Will Transform Revenue Recognition and Billing
Artificial intelligence is poised to revolutionize how finance departments handle revenue recognition and billing, but it won’t be a simple plug-and-play solution. Sharing his prediction, Tom Zauli, Senior Vice President and General Manager at SOFTRAX, told Techopedia in a chat that AI will only deliver results if the underlying data sets are appropriately configured and integrated.
“There will be a lot of noise around AI and the back-office, but true transformation will take place with those companies using the technology as part of a long-term strategy.”
Zauli outlines a four-step approach for finance teams to leverage AI for payment automation. The first step is to focus on processing within functional areas, such as accounting, billing, and revenue recognition, and to eliminate spreadsheets and customizations.
The second step is to ensure a smooth data flow between modules, using a transformation layer to handle business-specific scenarios, missing data, and error conditions.
The third step is to automate processing between functional areas, such as reconciliations and approvals, using robotic process automation. The fourth and final step is introducing machine learning and AI to detect invalid data entry and provide data analytics.
Zauli may be right as Anna Kuzmina, Founder at What the Money, reckons artificial intelligence is set to find its footing with practical, innovative applications in fintech, moving beyond hype to become a cornerstone of fintech solutions.
3. Embedded Finance to Gain Wide Adoption
As reported by NMI in its 2024 payment trend Whitepaper, embedded payment technology will expand this year as more platforms and industries adopt this payment model. Social commerce, which uses social media platforms to promote and sell products and services, will be one of the main drivers of embedded payments growth, according to the whitepaper.
In line with the NMI report, Lasma Kuhtarska, Strategic Consultant at Noda, told Techopedia that embedded finance is becoming more common and is set to continue in 2024.
“Open banking will enable embedded finance solutions, seamlessly integrating financial services into non-financial platforms. This will create a more unified and personalized financial experience for consumers.”
Embedded finance is placing a financial service into a non-financial platform or experience. Think of Amazon providing insurance services or an M&S credit card. It also creates new revenue streams and opportunities for platform providers, as they can leverage data and insights to offer personalized and value-added services to their users.
2. Digital Currencies Will Gain Momentum
Digital currencies are electronic forms of money that can be used to store value, make payments, and exchange goods and services, and are one of our top payment industry trends for the year. They can be classified into two main types: cryptocurrencies and central bank digital currencies (CBDCs).
While there has been a lot of skepticism surrounding the way forward for blockchain and cryptocurrencies, experts believe CBDCs will be one of the major trends in payments in 2024.
Per a Bank for International Settlements (BIS) survey published on Reuters, twenty-four central banks across emerging and developed economies are expected to adopt digital currencies by the decade’s end.
Again, The Wall Street Journal reported last year that the central banks of 114 countries accounting for 95% of the world’s GDP were in various stages of launching a national digital currency.
Currently, some Central Banks have their digital currency in operation, such as the People’s Bank of China (Digital Yuan), The Bahamas (Sand Dollar), the Central Bank of Nigeria (e-Naira), the Eastern Caribbean Central Bank (DCash), the Bank of Jamaica (JamDex), the Reserve Bank of India (Digital Rupee), and Bank of Russia (Digital Ruble).
1. ISO 20022 Adoption Will Accelerate
The ISO 20022, a global standard for electronic data interchange between financial institutions, is poised to redefine the payments landscape. The journey towards ISO 20022 adoption has already set sail, with several market infrastructures across the Asia-Pacific region leading the charge.
Swift recently reported that the momentum is expected to surge in 2024, as numerous domestic markets, including the US (CHIPS), Southern African Development Community (SADC), Hong Kong (CHATS), Romania (ReGIS), and Macau (SPTR), have announced plans to adopt ISO 20022.
Accenture also reports that by November 2024, new features such as charges and E&I (inquiries and investigations) will be added. This enhancement is expected to boost the efficiency and transparency of cross-border payments.
From all indications, Swift will play a key role in accelerating the implementation of ISO 20022 to ensure a smooth transition by the end of November 2025.
North America, a key player in the global payments ecosystem, is gearing up for migration in the first half of 2024, and this move is likely to serve as a catalyst, encouraging other regions to expedite their adoption plans, Accenture predicts.
The global payments industry in 2024 is poised for significant transformation. The rise of digital currencies, advancements in AI, and the proliferation of mobile payment platforms are all expected to rejig the landscape by some stretch.
Regulatory changes and the growing importance of data security will also play crucial roles. However, the success of these developments will depend on widespread adoption and the ability to address privacy concerns.
While the basis of these payment industry trends and predictions are all valid, it remains to be seen how they can translate to seamless, secure, and inclusive payment solutions that can keep pace with our increasingly digital society.