The Future of Payments Industry: Evolution of Blockchain and Other Digital Technologies
Blockchain has evolved and how! From being branded solely as a cryptocurrency driver, Blockchain has moved on to power IoT security solutions and is now revolutionizing payment services. Payments are the backbone of our economy and are a key aspect of businesses around the globe. The new payment models owe their growing popularity to their convenience, speed, and ease of functionality. All of this has been possible thanks to the digital transformation of various payment channels aided by modern digital technologies like blockchain.
Fintechs with novel products and services, banking giants, and large consumer goods companies- all are playing their role in creating new payment ecosystems. Established companies are beginning to realize how the new Fintechs are changing the ecosystem and redefining competition. The challenge for traditional incumbents is to accept the fact that their customers, even the loyal ones, will prefer the convenience and personalized experience that the new entrants in the financial sector are offering.
The Emergence of Distributed Ledger Technologies
The distributed ledger technology, the principle behind blockchain, has been explored by early innovators and is showing immense potential to revolutionize the payments system. The development of distributed ledger technology started with Bitcoin. It was the first private cryptocurrency that has evolved very rapidly. Today, it boasts of a significant user base that is comfortable transacting using bitcoins.
Distributed ledger technologies may eventually become the primary pillars on which the payments system of the future will rest. Technological developments have made it possible for cloud computing and API tools to link blockchains and create cross-border, high-speed networks. Blockchain-based transaction channels will largely be operated by private sector enterprises such as banking and near-banking organizations.
Benefits of Blockchain in Payment Services
A key advantage of using blockchains is that payments flow unchecked. Thus, more and more firms and individuals will use blockchain payments in the coming years as it provides an unhindered flow of transactions.
- More than just transactional services - Blockchain will go beyond payments and transform the supply chain management and tracking
- Real-time international transactions - The concept of cross-border payments will change considerably. Faster and easier cross-border payments will enable payment companies and banks to offer very high-volume movements of payments in real time.
- High-volume transfers of micro-payments - With speed and reliability of blockchain transactions, we will see successful and faster payments for even small units of work.
- Blockchain in social media - By enabling end-to-end encryption, blockchain is also finding its application in assuring privacy on social media. Users can then interact with each other and also carry out transactions without the fear of getting hacked or snooped.
Other Digital Technologies Influencing the Future of Payments Industry
- Dataful Payments
Across the complete payment ecosystem, new payments infrastructures using the ISO 20022 financial messaging standard or dataful payments are making a huge impact. ISO 20022 is the XML standard for payments.
Dataful payments transform payments to align with modern computing and messaging conventions. They allow businesses to bind contextual metadata about a payment to the payment. Thus, companies in the payment value chain can find new competencies in processing payments and prospects for collaboration, business models, and areas of increasing revenue streams. All this can be achieved by joining data about payment and related business processes together.
- Role of AI and ML in Digital Payments
AI and ML are used by numerous firms to streamline internal processes. They impact customer experience, sales, product recommendation, and communication. They can also be used to improve the payments flow. AI-embedded tools can read customers' transaction history and predict their future activity. These tools can then be used to suggest an alternative payment method such as cards with reduced fees or rates or users’ preferred form of payment. AI and ML have made voice-activated transactions a possibility. Voice serves as part of payment processing systems is expected to grow with the development of AI and ML technology.
Adoption of artificial intelligence and machine learning in financial services will help customers gain access to credit when they need it the most. AI will help manage bills in more efficient ways, and aid in identifying fraudulent or mistaken transactions.
- Payment Domains from Tech Companies
Google Pay, Amazon Pay, and Apple Pay have started to capture a huge market of digital payments and are set to influence the future of payments. These payment modes are transforming tech companies into taking on the roles of credit unions and traditional finance companies. Their streamlined and frictionless processes are helping them to expand their peripheries. To survive, banks and other financial bodies will need to incorporate digital payment trends and introduce customer-centric models.
- Mobiles and Wallets
Payments through mobiles is an emerging trend as it facilitates online shopping. While Facebook, Twitter, and Instagram, have 'buy' buttons for direct purchases via social media, retailers have introduced one-click checkout for a frictionless process. As a result, the popularity of mobile wallets is gaining new heights. Digital-only banks will soon become more of a reality with more players in this domain.
- Money Wiring Channels
Another technology trend that is influencing payments is the money-wiring channel. It is now easy to embed these channels in apps and other APIs. Smart cars can have integrated payment systems that allow drivers to pay for gas, parking, and drive-throughs, without touching anything. However to put forth such solutions, companies will first need to work on IoT infrastructure for connected devices to effectively communicate with each other.
Digital Identity and The Evolving Nature of the Payments Industry
In the future, money transactions will become omnipresent, invisible, and a seamless part of everyday life. Payments will just happen in the background, while people go around with their daily chores. Wearable technology will act as a payment mechanism. Once this becomes mainstream, the focus will shift to digital identity.
Digital identity will play a crucial role in the future of payments. Biometric chips will find wider applications. Although the payments industry has already moved on to contactless transactions, the next transformation will include the use of biometric chips, where individuals could transact by just a wave of their hands.
To stay relevant and competitive in the future, banks will introduce more digital payment trends and multiple options for customers to make payments. A few examples include Pay +By Text, mobile apps, virtual payments, interactive voice response, credit and debit cards, and automated clearing house payments, which do not work with paper checks.
Technologies such as blockchain have fuelled innovation in every aspect of business and the economy at large. Be it customer services, marketing, HR, or operations, all are benefitting from technology. In turn, savvy consumers are becoming accustomed to technology such as alternative payment methods. The financial services sector is undergoing a massive transformation and it is now on to the businesses to work with the modern technologies for growth and success. Looking for avenues in digital and alternative payments cannot be delayed.
Talk to our Blockchain experts to find out how can you incorporate Blockchain in your payment channels.