2018 started off as promising for digital payments. With the rapid development of technology and the strong adoption of cashless solutions, we can’t help but wonder what payment trends will be key for this year. Are banks going to compete or collaborate with FinTech companies? What will be the effects of the new PSD2 directive on the industry? Are we going to see more advanced biometric authentication and augmented reality solutions?
Of course, nobody knows what the future will bring, but there are some key payment trends that we should definitely keep an eye on this year:
1. The European PSD2 regulation will foster partnership opportunities between banks and other key players.
In January 2018, a major change is coming into force with the implementation of Europe’s second Payment Services Directive (PSD2). Under the new regulations, banks will no longer be exclusive owners of customers’ account information and transaction data.
The change will imply that banks open their API for authorized third-party providers, encouraging the development of more advanced payment solutions without the need to support a heavy bank infrastructure. Open APIs are expected to lower entry barriers for new entrants, unify the European market, and improve payment experience – but we are yet to see how key players will react to these changes.
2. Banks and FinTech companies are exploring blockchain technology for cross-border payments.
According to CapGemini, the current cross-border payments model lacks efficiency, speed, and adequate pricing for customers. In 2018, we might see the use of Distributed Ledger Technology (DLT) such as blockchain for authorizing payment transactions without intermediaries. With a DLT-based cross-border infrastructure, banks and FinTech companies will be able to deliver faster, efficient, and more economic services.
3. Data protection remains key among payment trends this year.
Another major change that will affect all members of the European Union this year is the GDPR, or The General Data Protection Regulation. It will come into force in May 2018, implying strict rules over companies that collect personal data from European citizens.
On top of that, data protection will be also tightened for companies that process digital payments – in spring 2018, the PCI-DSS standard will be obligatory for all entities that handle credit card data. IATA, the International Air Transport Association, is already enforcing the regulations on all its 278 members, which represent 83% of the entire air traffic.
4. Mobile payments are expected to reach 930 billion US dollars in revenue.
The spread of mobile devices and the stable growth of m-commerce marked a significant increase in mobile payments adoption last year. In fact, Cyber Monday and Black Friday alone generated almost 4 billion US dollars! The mobile payments trend shows all the signs to remain strong in 2018 – according to Statista, they will drive a revenue of 930 billion US dollars this year, compared to 780 billion dollars last year.
5. Fraud and cyber attacks will be combated with Robotic Process Automation and Machine Learning.
With the advances in technology, Robotic Process Automation (RPA) and Machine Learning will enable real-time fraud detection through algorithms that mine customer data and review behaviour patterns. With the help of RPA and Machine Learning, banks and FinTech companies will be able to monitor activities and applications, examine threats, and analyze previous attacks and data breaches. As security continues to be a top priority, we can expect a significant progress in developing new technologies for battling fraud.
6. More banks and FinTech companies will explore the potential of AR technology.
The introduction of Pokemon Go, which rapidly became an international phenomenon, marked another important step towards exploring the potential of Augmented Reality. Banks, FinTech companies and big players like Apple and Google are already looking for ways to enhance user experience through AR. According to Goldman Sachs, it will become a $80 billion business by 2025.
7. Advanced authentication technologies will remain a top payment trend among companies.
As threats, data breaches, and fraud are on the rise, companies are investing in complex user authentication mechanisms like biometrics, digital identity, cryptographic keys, and geo-location. Behavioral analytics, among with biometrics, are predicted to witness a strong growth in the financial industry in 2018. According to CapGemini, we can soon expect to see multi-layered authentication techniques implemented into digital and mobile payment solutions.
8. We might see more partnerships between banks and FinTech companies.
With the implementation of PSD2 this year, which will make banks open their API for authorized third-party providers, we can expect to see more collaborations between banks and FinTech companies. The increased competition and the unification of the European market will encourage strategic partnerships and the creation of innovative payment solutions.
Which payment trends do you think will prevail this year?