By Petru Metzger, Head of Payments, Endava looks at how the rising fintech sector will become ever more present in our daily lives and how we handle money.
There are almost no areas of our lives that haven’t been transformed by technology and nowhere is this more apparent than in fintech and especially payments. The way we handle our money has seen rapid transformation over the last five years due to changes in an ‘online-first’ consumer base. Of course, this transformation has only been accelerated by COVID-19. The payments industry has therefore attracted huge investment and interest as consumers and businesses require faster, more reliable and more secure ways of handling payments to ensure a stress-free experience with money. As we progress into the New Year and the fintech industry continues to grow there are several key trends that are apparent, particularly as consumers continue to demand more from their payments.
The drive to mobile has already seen developments such as Apple Pay and Google Pay make payments from a mobile device routine, but now when it comes to payments, we’re seeing a transition from mobile to the Internet of Things (IoT). As wearables become more prevalent, we can expect a surge in this segment as well as a host of other devices that will become enabled to make payments.
IoT has seen us connect everything from cars to fridges to the internet and there’s an opportunity to help customers make purchases using them. Further enhancing the experience by adding voice-activation and even gestures will make payments even more natural and convenient. Soon payments systems will be everywhere, making sure that you never have to reach for your phone or find your wallet to be able to carry out online transactions.
The second trend is the new generation of Buy Now Pay Later (BNPL). Savvy consumers are turning away from credit cards with their high interest rates, and are looking more at services covered by the Merchant – such as Klarna – to offset costs.. This has been particularly noticeable in the ‘Golden Quarter’, including Black Friday, Cyber Monday and Christmas where approximately 39% of UK consumers have said they were planning to use Buy-Now-Pay-Later (BNPL) to defer festive season expenses. This is not only making retailers sit up and notice, but also the credit card industry, as it considers how it too best provides for customers..
Aside from the fact that by embracing BNPL merchants can generate more sales, the appeal is also that it can be used for far more than simply just payments. BNPL companies have vast amounts of data that can be utilised by retailers to build customer loyalty with more tailored offerings and can even be used to provide a ‘try-before-you-buy’ service by taking financial burden from retailers. Regulation will be a deciding factor in the future of this segment but it’s clearly here to stay and can be expected to continue to grow and develop a more holistic customer experience.
The final trend is data driven identity, which will soon be almost completely defined by tech companies. In recent years there has been a growing focus on the security of payments, particularly as more and more of our spending moves online. Authenticating the participants in a transaction is a key concern, however, and banks, processors and card issuers have had to develop sophisticated anti-fraud and AML solutions to ensure we are who we say we are and to reduce risk on transactions. Going forward, these will have to continue to develop. This is not only to combat the ever-evolving threat from fraudsters and hackers, but to also advise consumers on payment methods and assist in their decision-making as they evaluate the best ways to buy something.
Ultimately, the key is to balance the friction with the risk, with ‘high-friction’ methods of evaluation required to ensure the security of high-value transactions. Likewise, a ‘low-friction’ model, such as contactless payment, for low cost purchases is also essential to avoid over-complicating the process and ensure customers are able to complete the transaction. Biometrics and behavioural analysis are likely to become a significant part of this, as well as further innovation in user experience. The security of our money is of paramount importance and this is something which will continue to receive a lot of attention.
There is no doubt that we will continue to develop the payments and overall fintech sector to meet evolving customer and consumer demands. We have seen incredibly fast development over the last five years and this is set to continue at a rapid pace. Generations that have grown up with contactless and swift online payment wherever they happen to be are unlikely to be willing to go back to cash transactions. As we increasingly move into a cashless society, companies will have to keep up with their needs through further technological investment and innovation.