Payments of thefuture

16/12/2022

4mn

Payments of the future

As the habits of both consumers and businesses continue to change, so does digitalization continue to transform every sector, and the payments industry has followed this trend by meet the market’s expectations. Paying must now be easy, quick, but also secure – anywhere and with any payment method. New players – think Fintech – are leading way, followed closely by traditional banks, both using new technologies to develop innovative solutions, such as instant payment, biometrics, e-wallets, integration with professional software. But what is at stake? Rise to the expectations of all stakeholders, while making Europe a central space dedicated to the payment industry. We met with Olivier Guiot, Head of GAM & Offering in the card and digital payment business unit at Giesecke+Devrient, an international group specialized in payment security solutions, to better understand the challenges surrounding payments – and their future.

Making Europe a haven of innovative banking

Today more than ever, Europe needs to innovate in order to establish itself as a sovereign entity in the field of payments, just as North America and Asia. The Payment Services Directive 2 (PSD2) was implemented on the January 13, 2018 in order to achieve this goal. It aims to include new payment services providers to the European regulation, to define the sharing of banking data and to increase security standards for consumers.

The European Payments Initiative (EPI) is another major step towards this goal. This interbank project counts several establishments across Europe and seeks to create European payments standards for both consumers and businesses. The ultimate goal is to build a European ecosystem that never stops innovating, notably in the field of instant payments across the euro market.

Future payment methods

Contactless payment has been part of our everyday life for many years now, “and even more since the COVID pandemic”, as Olivier Guiot reminds us. This method is still evolving, especially thanks to biometrics, opening the way to innovations like cards that recognize fingerprints and voice recognition solutions. Companies now have the responsibility to make payment easy for everyone: our expert is convinced that voice recognition will be very useful for visually impaired persons, as “people want to be able to have control over their payments rather than having to trust a third party. The challenges of the future of payments should also focus on inclusion.”

Biometrics don’t only make every transaction easier and quicker, it also makes them more secure. Another branch of biometrics that is being researched is the use of artificial intelligence. In the future, AIs will be able to predict and prevent fraud by detecting unusual behaviors (for instance a password that would be written too slowly or at an odd time of the day). Olivier Guiot explains that security goes both ways, and that another important thing to make sure of is that payments should always be validated on the merchant’s end: “the payment should never be denied at a later stage because of, for example, issues with payer authentication. In my opinion, security is the cornerstone of every transaction”.

These new payment methods are integrated into e-wallets on phone applications, which enable paying online as well as in person. They also support digital currency and tokens. E-wallets are a valuable asset for both consumers and companies: for businesses, developing a proprietary e-wallet means having control over the quality of the customer experience, thus ensuring consumer loyalty while standing out from the crowd. For now, the Asian market is the one that benefits the most from these, with 60% of payments in Asia carried out through e-wallets, compared to 26% in Europe^[1]. These insights are yet to change with Europe’s aim to become a sovereign space for innovative banking. According to Olivier Guiot, European companies should also consider “super apps”, a type of application that offers a great number of different payment services and that is already a big part of Asian consumers’ everyday life.

^[1] https://www.journaldunet.com/economie/finance/1510025-quel-avenir-pour-le-paiement-dans-les-prochaines-annees/

The challenges of open banking

The PSD2 regulation, combined with the shift to open banking in the last few years, has prompted banks to share their data with other players across the financial sector. The latter can then use the data (which was collected with the user’s consent) to continue innovating and offer services relevant to the user’s needs – thus establishing a personalized customer experience. According to Guiot, “as players of the financial sector, we greatly benefit from open banking, since data sharing has become way more efficient”. Open banking innovation goes hand in hand with the concept of open finance, which relies on solutions run by APIs. Thanks to these integrations, companies can generate new earnings while improving customer experience. The easier the payment, the greater the conversion rate. Clients will also be less likely to give up on an ongoing transaction.

The financial sector never ceases to evolve, and yet open banking has contributed to greatly increase research and innovations: the future of payments means working together to find the best solutions. AI in the banking sector, biometrics… tomorrow’s payments will be carried out through a vast number of solutions, all of them secured and personalized. Processes will become more efficient thanks to digitalization and automation, and transparency will be at the crux of a financially sovereign Europe. Our expert believes that a keyword for tomorrow’s payments is trust: “the players in the field of payments are all extremely careful in that area, because if there’s no trust, there’s no usage. Payment methods thus need to combine technology and law.”