7 Payment Processing Trends to Watch Out for in 2021
Technology is advancing rapidly and the payment processing industry is no exception. The following payment trends are shaping the future of consumerism for both merchants and consumers alike.
The popularity of credit cards is reflected in the fact that trillions of dollars are spent globally on credit cards each year. In 2019, 60% of Americans reportedly owned and used a credit card, making this the most widely-used payment type by volume.
When a consumer pays with a credit card, the data regarding the payment is sent through a complex network to complete the transaction. The credit card processors are responsible for securely transmitting the data throughout the entire transaction.
There are two main types of credit card processors-
1. Front-End - This is where the transaction is authorized, depending on whether the cardholder has sufficient funds for the sale as the transaction is routed from the merchant to the cardholder's institution.
2. Back-End - Settlements are made from the front-end processor to the issuing bank of the merchant.
Regardless of the size or industry of the business, it's becoming increasingly important to understand the current and future payment trends to see how businesses and consumers will be affected.
7 Key Payment Processing Trends
These global payment trends reveal how technology will impact the transaction process in the coming years to enhance security, streamline the sales experience, and give consumers more flexibility. By being aware of these old and new trends, as well as the future of consumer preference, businesses can increase convenience for their customers and stay relevant in their industries.
1. Mobile Payments
By 2015, just one year after Apple launched Apple Pay, its mobile wallet technology, to the payment processing market, a dozen big brands including Samsung, Chase, and Google all adopted this technology as well. And by 2017, 39% of consumers in the U.S were using smart wallets.
By the end of 2020, experts believe that mobile payment volume will reach an estimated $503 billion USD. Merchants not yet accepting mobile payments may see the advantage here to look into the technology, as the future outlook is robust. Different payment providers will have various equipment and systems which support mobile payments.
2. Pay Later
Consumers in the current climate (especially the likes of Millennials and Generation Z) continue to gravitate towards alternative methods of payment, such as buy now, pay later. This service allows consumers to immediately own a product before the entire payment is made - which is usually completed over a set of installments.
For retailers offering high-ticket items, pay later options can be a great way to move those products (which frees up inventory storage space and cost) and encourage consumers to buy. Services such as Sezzle and Afterpay enable pay later functions for merchants. With the growing number of different payment methods, it's safe to say that consumers will only continue to desire flexibility with the purchasing process.
3. Payment Security
Security measures always need to be a high priority when it comes to dealing with sensitive information such as payment data. The biometric authentication (fingerprint ID validation) for transactions is one of the newest technologies for secure payment processing that is estimated to support more than 18 billion payments by 2021. Fraud is a serious issue, therefore, security measures and more complex forms of payment identification and authentication will continue to develop as ongoing trends.
4. Frictionless Payments
Customers appreciate an efficient, smooth buying process. In certain situations where two businesses offer similar or identical products at the same price point, the only thing that sets a company apart from the other in the eyes of consumers is the ease of payment.
This means that merchants should focus on elements such as how many cards are accepted, different forms of payment like digital wallets and installments, lowering surcharge fees, as well as offering gift cards and loyalty programs to encourage customers to return. Any technological obstacles that could otherwise be avoided are going to deter consumers from completing a transaction.
5. Artificial Intelligence
Financial services are projected to spend an estimated $11 billion USD on artificial intelligence (AI) by the end of 2020. AI technologies can be advantageous for merchants through the use of antifraud systems, or advanced software to reconcile payments.
Automation and personalization of POS technology can not only allow for greater security, but also create a more streamlined experience for customers to process payments, and for merchants to manage data and settle payments on the back-end.
6. NFC and EMV
Due to its ease of use and enhanced security standards, Near Field Communication (NFC) is gaining popularity as a modern form of payment. This refers to consumers being able to wave/tap their mobile devices for payments, in the way that transit cards for buses and trains allow for this one-tap transaction.
Similarly, EMV chips, which is a contactless tap/wave technology for credit cards, reduce the liability of the merchant and payment processor by making transactions more secure. EMV payments are also generally less expensive in their processing fees for merchants than regular swiped payments.
In recent years, this form of payment processing has continued to rise in popularity. It's essentially where one person can send money to another through smartphone app technology. Splitting checks has become much easier for consumers with this tool, for example.
As consumers are becoming more accustomed to using this form of technology (which is offered through apps such as Venom or Zelle), experts anticipate that consumers will begin to expect this kind of ease in transactions with merchants as well. Though there is no large scale technology of this kind for merchants to utilize yet, this is a new kind of payment experience trend to watch out for in the future.
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