Listed below are the key technology trends impacting the mobile payments theme, as identified by GlobalData.
The payments industry has historically been dominated by payment cards (at least in the developed world), giving rise to long-established infrastructures and business models. However, these are now being disrupted and, in some cases, fully displaced by mobile payment technologies.
Biometric technologies represent a set of solutions that can help improve mobile payment security while reducing friction layers during the payment process. Biometric identifiers such as fingerprints, facial recognition, and voice recognition are difficult to replicate by criminals, which should help reduce the amount of fraud in the case of device theft compared with password-based security. Biometrics solution providers such as Jumio and Veridium are investing in making their solutions easy to integrate into mobile payment platforms.
Blockchain technology has transformative potential for payments processing in general, and these benefits are directly correlated to online payments. The technology involves the creation of a digital ledger that is updated in real-time and shared between all participants in the system. This allows for a high degree of trust since all transactions are publicly known and verifiable by any participant.
These systems are also faster and cheaper to send transactions on than traditional payment systems since they just update the ‘ledger’ electronically. These benefits point to a potential back-end payment system that could rival and ultimately replace or complement much of the infrastructure that electronic payments are currently built on.
Central bank digital currencies (CBDCs)
There is growing interest from many governments in developing their own digital currencies. This is mainly motivated by the drive for financial inclusion, the possibility of eliminating cash, as well as the need to create an alternative to cryptocurrencies and stablecoins. CBDCs have the potential to facilitate financial inclusion through smartphone-based payment and banking services for unbanked populations—especially in developing countries where smartphone penetration is higher than card penetration.
While most governments are not likely to recognise cryptocurrencies as legal tender, cryptocurrencies have become the alternative currency of choice in countries with less stable economies.
Cryptocurrencies are the most well-known use case for blockchain technology. While most would associate cryptocurrencies purely with Bitcoin, there are over 9,000 cryptocurrencies. These include stablecoins, privacy coins, utility tokens, security tokens, and more—all with different functions and characteristics. For example, Ethereum is the main platform for decentralised finance applications and non-fungible tokens (NFTs).
The adoption of cryptocurrencies is still limited due to their volatility and prohibition in many countries. Yet consumers who want to use cryptocurrencies have been able to access the market through exchange platforms, such as Coinbase, Binance, and Luno
Payments companies are now well aware of the potential power of leveraging customer data. Data governance, security, and access to data are all critical issues for financial services companies, with these areas being a regulatory focus as well as a matter of practical strategy in the face of fraud and cyber-attacks in general. As in other industries, customer data held by financial services and payments providers allows for tailored advertising and customer profiling.
In the arena of mobile payments specifically, payments data is perhaps at its most potentially powerful since targeted ads, offers, and push notifications can all be funnelled into the same device that is actually making the payment, even at the point of sale (POS) itself to present offers in real-time.
The growing adoption of digital wallets has been driven by the omnipresence of smartphones. The likes of Apple, Google, and SAMSUNG have equipped their smartphones with digital wallets and the pandemic has accelerated the adoption of digital wallets as consumers favoured convenient contactless solutions as a ‘safe’ alternative to cash payments, which are steadily declining.
Digital wallets are convenient for offline payments and are available in various formats. In most markets around the world, mobile wallets will have the user’s debit and credit cards linked to the wallet.
Machine learning (ML)
ML—one of the seven artificial intelligence (AI) technologies—is largely being leveraged in payments to improve fraud detection and prevention. This is the most immediately applicable use case for the technology and helps to address the trade-off of customer convenience versus data security that has historically defined fraud management. These technologies allow for authentication based on the dynamic recognition of consumer usage patterns, thereby making the transaction more secure and quicker.
Real-time payments (RTP)
RTP allow transactions to be made between bank accounts in real-time, offering a faster and cheaper method of payment settlement compared to card-based payments. These services can be used for transactions between consumers or businesses and they are most commonly employed for peer-to-peer (P2P) payments and bill payments.
Most RTP systems are limited to domestic transactions, meaning they cannot fully supplant international card schemes despite beating them in both speed and cost with most transactions. However, we are now starting to see these schemes reach across geographic borders, most notably in the European Union through the TIPS scheme built on the SEPA Instant Credit Transfer framework.
Tokenisation allows for card details stored on digital wallets to be replaced by a one-use ‘token’ at payment, thus preventing consumer data from becoming exposed to fraudsters or even merchants when making transactions. This technology is now the industry standard for digital wallets.
The widespread use of this technology has had two major effects on the market. Firstly, it has brought wallet providers such as Apple and Google under the purview of payments regulators. Secondly, sensitive data is concentrated in the hands of wallet holders.
5G is slowly being rolled out in different countries, with mobile manufacturers such as Apple and Huawei already making some of their smartphones 5G-ready. But it could take until 2025 for 5G to be globally available. Once readily available, 5G mobile technology is expected to improve on 4G data speed threefold.
This jump in speed will make mobile payments quicker, generally enhancing customers’ experience. This will help reduce convenience-related pain points that can lead to cart abandonment. The technology is also expected to extend internet access further within countries, giving rural populations access to cloud-based mobile payment technologies.
This is an edited extract from the Mobile Payments – Thematic Research report produced by GlobalData Thematic Research.