As e-commerce evolves, alternative payment methods continue to grow in importance. What can merchants do to stay in front of the curve when it comes to the future of online payments?
E-commerce and financial services have seen ongoing transformation over the past few years. When it comes to online transactions, alternative payment methods have experienced unprecedented growth.
Today, consumers can choose from a wide range of online payment methods born of industry trends such as e-wallets, mobile payments, and conversational commerce.
With all the change taking place, which payment methods will lead the way into the future – and which technologies are on their way to transforming payments?
This article takes a look at some of the most significant new trends when it comes to online payment methods, and what we can expect in the coming years.
Recent Developments in the Payments Space
10 Trends Shaping the Future of Online Payment Methods
Summary: Leveraging Alternative Payment Methods to Stay Competitive
The Covid-19 pandemic accelerated payment trends that had been already gaining traction around the globe. Recently, the industry has seen a 42% increase in global cashless payment volumes.
Digital payments generate large volumes of data that banks and other financial institutions are using to deliver increasingly personalized digital experiences. In fact, 90% of useful customer data that banks collect and process comes from payments.
In a PwC survey, 86% of finance professionals said that traditional payment companies would work increasingly with fintech businesses and technology providers as their main sources of innovation.
Almost half (42%) saw trends like cross-border payments, cross-currency instant payments, and B2B payments accelerating in the near future.
The shift from cash and traditional cards and e-wallets is undeniable. Global volumes of cashless payments will increase by more than 80% between 2020 to 2025. This trend is only going to expand.
The Asia-Pacific region is set to grow fastest, with cashless transactions spiking at 109% until 2025. Consumers across Africa, Europe, and Latin America will follow with a relatively high growth ratio.
According to data from PayU’s payment platform in LatAm, 2021 saw an increase of 54% in transaction rate and a 32% increase in sales in 2021 as compared to 2020.
Unsurprisingly, different online payment methods are seeing different rates of growth and uptake around the globe. While Southeast Asia is a booming market for e-wallets, consumers in Europe are more excited by installment payment options like Buy Now, Pay Later.
Merchants operating across more than one country need to adjust their choice of payment methods to the local standards, expectations, and needs. Meeting the payment needs of customers by offering a wide range of popular online payment methods is increasingly key to e-commerce success in new markets.
To manage the complexity of offering different payment methods across different markets, merchants are increasingly turning to advanced payment gateway options that offer a single, direct connection to popular global and local payment methods around the world.
Digital wallets (also called e-wallets) store payment methods and access funding sources such as cards or accounts. Usage of digital wallets is on the rise, with more to come as wallets are set to play an increasingly important role in the future payment landscape.
Transactions made through digital wallets will account for more than half of all e-commerce payments globally by 2024.
As the market changes, traditional payment providers will continue to engage in further collaboration with fintechs and technology providers to innovate in this area. And merchants will surely pay more attention to the digital wallet support offered by their payment providers of choice.
Technological innovations including blockchain, cryptocurrencies, stablecoins, non-fungible tokens (NFTs) and central bank digital currencies (CBDCs) have been causing a stir in the online payment arena. Digital currencies are racing ahead, seemingly unaffected by the periodic crypto crashes.
A recent survey showed that 60% of central banks are now considering Central Bank Digital Currencies (CBDC), and 14% are already well underway with pilot tests.
Although cryptocurrencies were once stigmatized, they’re now widely accepted by many businesses as a legitimate means of payment. Many retailers who previously allowed only traditional payment methods are now open to cryptocurrencies.
Some industry players are already leading the evolution of payments towards digital currencies by developing integrations to enable cryptocurrency-based payment options. In doing so, they are creating new opportunities for e-commerce merchants and opening new doors for users to transact freely with the help of DeFI and blockchain technology.
Cross-border transactions have historically been slow, expensive, and time-consuming. At the same time, e-commerce is becoming more globalized by the day.
As a result, many industry players and businesses have been cooperating to rethink the future of cross-border payments and develop new methods to streamline international payments.
In the future, many nations will realize the need to establish government-backed digital currencies, which will, in turn, drive merchants to integrate solutions for streamlining cross-border transactions.
In the meantime, banks will continue improving their cross-border processes through APIs for faster real-time operations, with payment platform providers like PayU seeking to provide a more integrated experience that simplifies the complexity of cross-border payments and makes it easy for merchants to accept payments in any market.
Real-time payments are one of the most significant financial innovations of the last decade, boosting digital economies all over the world.
Marchants can today choose from three kinds of instant payment mechanisms that differ from one another in small but significant ways:
This trend is also related to open banking solutions relying on API technology. Tech giants are part of the real-time payment game as they leverage their existing infrastructure to offer innovative financial products in this rapidly growing area.
As governments and consortiums refine digital identity systems, the technology required for digital identity is becoming more widespread. Some predict that full digital ID coverage could open the door to an economic value equivalent to 3-13% of GDP by 2030, with more than half of the potential economic value accruing to individuals.
No wonder that in June 2021, the European Commission announced its plans for a European Digital Identity and Wallet framework – a move that puts the strategy for a digital Europe into action.
In a data-driven economy where services can be accessed anywhere, any time, and on any device, it’s essential for both transaction parties to identify themselves in an easy and reliable manner.
Even safer and more efficient identification of remote counterparties will be at the core of future online transactions.
Merchants will lose $206 billion cumulatively between 2021 and 2025 due to online payment fraud.
While making life easier for consumers, the shift toward online payments and digital wallets had opened new doors for all types of financial crime. Financial services providers that help merchants and their customers move money across borders might also inadvertently enable sanctions evasion and money laundering.
That’s why payment security and compliance are a growing concern for banks, fintechs, and merchants alike when it comes to implementing a fully integrated technology strategy. All this points to the need for greater collaboration across the entire payment industry, including payment providers, regulators, governments, industry associations, and other players.
Facebook, Twitter, and Instagram now include “buy” buttons that allow customers to purchase goods on social media. Large online merchants like Amazon, meanwhile, have introduced one-click checkout for a more streamlined process.
On top of that, e-wallets add a new dimension of mobile payment options, while smaller online merchants can optimize their e-commerce store for mobile more easily than ever before.
The future of mobile payments will include additional services like money management tools as well as financial wellness scores. Mobile wallets are also gaining popularity as they remove the inconvenience of using a physical credit card while shopping online.
Home assistants or smart speakers allow users to give voice commands to a speaker and receive a voice response in return. With the growth of home automation, smart speakers like Alexa have also started to serve as shopping assistants. Between August 2019 and 2021, as many as 8.9 million health and beauty products were bought via smart speakers.
Conversational commerce is on a path to growth alongside greater adoption of smart speaker technology. Merchants will need to watch this space continually and stay ahead of the curve by offering appropriate payment methods and integrations with smart speaker technologies.
The transition from cash and traditional credit cards to alternative payment methods continues to grow at a significant pace. As payment preferences evolve, merchants must offer a wide range of payment method options to keep up with the market and meet customers where they are.
In an e-commerce world that is seeing ongoing innovation when it comes to payment methods and the online consumer experience, businesses are increasingly looking to their payment software to ensure they can easily provide popular global and local payment methods to their customers at scale.
Explore PayU’s global payment solutions portal to see how your business can offer customers a diverse menu of online payment method options in any market – through a single API integration.