Technology has been rapidly changing the world around us for decades now. But despite a lot of digitization and innovation in the fintech space, there’s not been the same urgency to adapt and change until recently.
Before, innovations in financial systems meant that point-of-sale systems changed slightly, and the required action from small businesses was simple: upgrade the hardware and carry on.
Today, it feels like new currencies are coming out all the time. The pandemic forced any lagging merchants to get on board with contactless payments. And eCommerce businesses have had to expand their modes of payments to connect with new customers in an increasingly competitive market.
The burden on merchants seems to have changed from simply considering upgrades to being fully informed on financial technology and closely monitoring changes in consumer transaction behaviors.
It’s a lot to keep across. But it’s worth keeping a watchful eye to ensure you’re up to date where you need to be and not too caught up in the hype innovations that may or may not be necessary right now.
To know what’s what, we’ve put together a one-stop all you need to know article about the latest payment innovations and technologies.
TL;DR
- Some of the most popular payment innovations include Buy Now, Pay Later (BNPL), Crypto and Blockchain, Central Bank Digital Currencies (CBDC), and Contactless Payments.
- There’s also Biometric Payments, Cross-Border Payments, and Peer-to-Peer Payments.
- It’s important to discern the needs of your customers and keep up with their preferences to determine which innovations to adopt and implement.
Buy Now, Pay Later (BNPL)
Buy Now, Pay Later payment services have been around for a while now. Large department stores were the pioneers in this space with private-label Visa or Mastercard credit cards that let customers buy their items on credit and pay them back within a set payment period.
Of course, most small retailers didn’t have the means to set up a private-label credit card. For decades, BNPL was exclusively the domain of the big players. But this has changed.
Launched in 2012, financial services startup Affirm introduced a new kind of BNPL solution. Two years later, Afterpay took over that market, and today we have a host of others, including Zip Pay and Klarna.
BNPL works by introducing a middleman to the payment network. Take Afterpay, for example. It works between the retailer and the customer, assuming the responsibility of paying out the retailer and holding the customer to the payment terms.
BNPL services give customers a flexible, interest-free way to pay. And merchants can secure sales regardless of whether customers have the amount available right then.
“The pandemic ignited the need for BNPL, making it take off much more quickly than it likely would have before 2020. Shoppers became much more conscious of when and how much they were spending. Not to mention, as more people were living paycheck to paycheck, it became harder to make costly purchases in one payment. Not wanting to turn to potentially expensive credit card bills, BNPL opened the door for shoppers to more easily purchase items they might not have been able to afford otherwise.”
Is BNPL for now or later?
BNPL has officially reached widespread adoption. Consumers already get it in many places. If you don’t have it available, customers may go elsewhere.
Crypto and Blockchain
The rise of Bitcoin and other cryptocurrencies has been one of the most publicized financial developments in recent years. If there is anything merchants are researching excessively, it’s digital payments like this.
Created in 2008, Bitcoin and the blockchain sat on the fringes for quite a while. Transferring money was cumbersome, and the average person could barely understand how to acquire it. But this has changed.
Fintech companies have worked with this technology for years on new initiatives that make adoption easier for merchants. There are many payment providers with varying solutions that all work to the same end—allowing merchants to accept cryptocurrency payments for products or services. Typically through eCommerce integrations and open banking.
The benefit to merchants is opening up another option to attract new consumers. Crypto advocates actively look for merchants who accept crypto. Those quick to market with these solutions could capitalize on the movement to secure that demographic before the competition really kicks off.
“Crypto and NFTs are only going to grow, so businesses that get in there first with the right kinds of fintech firms and banks will be the ones that thrive long term. Many organizations are still looking for the right use cases and reasons to get behind crypto as a payment method, and I predict that we’ll see more of those use cases come to light in 2022.”
Are crypto and blockchain for now or later?
Crypto and blockchain are officially mainstream, but widespread adoption of payment solutions is probably still a little while away. Getting in now will give a competitive advantage, but there will be a while before it becomes a business imperative.
Central Bank Digital Currencies (CBDC)
A Central Bank Digital Currency (CBDC) is a digital version of cash. Instead of paper bills or coins, a digital token would represent the equivalent value. Since crypto has been out in the world, the Federal Reserve Bank of New York and other central banks globally have been working to utilize the technology while keeping the central bank system.
Unlike Bitcoin and blockchain payment solutions, CBDCs haven’t quite reached mainstream attention. Most countries, including the US, are not fully developed and may still be a while away.
Are CBDCs for now or later?
CBDCs are for later. Merchants that want a USD-backed digital currency can look instead to the stablecoins in the cryptocurrency suite.
Contactless Payments
The pandemic accelerated many areas of fintech, but no payment method was more popularized than contactless payments. Although in use for many years, consumers and merchants alike had a passive attitude toward this payment option. Fine if it’s there, fine if it’s not.
Today, it’s a must for frictionless purchases. And unfortunately, it requires a hardware update for anyone not already onboard.
Using near-field communication (NFC) technology, contactless payments let consumers make payments by holding their card, phone, or wearable close to the payment terminal. No fumbling around for cash, and no PIN is required.
For merchants and consumers during the pandemic, this created a safe way to transact in person without the risk of sharing germs.
Are contactless payments for now or later?
Contactless payments are definitely for now. The pandemic has changed how consumers interact with businesses, and they will continue to expect a cashless, contactless option long after the pandemic is over.
Biometric Payments
Many customers already use biometric payments when they touch their fingerprints on their phones to verify their identity and access their mobile digital wallet. This type of biometric payment system requires no new products from merchants. It’s built into the mobile payment tech on the customer’s smartphone. Merchants with near-field communication (NFC) readers at the checkout, the same readers that enable contactless payments, are equipped to accept this transaction type.
It does, however, come in some newer and far more interesting forms.
Biometrics uses a physical characteristic of the customer, such as a fingerprint or face scan, to verify their identity and authorize payment. It sounds sci-fi, but use cases of face scanning payments are actually fairly widespread.
In Russia, facial recognition payments have been rolled out in more than 200 metro stations so commuters can simply walk through, and payments are processed automatically. And closer to home, in 2020, an LA-based startup, PopID, introduced the country’s first facial recognition payment system for restaurants and retailers. Customers create an account, add funds and then walk up to the register for authentication. The cashier confirms their name, and the payment processing runs automatically without requiring contact.
Are biometric payments for now or later?
The first type of biometric payment we mentioned, fingerprint-protected mobile wallets, are definitely for now. They offer a fast, convenient, and contactless way to pay that is already adopted widely by consumers. As for facial recognition, hold tight. The jury is out on how that one will progress.
Cross-Border Payments
Cross-border payments are any payment sent from one country to another. They can be made by individuals, businesses, or even governments and usually involve multiple currencies. This is huge for individuals with families across borders who need support with housing or healthcare.
Sadly, these payments have been historically slow, expensive, and complicated, but fintech companies have developed solutions that make them faster, cheaper and simpler.
There are a few solutions that make that happen.
Online banks, like Wise, use the real exchange rate and charge a low, transparent fee rather than the one given by banks. This saves consumers a lot of money, as banks typically charge 3-5% on international payments. Say you receive B2B payments from a client or customer in the United Kingdom. Wise lets you accept payments in GBP at no cost to you or the customer. Fees are only charged when currency is converted, and it’s much cheaper than bank conversion fees. This is great for small businesses but may become quite expensive as you grow.
Another solution is blockchain technology. By cutting out the middlemen, like financial institutions, which charge for verifying and approving the transaction, there are no fees to make cross-border payments in crypto. The downside is that it’s all done through cryptocurrencies, so users unfamiliar with the technology will have a steep learning curve to getting on board.
Are cross-border payments for now or later?
It really depends if your business needs cross-border payments. If so, it’s worth finding a cheaper solution than traditional banks.
Peer-to-Peer Payments
Peer-to-peer payments are payments made between two individuals rather than a business or organization. Solutions in this space have become extremely popular in recent years to make it easier for friends or family to send money to one another.
Before, if you went to dinner and owed a friend $20, you would have to get their bank account details and set up a new payment. The transaction may then take days to reach them. With solutions like Venmo or PayPal, users link their bank account or debit card, and they can make real-time payments.
Although this is not a solution for most established businesses, it can be great for small businesses or freelancers starting out. If you’re selling goods at a market or providing services as a sole trader, peer-to-peer platforms can make it much easier to receive payments without the need for new tech.
Are peer-to-peer payments for now or later?
For small businesses and sole traders, peer-to-peer payments are definitely for now. It will not be a useful solution for larger companies with multiple employees.
In Summary
The payments landscape is changing rapidly, and new solutions are always coming onto the market. For the most part, you will know when it’s time to adopt. When your customers are asking if you accept by now, pay later, or crypto, it is time to start considering if these solutions are a necessary part of the customer experience.
Everyone should be on board by now with contactless payments. CBDCs are not worth too much consideration for the time being. Everything else depends on the scale or your operation.
Micro businesses and sole traders can explore peer-to-peer solutions and online banks that help to save on fees. SMEs and large businesses may find the time is now to get on board with the blockchain. It really all depends on your specific business needs.
For more insights on the latest payment trends, keep your eyes on the Stax blog, where we regularly publish everything you need to know about the world of payments.
