VP Finance & Strategy at EverC.
The pandemic has changed virtually everything about the way we live, from how we access healthcare to how we shop and pay for goods.
As going contactless became more common, digital payments skyrocketed, and the trend is showing no signs of slowing. In fact, more than 4 in 5 Americans used some form of digital payment in 2021, according to McKinsey’s 2021 Digital Payments Consumer Survey. This includes browser-based or in-app online purchases, in-store checkout using a mobile phone or QR code, or person-to-person (P2P) payments.
According to Visa’s 2022 Back to Business Study, 73% of small businesses surveyed said new forms of digital payments are fundamental to their growth. Consumers share similar sentiments. Thirty-six percent of surveyed consumers said digital payment acceptance is a top factor for store purchasing choice, aside from price, while 41% of surveyed consumers said they had abandoned a purchase in a physical store because digital payments weren’t accepted.
Consumers are increasingly turning to mobile wallets like Apple Pay and Google Pay for their convenience. These have the ability to manage credit cards, rewards cards, memberships and more directly on a mobile device. RecentFIS PACE research finds that 32% of mobile wallet users now have three or more mobile wallets downloaded on their smartphones — up from 21% last year.
The machine learning and artificial intelligence technologies that make digital payments possible are able to study shoppers’ experiences and improve them over time — leading to greater fraud protection and security.
Contactless digital payments and P2P payment apps like Venmo, Zelle, and Square’s Cash App, continue to grow in popularity as well, allowing consumers to digitize the payments they make in-store and online. All three players reported unprecedented growth during 2020, which only continues to rise. Experts estimate more than $1 trillion will transact via mobile P2P apps in 2023.
While the pandemic sparked an unprecedented need for digital wallets and payments, consumers and businesses are continuing to use them for their convenience, security and safety. According to Visa’s Back to Business Study 2021 Outlook, 49% of consumers think using contactless payment methods like digital wallets is among the most important safety measures for stores to implement and maintain.
With this rise and emphasis on digital payments, online and offline businesses that fail to provide relevant payment methods in a secure way will fall behind and lose revenue. In the Visa 2022 Back to Business Study, 59% of small businesses said they plan to shift to using only digital payments within the next two years or are already cashless.
With digital payments at an all-time high, it is paramount that consumers and payment organizations understand emerging trends and ways to ensure a safer shopping experience.
The Perks And Risks Of Emerging Payment Trends
Another payment avenue that is booming as a result of the pandemic is buy-now-pay-later (BNPL), giving shoppers the opportunity to stagger payment installments, typically interest-free, while the merchants receive the full payment upfront from the BNPL fintech (e.g., Klarna, Affirm, Afterpay) or now increasingly from the issuing bank. The traction of Visa and Mastercard enabling issuing banks to offer installment payments to their cardholders has been monumental.
Consumers use BNPL providers not only for deferred payments but also for the convenience and user experience — that is often far superior to that of card payments.
Despite the perks, the relatively new payment offering is not without risks. BNPL providers are not yet subject to some consumer protection laws, and BNPL loans currently lack some of the consumer protections that apply to credit cards, such as dispute protections and chargeback options in cases where the purchased goods may be faulty.
Other emerging trends include account-to-account payments, real-time payments (RTP) and open banking. These alternative payment methods are gaining a lot of traction and grabbing market share away from traditional card transactions, but payment organizations must be diligent about new and existing risks.
RTP increases the chance of fraud with more instances of phony transactions and scams among P2P payments. Open banking, while designed to provide greater financial insight and transparency, can lead to security breaches and fraudulent activity with third-party access.
To combat this, Jennifer Lucas of EY states in “Three ways COVID-19 is changing the payments industry” that we can expect to see “greater adoption of machine learning and artificial intelligence both for authentication and in risk management models and the development of risk and analytical tools that can leverage big data in new and innovative ways.”
Creating A Safer Shopping Experience
As a payment provider, it is paramount to track evolving developments and proactively prepare for changes and regulatory framework challenges to the growing and ever-changing market.
Here are three steps to consider for creating a safer shopping experience.
1. Create a strategy to ensure your merchants follow your unique policies. This strategy will also help reveal any vulnerabilities, such as bad actors laundering money through your business.
2. The digital payment world requires deep-dive risk assessment tools. Merchants can be connected to a wider ecosystem of fraud and should have the tools that are capable of looking beyond surface-level risk assessments.
3. Adopt an automated solution to scale and grow into new markets. This is necessary to keep up with the fast-paced digital payments industry.
The rise of digital payments has created countless opportunities for the payments industry and has transformed the way businesses interact with customers. As criminals evolve techniques in the digital, real-time payments space, payment organizations must evolve their strategies and technologies to identify and mitigate fraud and money laundering risks.
With the boom of the internet and the payments industry continuing to grow, we must all pay attention to emerging trends and regulations to stay safe and competitive.
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May 24, 2022 at 06:00PM
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The Digital Payment Boom: How We Can Uphold Safe Online Commerce - Forbes
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