Payments are evolving rapidly. Traditional payment methods like cash are used less as new payment solutions take centre stage. But what are the biggest innovations in payments technology powering payments systems in 2024 and beyond?
From the rise of blockchain technology and digital currencies to artificial intelligence (AI) integration and the use biometrics, today’s payments industry is changing faster than it has in centuries. Together with the digitization of the payment landscape, new technologies bring convenience and efficiency to users and financial services alike.
Any company with payment solutions in place can’t afford to not pay attention to these developments, as users come to expect the usability that comes with new technologies: contactless payments, biometric authentication, digital wallet integration, and more.
For companies, embracing these payment innovations can streamline processes, reduce costs, and provide a competitive edge in an increasingly digital environment.
In this article, we immerse you in future of payments and through a breakdown of the 7 biggest innovations in payment shaping 2024 and beyond. We cover:
1. A2A payments
2. Payments as a service
3. Open data
4. Blockchain and digital currencies
5. Biometric payments
6. Contactless payments
7. AI’s impact on payment systems
Read on for more on the biggest innovations in payments technology.
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1. A2A payments
Emerging as one of the top innovations in payments technology, A2A payments are taking over the payments landscape in 2024 and beyond.
Short for account-to-account payments, A2A payments are real-time electronic fund transfers from one bank account directly to another. These transfers bypass traditional payment rails and settle in the recipient's account instantly.
Sometimes referred to as pay-by-bank transactions, A2A payments are taking off around the world. Countries like Brazil and Thailand taking the lead in adoption, according to last year’s Global Payments Report from financial corporation FIS. Europe’s SWIFT system is also exemplary in the race for cross-border payments.
Source: FIS
The immense potential of A2A paymentsl is only being unlocked in North America now, with the rise of real-time payment systems like FedNow in the US and Real-Time Rails in Canada.
FedNow launched in July 2023 and while adoption has been slow according to financial newspaper Barron’s, the payment system is paving the way for widespread adoption, enabling businesses and consumers to conduct secure, instant A2A transactions with ease.
Consumers that already use A2A payments are very satisfied with the new-gen payment networks, a survey from payments publication PYMNTS shows. The survey shows that convenience stands out as the primary driver behind user satisfaction.
Source: Pymnts
Besides enhanced customer experience, businesses adopting A2A payments benefit from cost savings, reduced payment churn, and increased efficiency through A2A transactions.
As adoption among banks and retailers becomes more widespread in 2024, A2A stands out as as an innovation payments technology for its instant, low-cost payment process and improved customer experiences.
2. Payments as a service
Set to reshape customer experiences and payment processes, payments as a Service (PaaS) is another top innovation in payments. Through the PaaS model, banks are reshaping their role in the payments landscape, outsourcing various elements in the payments value chain to third-party service providers like fintech startups, retailers and smaller banks.
Why is the model so popular? Payment as a service allows non-bank entities and other third parties to enhance their payment capabilities and offer advanced payment products and services to customers without the need for extensive payments infrastructure investment.
With such a value proposition, it’s no wonder the PaaS market is expected to see a 21.8% compound annual growth rate (CAGR) through 2023-2028, a report from market analyst at The Business Research Company.
Source: The Business Research Company
PaaS will play a vital role in reshaping the future of financial transactions by enhancing efficiency and tailoring payment experiences to meet the dynamic needs of clients.
3. Open data
A surge of open data is transforming the payments industry, bringing with it transparency, personalization, and increased financial inclusion. Open data refers to making certain data types available to third parties without restrictions on access, usage, or redistribution.
In the payments industry, open data is consumer data shared by financial institutions with third parties through APIs for personalized and cost-effective products. Through open data, financial services can offer optimal interest rates and other tailored products.
Open data powers two financial services that each play revolutionize the payments landscape in their own way.
Open banking
Open banking focuses on sharing transaction data for banking products. It has paved the way for enhanced financial services tailored to individual needs.
By giving third-party providers access to customer data, open banking enables the development of innovative applications and personalized financial solutions, fostering competition and driving innovation within the industry.
Open finance
Building on the APIs of open banking, open finance extends this concept to a broader range of financial services beyond traditional banking.
These partnerships allows consumers to securely share their financial data with trusted organizations, enabling the creation of integrated financial management tools and tailored payment solutions.
Powering these two functionalities, open data is seriously disrupting the payments landscape. Open banking payments are set to surpass $330 billion by 2027, market analyst Juniper Research predicts, with West Europe leading the way and North America second.
Source: Juniper Research
The development of new use cases, such as bill payments, is key to driving this adoption, given open banking’s simplicity of use versus traditional banking alternatives like credit card payments.
A hurdle to overcome for this growth to be realized, though, is that consumers overcome fear of sharing financial data through open data. If financial institutions can show their commitment to protecting consumer data to consumers and regulators, open data will likely see many more use cases popping up in 2024.
4. Blockchain and digital currencies
Crypto is back – but was it ever really gone? As cryptocurrencies like Bitcoin and Ethereum see another adoption and price boom in 2024, their revolutionary promise of being decentralized and secure payment systems seem more real than ever.
Offering real-time, cross-border payments at a reasonable cost, both the financial and payments industry will see higher adoption of digital currencies like Bitcoin and Ethereum. But more than cryptocurrency and its adoption, it’s developments on blockchain technology that are innovating the payments landscape in 2024.
To understand how blockchain is changing finance as a whole, we can look at two financial ecosystems that have sprouted off the decentralized technology.
Decentralized finance
With blockchain technology steadily gaining traction among financial instutions, you’d almost forget that many of the financial tools built on blockchain technology fall wholly outside of the traditional payment system.
DeFi, short for decentralized finance, are financial services, including lending, borrowing, and trading, that are facilitated through blockchain-based smart contracts – meaning without the need for intermediaries.
Does that mean that the future of finance is decentralized and that companies should jump on the band wagon? Not nearly.
A then immature DeFi market saw huge growth before imploding during the last crypto market cycle, reports Reuters. Users are likely to trickle back into the DeFi ecosystem. Moreover, the projects that survived the 2022 exodus will likely have much better use cases to offer, like better integration with digital wallets and existing payment systems.
Source: Reuters
Innovations in payments and the emergence of digital currencies: CBDCs and stablecoins
With increasing digitalization in finances and the broader world, central banks worldwide have been experimenting with central bank digital currencies (CBDCs) to modernize payment systems and promote financial inclusion, while at the same time increasing their grip over money flows.
Just last year, already 131 countries were exploring CBDCs in some way, data from think tank The Atlantic Council revealed.
Source: Atlantic Council
Blockchain innovations in payments and the emergence of digital currencies are intimately related, as CBDCs are digital forms of fiat currency built on blockchain technology by central banks. These digital currencies offer some of the benefits of cryptocurrencies while remaining centrally backed, and thereby keeping the stability and regulatory framework of traditional fiat currencies.
Stablecoins, on the other hand, aren’t centrally backed but remain aligned with the idealistic principles that underpin blockchain technology – that is, they’re decentralized. Stablecoing are pegged to the price of fiat currencies through holding reserves or algorithmic mechanisnss, or a combination of the two.
Because they provide a less volatile alternative to traditional cryptocurrencies while being compatible with the native technology, stablecoins have emerged as a bridge between traditional finance and the blockchain ecosystem. This bridging function will make stablecoins an important asset in the payments industry going forward.
Likewise, CBDCs will become more important as a payment option as central banks continue their implementation of centrally issued digital currencies.
5. Biometric payments
Biometric payments are at the forefront of transforming the payment landscape in 2024, reports finance news hub Finance Magnates. Integrating biometrics technology with payments systems offers secure and seamless transaction experiences.
Companies like Amazon and Mastercard are pioneering this innovation in payments by including innovative technologies like palm-based identity services and facial recognition in their transactions.
80% of mobile devices are already equipped with biometric functionality in 2020, as per an article in scientific paper Biometric Technology Today. This means that biometric payments can easily be mass adopted through mobile payments, whether for ecommerce or point of sale. This promises a future where traditional authentication methods such as badges and passwords become obsolete, replaced by secure and user-friendly biometric solutions.
6. Contactless payments
Contactless payments are fast replacing traditional payment methods like cash. Market analysts at RBR Global forecast that over 80% of consumer credit cards will have contactless payment technology by 2026, representing a 119% growth from current usage.
However, overall contactless payments are projected to rise by 221% during the same period, with the more significant growth expected to stem from mobile devices and payment-enabled wearable devices.
Nearly a quarter of the US population will use Apple Pay by 2026, market analyst Insider Intelligence forecasts. Part of this is due to PayPal and Venmo cards being added to the Apple mobile wallet. This increased functionality and adoption will have contactless payments through mobile wallets skyrocket.
Source: Insider Intelligence
Contactless payments aren’t limited to mobile devices and debit or credit cards, either. Payments through wearable devices like smartwatches and fitness trackers are also gaining popularity.
These smart devices are equipped with digital payment options as well as security features like biometric authentication, providing a convenient and secure alternative to physical debit cards or smartphones.
Finally, not only will 2024 see increased contactless payment cards and devices being used – but but the near future will also see increased contactless payments usability through integration with other technologies like augmented reality and the Internet of Things (IoT).
As retailers and payment servies widely adopt contactless payments, other non-bank companies can’t stay behind. For companies integrating payroll services through payment providers, offering contactless payments to their employees is not just a novelty – it’s a payment option that consumers increasingly rely on.
7. Artificial intelligence
Artificial intelligence isn’t just the hottest topic in tech – AI is revolutionizing the payments industry too.
An obvious way in which AI already impacts payment systems is through customer experience. You’re likely talking to AI-powered chatbots and virtual assistants on a regular basis. These bots streamline customer inquiries, providing quick and personalized responses during checkout or order processes. Not only do they improve user satisfaction, but AI-powered chatbots also increase conversion rates for businesses.
But more than a front-end improvement, AI affects the very core of payment processes – increasing efficiency and automation within payment systems through AI automation.
By automating repetitive tasks such as data entry, payment reconciliation, and reporting, AI is saving time and boosting operational efficiency for payment providers and their clients.
Predictive analysis is an application in which AI particularly excels, leveraging historical customer data to predict future behavior. This enables businesses to offer personalized deals, discounts, and tailored pricing models, fostering customer engagement and loyalty.
But if you thought that the use of AI in the payments industry is all upsides, think again – because artificial intelligence has inherent risks.
The challenges of generative AI
While Generative AI is sure to transform payment services, AI models also invite misuse by hackers and scammers.
The emergence of malevolent AI tools on the dark web poses risks such as account takeovers and new account fraud, highlighting the need for advanced fraud prevention measures in the financial sector.
Commenting on the use of AI against payment services by scammers, Jordan McKee, who is research director at analyst firm 451 Research, notes that: “Generative AI’s potential to transform financial services is massive, but the dark side of this technology is emerging as fraudsters weaponize it against the industry.”
He further observes that “starting in 2023, services such as FraudGPT and WormGPT appeared for sale on the dark web, enabling fraudsters to unleash large language models (LLMs) for use cases including creating malicious code and producing highly targeted phishing emails.
Luckily, AI models can also help in the prevention of these types of effects. For that matter, 2024 will see AI-driven advancements in fraud detection and prevention.
How to improve your company’s payroll in 2024
2024 is seeing innovations in payments technology like A2A payments, open data, blockchain and digital currencies, biometrics, contactless payments, and artificial intelligence. These financial technologies are making transactions easier for users while offering enhanced security, efficiency, personalization, and convenience.
For decision-makers at companies with payroll solutions in place, staying ahead of these innovations in payments technology is crucial. Embracing emerging technologies can streamline processes, reduce costs, and provide a competitive edge in an increasingly digital marketplace.
By harnessing the power of these top payment innovations, businesses can future-proof their operations and thrive in the rapidly evolving financial ecosystem.
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