Payments Industry Trends and Innovations To Watch

Rising costs

There’s no two ways about it — it’s getting increasingly expensive for billers to accept debit and credit card payments. We can largely attribute this issue to interchange fees, which are on the rise due to a variety of factors, including the growing use of rewards and commercial cards, continued inflation and increasingly sophisticated fraud.

In August 2023, the Wall Street Journal reported that Visa and Mastercard were set to increase both their network and interchange fees in October 2023 and again in April 2024, a move that would cost billers and merchants an estimated $502 million annually in fees.

Though Mastercard and Visa have disputed these claims, those in the payments industry are still on high alert for higher costs, and both industry groups and lawmakers have called for regulation. In the United States, lawmakers have introduced bipartisan legislation — the Credit Card Competition Act — in an effort to enhance competition in the credit card network market and control costs for merchants and consumers.

Whether the Credit Card Competition Act and other similar legislation will be signed into law remains to be seen, but this payments industry trend is certainly one to keep an eye on as we head into 2024.

Digital identities

Continuing on the theme of one-to-one digital representations of individuals or organizations, digital identities are slated to be a major payments trend for 2024. For reference, a digital identity is an electronic copy of a payer’s personally identifiable information (PII) used to verify and authenticate their identity during CNP transactions.

Although fraud prevention is the primary use case for digital identities, they have a wide variety of possible applications that can streamline the billing experience.

For example, by allowing billers to create and store their digital identities, payers can easily log into their accounts and make payments without having to remember complex usernames and passwords. They can even store their payment credentials within their digital identities and then use them to automate recurring payments, reducing the risk of late or missed payments. From billers’ perspective, digital identities can be a valuable source of data that they can then use to personalize payment offerings to their customers, such as recommending certain payment methods or setting due date reminders.

Fraud and identity theft

Though rapid advancements in technology have accelerated payments innovation, they’ve also created vulnerabilities that fraudsters can easily exploit, which has led to a dramatic increase in payments fraud over the past two years.

Social engineering attacks, CNP fraud, identity theft (digital or otherwise) and account takeovers are just a few examples of the types of payments fraud against which billers will need to increase their defenses. The good news is that from strong customer authentication (SCA) and point-to-point encryption (P2PE) to tokenization and predictive analytics, technology is providing billers with the tools they need to effectively fight fraud both now and in the near future.

Biometrics

Speaking of strong customer authentication methods, biometric authentication has emerged as one of the strongest. This payments industry trend streamlines the authentication process by enabling payers to verify their identity using unique physical or behavioral characteristics, such as fingerprints or facial recognition. Not only is this approach more convenient for payers than having to remember and manually input passwords, it’s also much harder for fraudsters to replicate. When used in conjunction with other security measures, biometric authentication can strengthen billers’ security posture and even help them comply with various payment regulations, such as the Revised Payment Services Directive’s SCA requirements.

Innovation vs. regulation

The speed of digital payments innovation continues to accelerate, putting regulators in the difficult position of having to take aim at a moving target. This is especially true in regard to credit and debit card interchange fees and the Payment Card Industry Data Security Standard (PCI DSS) 4.0. Although there isn’t any immediate action for billers to take regarding this payments trend, the general guidance is that businesses remain flexible and that compliance teams stay on top of emerging and evolving legislation pertaining to payments innovation.

Real-time payments

Real-time payments (RTPs) aren’t exactly “new for 2024” — most major markets already have RTP schemes either in place or in development — but the sustained consumer demand for RTPs and their anticipated growth make them a trend to watch for the coming year.

The demand for instant payments across all global regions is unprecedented, and it isn’t limited to merchant or banking transactions. Our research also shows that alternative payment methods are gaining traction in the billing space, and that payers’ interest in RTP functionality is growing.

According to one survey, we found that 41.2 percent of payers said that they would be “extremely” or “somewhat” interested in real-time bill payment, citing avoiding late payments (32 percent), immediate confirmation of payments receipt (24.9 percent) and immediate payment/transfer of funds (20.8 percent) as the primary motivations for their interest.

Digital currencies

However, we could see that attitude soften in the years to come as a growing number of banks debut their own regulated digital currencies. Should this come to bear, billers that choose to accept digital currencies for bill payments will be able to better differentiate themselves from their competitors, especially in highly crowded markets.