Digital payments are essential to the global economy and have seen rapid and significant changes in recent years.

Let’s take a look at the key trends of this change and some of the emerging digital trends are broadening the payments ecosystem. We’ll look at how payments work and the broader payments ecosystem.

The look into the digital payments landscape

Evolving customer expectations and technological advances are driving innovation. They now prioritise speed, near-to-real-time payments, frictionless transactions and decentralised models. Fuelled by the pandemic, significant growth of digital commerce has led to record payment volumes in most markets. These factors make payments one of the most interesting areas of financial services. There are opportunities for innovative fintechs to provide better client experiences and for traditional players to expand their services.

Market competition is driving down fees. It is a challenge for traditional players to maintain the same levels of profitability while using existing payment infrastructure. We have seen fintech businesses launch into the payments ecosystem, offering a more diverse range of services. 

Traditional payment companies are responding by leveraging the huge amounts of data at their disposal to guide a strategy of adding to their offering. These new services are in areas including loyalty, tailored offers, data insights, risk management and more.

A cashless world leads the way

Consumers’ shift to digital channels drives demand for seamless fulfilment and instant gratification. A recent Capgemini World Payments Report survey found an increase from 24% to 46% in respondents who had e-commerce accounts for more than half of their monthly spending. This is compared from before the pandemic to now.

Retail E-commerce sales worldwide revenue

According to Statista, 91% of the global population is expected to own a smartphone by 2026.

A majority of people have now experienced the efficiencies offered by digital payments. It is unlikely they will ever return to the older, inefficient ways of the past.

Nayapay, one of our clients in the South Asian market is using the MongooseIM chat engine. They are an example of players in the payments space seizing the opportunity to disrupt local markets. 

Their chat-based payments app targets the unbanked in Pakistan. It is built around fusing the penetration of smartphone usage with people’s willingness to integrate transactions into their daily digital activities, adding ease of cashless payments to their everyday lives.

The growing demand for faster payments

Demand for instant transactions is driving change in cross-border payments, international remittances and e-commerce. Mirroring the speed of cash transactions electronically used to be a challenge. Now, the introduction of real-time clearing and settlement facilities across markets makes processing payments almost instant. 

Studies by the Federal Reserve Financial Services saw the strong growth of digital wallets in 2023, (US). Businesses increased their use by 31% from the previous year, and consumers experienced a 32% increase in this digital adoption.

Here are some more statistics on the most popular use cases for faster payments:

Source: Federal Reserve study sheet

Peer to Peer transactions

As shown by the chart, one of the most popular cases is person-to-person, or peer-to-peer (P2P) payments. 

Consumers are embracing the simplicity of peer-to-peer services. Zelle, Venmo (US), Kuflink and easyMoney (UK) are commonly used for everyday transactions. These services are important to people seeking quick, hassle-free ways to settle informal payments. 

The availability of P2P services is expected to expand to meet the growing market demand. 

According to Precedence Research, the global peer-to-peer (P2P) lending market size was valued at USD 110.9 billion in 2023. It is expected to hit over USD 1,168.1 billion by 2033. 

From peer-to-peer services that enable informal transactions to the widespread adoption of digital payments, consumers are welcoming the future of finance. As technology continues to reshape how we conduct transactions, the prospect of a cashless society becomes more conceivable.

Growth in embedded payments

Lengthy checkout pages are seen as a turn-off to e-commerce customers. Using embedded payments allows you to skip the additional steps. So instead of providing just a single, clickable button on your app or website, the customer can choose their desired payment, such as Klarna, Amazon Pay, or PayPal, then click the embedded link and complete the transaction.

Amazon- pioneering embedded payments

Amazon customers can log into their accounts that already contain stored payment details and shipping addresses. They then use the “Buy Now” button to instantly complete their purchase.

It requires only a payment confirmation and avoids the need to re-enter payment and shipping information. This quick transaction process takes just seconds and has become commonplace with apps such as Uber, GrubHub, and more.

Integration of embedded finance

By integrating financial products into non-financial platforms, embedded finance is enhancing the convenience and speed of digital payments.

For consumers, embedded finance offers additional benefits including:

• Better understanding of optimal payment terms for customers
• Seamless checkouts
• Easy payment requests
• Financing options such as buy now, pay later (BNPL), all within a unified customer experience

Beyond BNPL, other financial products like lending and card issuing are also being integrated into these platforms. Major banks can reach millions of new users through Banking-as-a-Service (BaaS) APIs provided to technology businesses and platforms outside the traditional financial services industry.

Leveraging payments data

The diverse range of digital touchpoints involved in a cashless payments ecosystem provides vast amounts of data. 

This is important to banks and fintechs to grow client relationships based on analytics and insights. Companies that can unlock the true value of payment activity data by leveraging artificial intelligence (AI) and machine learning (ML) tools. These can offer more efficient, tailored products and a more secure, protected environment.

The implementation of the messaging standard ISO20022 is a vital part of improving the amount and quality of payment data available. As the global standard for payment messaging, ISO 20022 provides better-structured and more granular data. A shared language to be used for transactions made by anyone, anywhere.

Journey towards digital

The modern digital payments ecosystem is varied. Overall, the journey towards more digital, open and real-time operations mirrors how society at large now lives online.

We help to create digital and mobile payment solutions that enhance the customer experience and protect customer data. We work with clients who provide services, cryptocurrency, blockchain, embedded finance, payment gateways and more. To learn more about our offering, you can contact our team directly.