3 ways fintech will continue to transform the payments industry

Over the last several years, fintech companies have transformed the way financial services companies process payments. Perhaps amplified and accelerated during the pandemic, this transformation is likely permanent and portends the future of the payments space. At the core of these changes is an effort by companies to be more responsive to their consumers by providing a frictionless, personalized and easily accessible financial services experience. 

We see three trends as the most significant in shaping the way consumers make payments in the coming year. Below we take a look at each, plus issue a call to action (and a word of caution).

1. The Internet of Things

IoT devices—which collect and exchange data with other devices—have countless applications in the financial services space. Examples include touchless payment via mobile apps, insurers tracking driver data to provide safe driver discounts, and smart ATMs. Alongside digital wallets, the use of wearable payment devices such as smart watches and smart rings is expected to increase, meaning financial services companies should be equipped to handle such touchless forms of payment.

Companies can use the data and insights gathered from these devices to promote good financial habits among users. For instance, a fintech app might send notifications when users are approaching their credit limit or are close to hitting their budget for certain types of expenditures. IoT systems can also be used to automatically suspend access to credit cards in the case of delinquent accounts and past due balances.

The global IoT ecosystem in the banking, financial services and insurance market is predicted to grow at a compound annual rate of 26.5% for the forecast period of 2018 through 2026, according to a Fortune Business Insights report. The benefits of financial services companies implementing IoT devices are numerous. Companies receive real-time feedback and data they can use to provide a personalized experience for consumers, enhancing customer satisfaction, fraud detection and security. Companies can also leverage IoT data to automate and improve the productivity of certain internal payment processing systems. The most successful companies are going to be the ones that embrace IoT systems and capabilities.

The global IoT ecosystem in the banking, financial services and insurance market is predicted to grow at a compound annual rate of 26.5% for the forecast period of 2018 through 2026, according to a Fortune Business Insights report.

2. Blockchain

This year has certainly been tumultuous for cryptocurrency traders and investors, and it’s impossible to predict the future in this area. However, the underlying blockchain technology has much broader applications that will continue to provide opportunities within the payments sector.

Based on a decentralized platform, blockchain technologies provide more secure ways of storing and transmitting data, lowering the risk of identity fraud and data loss. In addition, blockchain enables transactions at much higher speeds. International fund transfers, which traditionally have been timely and costly to execute, can be expedited via blockchain at a much lower cost. Supply chain finance is another area where blockchain technologies can expedite payments and enhance functioning throughout the supply chain. We expect blockchain will continue to be a key element of innovation in the payments area moving forward.

3. Finance at checkout

Companies across all industries have embraced fintech solutions through embedded financial services at the point of sale. One example is the proliferation of buy now, pay later options. Another is the integration of mobile payment options at checkout. BNPL, despite some detractors, remains an attractive option for many consumers who like that it allows for financing a transaction interest-free versus establishing a revolving credit facility. Insider Intelligence projects that BNPL payment volume will increase 25.5% year over year in 2023. Financial services providers that adopt embedded financial services capabilities at the point of sale can fulfill consumers’ desire for easy, frictionless payment alternatives and gain a competitive edge over those that do not.

Financial services providers that adopt embedded financial services capabilities at the point of sale can fulfill consumers’ desire for easy, frictionless payment alternatives and gain a competitive edge over those that do not.

To leverage these trends, leadership teams at financial services companies should ask themselves the following questions:

• Are our internal processes optimized to take advantage of the trends affecting payment processing? Do certain processes need to be reengineered or automated to ensure customers get the frictionless experience they demand while also maximizing internal efficiencies?
• With data more accessible than ever, is our organization using it to develop and deliver financial services products tailored to our customers? Do we meet their demands in terms of what services are available and how and when they’re delivered?
• How might potential scrutiny of some fintech services affect our offerings or plans for growth? (This is the word of caution we referred to earlier; recent actions by the Consumer Financial Protection Bureau indicate potential increased regulatory scrutiny in the payments space, particularly surrounding an offering like BNPL. Companies should ensure they have the appropriate resources in place to monitor developments and remain responsive to changes in regulation and enforcement actions.)