Digital Payment Industry [PDF]

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Digital Payment Industry in 2023: Payment methods, trends, and tech processing payments electronically Share on social:

Insider Intelligence|January 09, 2023

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As merchants and consumers turn to ecommerce and digital shopping habits, digital payment adoption continues to increase.  We break down why cash is being left for electronic and contactless payment methods.  Do you work in the Finance industry? Get business insights on the latest tech innovations, market trends, and your competitors with data-driven research.

Pandemic-driven digitization is changing the share of wallet as analog methods continue to decline. In their place, card and electronic transfers will surge, while alternatives like installment loans and cryptocurrencies will threaten giants’ market share. With competition intensifying, value-added services can help digital payment providers, processors, payment systems, and payment gateways differentiate themselves and generate new, diversified revenue streams.

What are digital payments? A digital payment is the transfer of money or digital currency from one account to another using digital payment technologies, such as mobile wallets or mobile payment apps. Digital payments can also be referred to as electronic payments. 

Electronic payment systems An electronic payment system digitally facilitates financial transactions between two parties. With the shift to online shopping continuing to accelerate, electronic payment methods are forcing stakeholders to reevaluate their strategies. Online electronic payments include:   

Bank transfers eChecks Buy now, pay later (BNPL) solutions

Mobile payment apps Mobile digital payment apps enable users to transfer funds to an individual or company via a mobile device, including smartphones and tablets. By the end of 2023, we expect $1.152 trillion will transact via mobile P2P apps, including:       

Cash App Venmo PayPal Zelle Google Pay

Mobile wallets

A mobile wallet is a platform that holds card information directly on a mobile device. It can manage everything from credit cards, rewards cards, memberships, and even IDs. Consumers are increasingly turning to mobile wallets due to their convenience and ability to reduce fraud. Some of the most popular options include:    

PayPal Apple Pay Google Pay Samsung Pay

Contactless payments The adoption of contactless payment methods—touch-free digital payment methods that use radio-frequency identification or near field communication for making transactions—rose during the pandemic due to health restrictions and safety precautions.  Contactless payments can be made via:  

Credit and debit cards that have near-field communication (NFC) technology Mobile wallets, like Apple and Samsung Pay

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Consumer using a mobile wallet for a touch-free purchase.

Digital payment technologies Technologies that make these digital payment services possible involve machine learning and artificial intelligence. As consumers continue making purchases with their cards, mobile wallets, or applications, machine learning technology is able to study these experiences and improve them over time. This improved experience ensures greater fraud protection and security. Additionally, contactless digital payments rely on NFC and magnetic secure transmission (MST) technology. NFC technology enables a connection between two electronic devices over a small distance. It enables consumers to pay with their mobile wallets via tablets, smartphones, or smartwatches. Comparatively, MST technology uses a magnetic signal from the mobile device to a card reader—because it emulates a magnetic stripe like one found on a credit or debit card, MST tech is compatible with most payment processors.  Other tech used for digital transactions includes: 

Open banking APIs Application programming interfaces (APIs) allow legacy banks to share data and information amongst one another through a third party application. APIs are used for any company (B2B, B2B2C, BaaS) to embed its products into a nonfinancial company’s platform.  Open banking providers can unlock new revenue streams by charging fees based on the services clients use; they can ink data-sharing deals with partners in lieu of or in addition to those fees; and they can gain insights from working with clients that can be used to improve their own offerings. Only 30% of financial institutions (FIs) were actually using APIs as of early 2021, according to PYMNTS, in part because incumbents face challenges running into challenges with older tech infrastructure.

Biometric verification Biometric verification is any way a person can be uniquely identified by a device, where it evaluates one or more distinguishing biological traits such as fingerprints, retina patterns, voice recognition, and signatures. In the financial services industry, biometric verification is used by mobile apps and other digital payment agents to authenticate a transaction. For example, smartphones can send information with a payment request including behavioral biometric information. These additional signals will make authentication more robust and fraud detection better by identifying inconsistencies in biometric information and payment behavior. 

Amazon is a leader in the biometric payment space. In the financial services industry, biometric verification is used by mobile apps and other digital payment agents to authenticate a transaction. For example, smartphones can send information with a payment request including behavioral biometric information. These additional signals will make authentication more robust and fraud detection better by identifying inconsistencies in biometric information and payment behavior. 

Distributed ledger technology (blockchain) A distributed ledger is a database that exists across several locations. Most companies use a centralized database that exists in a fixed location; but a distributed ledger removes third parties from the process. Perhaps one of the most popular and widely used forms of distributed ledger is blockchain. Blockchain technology offers a way to securely and efficiently create a tamper-proof log of

sensitive activity. Distributed ledgers like blockchain are particularly useful in the finance industry because they cut down on operational inefficiencies (saving incumbents both time and money).

Digital payment trends Consumers are digitizing the payments they make in-store and online—bringing new tech innovations to the mainstream. This year will see a 9% growth in P2P mobile payment users, reaching 147.6 billion in the US.  Maturing mobile P2P will enhance the opportunity—and need—for providers to monetize their product, since a bump in volume has put the industry in a better position than ever to begin capturing revenues from the services. And the growth trends of cross-border payments and realtime non-card payments are increasingly becoming a barometer for overall industry changes.   Other trends that will continue to shape the digital payment landscape include:    

Lingering financial instability amid the pandemic will keep debit card usage strong, but growth is set to stabilize this year.  Competitive perks, such as lower fees and payment flexibility, will help drive credit card spending. BNPL solutions are reaching universal acceptance, enabling younger users less interested in existing in the credit ecosystem.  To entice spending, crypto providers are expanding partnerships with networks, providers, and processors.