We are experiencing more change in the payments space than we have over the past thirty years. This is an exciting time to be involved in payments. As we begin 2021, Accuity’s payments specialists look ahead to identify four digital payment trends that will drive change this year.
Accuity’s new whitepaper identifies these four digital payment trends for 2021.
Trend 1: The point of online purchase will become increasingly crowded for payment service providers
When a customer arrives at the payment setup point on a merchant’s website, they are asked to select a payment option. In 2021, customers will be presented with more ways to pay than ever before, including highly tailored products such as short-term loans that remove the need for bank-issued credit cards entirely. With the proliferation of, payment options, providers will need to clearly communicate their value proposition, however there is usually extremely limited space in which to do this, meaning customers will likely rely more on strong brands.
In 2021, large online marketplaces will increasingly build and manage their own payment infrastructures to handle payments across their platforms. This trend is commonly referred to as ‘embedded finance.’
Local buy now pay later products will become increasingly common at the online point of purchase. Should customers choose to pay in 12 monthly instalments at 24% APR with Brand A, or pay in 48 monthly instalments at 16% APR with Brand B? This all becomes increasingly hard to communicate.
Trend 2: Payment service providers will compete to handle Strong Customer Authentication (SCA) with the least checkout friction in Europe
Physical card transactions already employ relatively strong customer authentication processes, as customers are required to enter their PIN number. However, contactless and online payments have not required secondary forms of authentication, leaving accounts more open to fraud. The rapid adoption of digital payments through the pandemic in 2020 has led to an increased proportion of payments being processed without secondary customer authentication.
In Europe, in 2021, online retail payments will become more secure and less open to fraud due to the implementation of Strong Customer Authentication (SCA).
The ideal situation will be for payment service providers and merchants to apply SCA protocols whilst adding almost no additional customer friction. Payment service providers that develop the smoothest SCA payment flows with the least customer friction can develop a competitive advantage. Biometric-based authentication is one way of reducing customer friction.
Trend 3: Neobanks will go niche with products targeted at customer segments
The Coronavirus pandemic has led to increased uncertainly around the availability of capital for fintech companies, particularly for smaller organisations. Even larger neobanks have had to raise funds at significant down valuations. Increased uncertainty will continue through 2021, as recessions deepen.
As neobanks experiment with new ways of monetizing customer segments, and create new revenue streams, in 2021 it is likely we will see a much more diverse variety of neobanks.
As BaaS providers greatly reduce technical barriers to entry for new neobanks we expect 2021 to see a second wave of smaller, leaner neobanks emerge.
Trend 4: Traditional banks will use APIs from fintech providers to strengthen their payment services
Open banking initiatives are becoming a key driving force for banks to migrate their systems and data to new cloud-hybrid architectures. These systems are interoperable, in that they can more easily connect with other systems such as hosted APIs. In 2021, this momentum will accelerate in countries with strong open banking initiatives, and an increasing number of traditional banks in these countries are set to start sharing data through hosted APIs.
In some countries, it is already a legal requirement for certain banks to share certain customer data by API, and in other countries legislation is on the horizon. This is creating a critical mass of banks benefitting from using API-based services, which will increase at a rapid pace, as even banks that do not legally have to share data through API decide to upgrade their systems.