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What does the future hold for payment technologies?

11th Jul 2024
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By Hugh Scantlebury, CEO and Founder of Aqilla

Open banking has been a game changer for payment technology innovation. By opening up transactional data, it has revolutionised how UK consumers and businesses access banking and financial services.  

One of its key benefits is the ability to deliver Variable Recurring Payments (VRPs). VRPs allow automatic money transfers between a consumer's accounts—perhaps moving surplus funds from a current account into a separate savings account or regularly topping up a saving space for household bills. A new development called ‘non-sweeping VRPs’ is on the horizon, too, enabling the same process for commercial payments. Non sweeping VRPs will likely replace direct debits and standing orders, which rely on very dated technology and processes. A move to VRPs allows for better security, more flexibility, lower fees, and no chargebacks. All of which is great news for businesses and consumers.  

This evolution is part of a wider trend in which payment process technologies move from traditional account-based and credit/debit card transactions to a more decentralised technology-driven market—a process often called decoupling.  

 

Big Tech takes on traditional finance  

Perhaps the most noticeable change is the ubiquitous presence of native mobile and digital payment services such as PayPal, Google Pay, Samsung Pay and Apple Pay. Emerging from Big Tech rather than the finance industry, the digital wallets offered by these companies are deeply embedded in smartphone and smartwatch operating systems. As such, they provide a fast and convenient way to pay and have become ‘go-to’ tools for millions of us.  

Then there’s PayPal, which probably poses one of the most significant challenges to the traditional payments industry. PayPal is a payment gateway, so it also provides credit facilities and allows customers to hold funds in their accounts to pay for goods. Thinking about it in these terms, PayPal is starting to sound very much like a current account—and, these days, it probably serves that purpose for many people.  

Behind the scenes, PayPal also provides analytics services to its business customers. This includes a suite of invoicing and analytics capabilities, plus the ability to process and manage international transactions. It’s a very good complement to a regular business account and is probably causing some concerns for traditional banks (although they probably wouldn’t admit it).   

 

BNPL: Credit where it’s due?    

The UK’s BNPL market has more than quadrupled since 2020, with a growing variety of providers, such as Klarna, Laybuy, OpenPay, Payl8r and Curve Flex. These players contribute to a market where borrowing is set to reach £30bn by the end of the year. This unprecedently high figure has been met with concern in some quarters. Citizens Advice and some MPs, for example, are calling for increasing for more BNPL regulation.   

It’s uncertain how these demands will be met, but it’s worth noting that BNPL is already subject to FCA rules covering its financial, marketing and lending-related activities. This includes the FCA Financial Promotions Gateway, which came into force last year and incorporates rules to prevent BNPL providers from using misleading marketing tactics.  

 

Building on Blockchain, cryptocurrencies and DeFi   

Bitcoin, cryptocurrencies, and DeFi tech-based finance ecosystems are growing in popularity. Several crypto wallets and exchanges now accept PayPal, and you can send and receive crypto to and from eligible confirmed personal PayPal accounts.  

Despite these and similar advances, blockchain, cryptocurrencies and DeFi ecosystems have yet to achieve mainstream use—often because such developments are eclipsed by high-profile scandals and boom-bust trading cycles. Yet, they continue to offer the prospect of a more open and democratic payment system. For now, however, you must know what you’re doing and be willing to operate in a higher-risk environment.   

There are some challenges to be overcome before Bitcoin, cryptocurrencies, and DeFi realise their full potential. The to-do list includes finding a way to scale, reducing volatility, and building a regulatory framework. In an ideal world, overcoming these issues will widen their availability, allowing customers to manage their finances without needing banks and exchanges as intermediaries.  

 

An eye on the future  

With all these changes and updates on the horizon, it’s tempting to think we’ve reached the end of this chapter in payment processing innovation. But the fast-paced evolution of digital technologies and the mainstream adoption of AI means we’re only at the start of the journey.  

How difficult would it be, for example, to introduce payments using smart clothing, specially designed contact lenses, sunglasses, or even eye movements? And how long might it be until payment systems can use thought patterns or brainwaves?  

The chances are that if you can imagine it, there’s a tech company somewhere trying to make it a reality. That’s because, for better or worse, financial transactions form the basis of our global society, so payment systems will continue to evolve alongside our technology, culture and values.