What does 2019 hold for the future payments? We've already seen some great improvements in simplicity of payment and security. Users are able to wave their smartphone over a point-of-sale device to complete payment with the full confidence that their information will remain secure. This creates a frictionless and fast payment transaction. Security has seen great improvements with the implementation of biometrics in smartphones (i.e., fingerprint and face scans).
You're probably starting to see a trend. Payment innovations have centered around the smartphone. This momentum doesn't stop for 2019 and in fact, begins to speed up as new technologies come onto the scene. In this article, we take a look at 7 digital payments trends of 2019.
1. Mobile Continues To Grow
Not surprisingly, mobile phone payments will continue to grow. According to a BI Mobile Payments report, in-store mobile payments are expected to grow from $75 billion in 2016 to $503 billion by 2020. This, of course, puts 2019 on track to be the largest year for mobile payments.
There are many ways to pay using a mobile phone. The following are just a few of the current implementations:
- Mobile web-based payments
- Mobile wallet/app for in-store payments
- Mobile rewards app (i.e., Starbucks)
- SMS text payments
With technology rapidly advancing, we can expect to see more new ways of paying using our mobile devices.
2. Contactless Payments
Contactless payments let customers wave their smartphone across a reader or tap a credit card. Compared to swiping a reader or inserting a credit card, which takes longer, contactless payments are faster.
For mobile phones, contactless payments work through a mobile app. Companies such as Apple, Samsung, and Google now have ApplePay, SamsungPay, and GooglePay. Once the app is download, customers can insert their credit and debit cards. When it comes time to pay, the customer can bring up the app, wave their phone across the reader, and the payment is processed. In the US, 70% of customers are using contactless payments.
When it comes to tapping a credit card, this type of transaction is far less prevalent in the US. In fact, you've probably never seen it. Outside of the US, especially in the UK and Australia, card tapping is used by 80% of customers when making payments. The same cards that are used in chip readers have an antenna built into them. The antenna is what allows tap to pay. In the US, about 70% of merchant chip readers include the ability for card tapping. Many do not have the feature enabled because of demand. As you can see, there is plenty of room for contactless payments to grow, especially once card tapping becomes takes off in the US.
U.S. Payments Forum director Randy Vanderhoof had the following to say about contactless payments in 2019, as reported by ATM Marketplace, "We're seeing steady upticks in contactless and mobile wallet transaction volumes, but most card issuers and merchants are evaluating the business case and planning for next year. 2019 will be a year where we'll see dual-interface cards hit the market and more merchants become enabled to accept them. It's likely we'll see this happen most in metropolitan areas with larger transit systems, as they are migrating to EMV contactless at the same time."
Contactless payments aren't going to replace credit cards. They are more of an enhance or supplement to credit card usage. When a contactless payment transaction takes place, most of the time it is processed using a credit card. Cash is the most under threat from contactless payments.
3. Mobile Wallets Replace Physical Wallets
Nearly 2.1 billion customers are expected to use mobile wallets in 2019, as reported by RetailDive. A mobile wallet lives on your mobile phone as an app. It is meant to simulate a physical mobile wallet. The wallet can hold credit cards, debit cards, rewards cards, airline tickets, and more. When you approach a point-of-sale (POS) machine that allows for mobile payments, simply wave your mobile phone across the POS machine to complete the payment. On the phone, the wallet app will detect that payment is trying to be made. Whichever credit card is the default will be used to complete the transaction. This type of payment is far faster than inserting an EMV credit card into a chip reader.
Mobile wallets include larger manufacturers such as ApplePay, SamsungPay, and AndroidPay. All of these wallets are company and brand specific. Other companies trying to gain market share with their branded wallets. For example, Starbucks also has a wallet. As more brand-specific wallets are created and adopted by users, overall mobile wallet growth and usage will increase.
Mobile wallets allow companies to quickly assess customer usage. There are many players involved with mobile wallet usage. The actual wallet is built by one company, Apple for example. The credit card or loyalty card are created by another company. There is the store where a customer swipes their credit card to pay for merchandise. The credit card company also receives information about the customer with each transaction. All of these companies crunch huge amounts of data to build customer profiles and predict what customers may want.
4. Gen Z
Generation Z is the cohort born between 1995 and 2012. Unlike every generation before them, this group doesn't know life without digital devices and high-speed Internet. This can be a problem for cash. As society generally moves toward more cashless payments, most of Gen Z has had little interaction with cash. Instead, they use their mobile phones.
As noted by digitaltransactions.net in a report produced by Javelin, only 18% of Gen Z used cash compared with 33% of Millennials in 2012.
It's gotten easier to purchase something on Facebook and other social media platforms as well. This integration of payments with social, “plays directly to the habits of the Gen Z consumer,” the report stated. “The channels Gen Z interacts with are evolving, providing valuable insight into how they want to interact with payments—from e-commerce purchases to complex financial transactions—and what they will come to expect.”
5. Smart Speaker Payments
Smart speakers or home assistants as they are also called allow you to speak commands to a speaker and get a voice response. Commands can range from getting the weather to traffic updates, to fetching an Uber and ordering from Amazon.
Many of the largest manufacturers now have smart speakers available for purchase. Amazon released its first smart speaker in 2014. Then came Google Home in 2016 and finally, latecomer Apple at the end of 2017. Speakers ascended from smart assistants, which were not really all that smart and restricted to just mobile phones. Once home automation began to go mainstream, smart speakers starting showing up, becoming a more convenient way to control home automation.
In a 2017 Capgemini survey of Western Europe and the US, 35% of respondents said they had bought products using their smart speaker or digital assistant using their mobile phone. 32% ordered a meal and the same percentage sent or received money.
Amazon has taken the lead when it comes to making payments through smart speakers. A customer can simply say "Alexa, order x" to the Echo, Amazon's smart speaker. The entire experience is well thought out. It isn't meant for complex orders and instead best suited to small orders of repeat items.
Other companies have jumped in on payments through smart speakers. Domino's allows its customers to place orders through Amazon Echo. This is only possible because Amazon decided early on to allow other vendors to utilize its smart speaker. By downloading the Domino's skill, customers are able to order pizza through their smart speaker.
As smart speakers, or the digital assistants behind them, become even smarter and more companies jump onto voice-based purchasing, this category is set for a long-term upward trajectory.
6. Improved Security Through AI And Machine Learning
Payment technologies won't advance if security isn't able to keep up. Because of the massive amounts of payment and customer data that pour into bank and merchant data centers every day, scanning for possible fraud requires machines and software that can detect fraud within seconds. To accomplish this task, many banks are turning to machine learning.
Machine learning falls under the AI umbrella. It is one of the first tasks required to achieve AI. Banks constantly feed their software new transactions. This shows it what a normal transaction looks like vs. one that is potentially fraudulent. The software is able to take these limited cases, learn, and begin detecting fraudulent transactions in real-time. The more transactions the software processes, the better it gets at fraud detection.
You've probably received a text alert from your credit card company asking if a transaction is fraudulent. This helps you take care of a small problem before it turns into something much bigger. There's no human sending out these texts. It's all driven by machine learning software.
As criminals up their game and find new ways to exploit payment systems, banks will continue to stay right behind them by training their software with the latest potentially fraudulent transactions.
While still within the realm of security, identity refers to verification of an individual. There have been many schemes to verify you are who you say you are. As shown in Capgimini's report, the early years of digital consisted of logins, which were often the only method of verification. We then progressed to using 3rd party logins such as Facebook and other social media accounts. In the last few years, biometrics through our mobile phones have been used as verification of our identity. The next set of identification schemes will continue to make use of our devices, including smart cars.
For merchants, this offloads a lot of user verification onto devices. As a user authenticates themselves using a device, they gain access to their most sensitive information, including payment methods. This scheme implies that there is no one other than the validated user to gain access to this information.
Since Apple introduced the iPhone in 2007, the smartphone has become a central and some would even say required part of our lives. While smartphone innovations may have slowed in recent years, it's importance hasn't diminished. It will continue to be a central hub for payment activity and security.
2019 payment trends:
- Mobile Continues To Grow
- Contactless Payments
- Mobile Wallets Replace Physical Wallets
- Gen Z
- Smart Speaker Payments
- Improved Security Through AI And Machine Learning