Future of Payments – More embedded, disruptive, data rich and secure

Payments power our economy and connect our digital societies. This technology capability is vital to the day-to-day life of people and organisations in Australia – in fact, each Australian makes two electronic transactions every day. The payments sector, more than any other, has seen a massive disruption over the last few years fuelled by rising customer expectations, accelerated by advanced technologies, and guided by regulation in most instances.

With this backdrop in mind, I was thrilled to join the AusPayNet Summit 2022, moderating the ‘Future of Payments’ panel with a cross-section of payments ecosystem leaders.

Our panel was focussed on three dimensions: One, the shift to embedded payments. Two, the disruption and innovation of new payment methods and business models. And three, the need to enhance the trust, safety and security of the industry.

Panel from L to R: Marc Bender (Strategy Partner, Monitor Deloitte), Shane Conway (Executive, Transaction Banking & Enterprise Payments, NAB), Hollie Thistlewood (Head of GTM and Commercialisation AuNZSP, Visa), Karl Durrance (Managing Director Australia & NZ, Stripe), David Marsh (Principal Industry Consultant, Endava)

1. Embedded Payments:

Payments have shifted from a transaction focus to an integrated commerce proposition. This has enabled seamless customer experiences and journeys where payments are just a click or face ID away. Payments have become ‘invisible’ in many day-to-day interactions (e.g., finding the next cab ride, ordering food at home). The pandemic has further accelerated this shift.

According to the panel, the future of payments is increasingly frictionless, driven by customer convenience. Digital commerce growth is demanding seamless checkout experiences. Partnerships between banks, Fintechs, payment networks and merchants are putting the customer at the centre of the payments journey. Dynamic payment methods and platforms such as real-time account-to-account (A2A) payments at point of sale, and 'Omni rail' platforms will provide more customer choice. Banks continue to play a pivotal role in this ecosystem as they partner with their corporate clients to offer embedded, scalable, and lower cost payments solutions for end customers.

Payments networks are rolling out new standards and specifications like PCI 3-D Secure (Three Domain Secure) - a modern messaging protocol that enhances security through additional authentication and increased assurance for authorisation decisions. 

Increased penetration of mobile devices into customers’ day-to-day activities is shaping their payments preferences. It comes as no surprise to anyone that 47% of consumers prefer digital mobile wallet payments according to RBA. However, research by Stripe indicated that only 11% of Australian e-commerce sites currently support this payment method and the main reason for abandoning the purchase process for consumers is not having the right payment option available. This presents a significant opportunity for Australian businesses to step up and cater to this preference for digital mobile wallet payments.

The panel believes that Australia very likely will see the emergence of a ‘super-app’ that pulls multiple services into a single digital application. In Asia, super-apps have gained increased popularity due to being trusted applications, connecting consumers to a range of related services including embedded payments. In Australia, a mature payment system and a well-banked population means the innovation seen in Asia has not been replicated – yet. However, the panel agreed that the mode, capabilities and players offering the super-app will be unique to the Australian context. Banks are uniquely placed to step into this space due to consumer trust and access to payment rails.

2. Disruption and Innovation:

The pandemic has accelerated digital transformation across all industries and has led to the rise of digital payments in physical locations such as retail stores and restaurants. Globally and locally, consumers have embraced the QR code-based digital payment experience which is often linked to mobile wallets powered by BigTechs like Apple, Samsung and Google. 

With the pandemic subsiding, businesses need to provide equivalent experiences and offer a broader range of payment solutions to serve international travellers – this requires a better payment orchestration and the enablement of increased scale of transactions.

Additionally, payment service providers are disrupting standard business models in specific verticals, such as car subscription services for electric vehicles or retail marketplaces For instance, companies such as Mango Pay are offering tailored payments solutions to serve merchants holistically.

When it comes to the big topic of digital currencies, which was debated in more detail in the afternoon of the AusPayNet Summit 2022, it is fair to say that the banking sector is cautious about cryptocurrencies due to the volatility and lack of transparency of the underlying assets. Globally, consumers’ use of crypto and other digital currencies remains in its infancy. Nonetheless, this may change with merchants, acquirer, and Fintechs expecting for and preparing to support it. A 2022 Deloitte survey of US retailers found nearly three in four respondents plan to accept digital currency payments in the next two years and a vast majority believes in their future. Global and local regulation, however, will play a critical role in driving a pathway forward for broad based acceptance of digital currency – including a central bank digital currency (CBDC). In September 2022, RBA released a white paper outlining an elaborate plan for conducting a pilot project for eAUD. 

3. Security and trust:

Security of (customer) data within the Australian business landscape has been top of mind for regulators, government, businesses, and customers. Tokenisation is an important component in protecting payment data and reducing risk. However, the effectiveness of tokenisation is also dependent on improving authentication to ensure the payment is made from and to the right participant. 

With digital and faster payments becoming the new norm, swift mitigation, risk management and fraud protection is essential. Ongoing balance of privacy and risk management with frictionless customer experience is a tricky act.

The panel recommended a holistic view which includes a preventative approach to fraud detection. The combination of a frontline fraud detection tool which assesses the risks during origination and a transaction security component like PCI 3-D Secure was highlighted as some options to increase safety and security of payments. Digital wallets, such as Apple Pay, Samsung Pay, and Google Pay, with biometric security have proven to reduce fraud risks during origination and improve trust by limiting disputes and chargebacks. However, the cyber-fraud attack surface will continue to increase as new players enter the payments ecosystem and cyber criminals continue to target vulnerabilities. Merchants will need to be educated on how to protect themselves and be prepared to be one step ahead of this ‘whack-a-mole’ game with cyber criminals. 

Outlook:

In their closing remarks, the panel were excited about the possibilities that new payment technologies, such as real-time payments solutions including PayTo, will bring to our everyday lives – in a secure and convenient way. A modern regulatory framework with fit-for-purpose rules, policies and standards will be paramount to unlocking further innovation in the payments industry.

The future of payments will be more embedded, disruptive, data rich and secure – with innovation and competition paving the way. And that is a great outlook for businesses and consumers.