With considerable growth and an evolving landscape of options, modern businesses have to stay up to date with digital payment trends to remain competitive.
The online retail space is so crowded that businesses must look for potential advantages wherever possible. The way consumers want to pay for products, incorporating new services and digital payment options into their everyday lives, provides valuable insight for businesses looking to grow and establish long-lasting customer relationships.
Mckinsey’s 2022 Digital Payments Consumer Survey found that 89% of Americans now use some form of digital payment. The survey also showed growth in the forms of digital payment respondents were willing to use. 62% state they now use two or more forms of digital payment, an increase from 51% the previous year.
But it’s not just consumer trends businesses should keep an eye on. New digital payment solutions can also help companies to make payments themselves. You can now find a bill paying service for businesses that automates accounts payable processes to streamline operations and improve cash flow management.
So as digital options continue to take over more of the payment market, what do businesses need to look out for in 2023 and beyond?
1. Buy now pay later (BNPL)
BNPL is a form of short-term credit allowing customers to purchase something now and pay for it later. It typically means agreeing to a payment plan, paying off the purchase in installments, often without interest.
Also called point-of-sale installment loans, short-term financing similar to BNPL is nothing new. However, BNPL extends the practice to new markets, including smaller ticket items like groceries or clothing.
Consumers are increasingly turning to BNPL over other options, such as credit cards. It’s relatively simple to be approved for and generally doesn’t affect credit scores, assuming the customer doesn’t miss a payment.
Mckinsey’s 2022 Digital Payments Consumer Survey found the number of respondents interested in using BNPL services increased from 11% to 15%, compared to the previous year. The leading categories for BNPL are clothing, electronics, and home appliances. The survey shows BNPL can produce sales growth, with a quarter of respondents saying it resulted in them making more purchases.
2. Peer-to-peer payments (P2P)
You go out for a meal with friends, and when it’s time to split the bill, you realize you don’t have any cash. The waiter can come around to each person who wants to pay using a card or smartphone app, or one person can pay for it all, and everyone can quickly and seamlessly send them money using popular services like PayPal or Venmo.
P2P payments have been around for a long time. Still, with the shift towards cashless transactions, particularly among younger consumers, they offer a simple and convenient method for directly transferring funds to friends and family without needing an intermediary.
P2P payment services ask consumers to connect their personal bank account or payment card when signing up. With an account, users can add payment details for their friends and family, making it possible to send money with just a few clicks on the app.
The digitalization of payments and the prevalence of smartphones has led to a rapid increase in P2P services. This makes it simple for consumers to split purchases beyond just the bill at a restaurant.
- Roommates can make purchases and split bills or subscriptions seamlessly.
- Friends can book a trip together without the hassle of separate bookings.
- Private sellers can also simplify selling goods and services, relying on digital payments instead of investing in more traditional payment infrastructure.
3. Embedded finance
Embedded finance places financial services into non-financial products and services via an API. It allows any business to integrate financial services into its digital interface to produce a wide range of new possibilities and acquire additional revenue streams.
Generally speaking, embedded finance can be grouped into four main categories:
- Embedded payments: Allowing businesses to keep payments within their own platform that they have complete control over.
- Embedded banking: Offering banking and account services without the need to involve financial institutions.
- Embedded lending: Incorporating lending services into the purchasing journey directly from the business at the point of sale.
- Embedded insurance: Similar to lending, consumers can insure their purchases at the point of sale without lengthy application processes.
Embedded finance has been around for a long time, with non-financial institutions offering private-label credit cards or financing options. However, with the integration of new services into digital interfaces that consumers interact with on a daily basis, embedded finance has seen significant growth in recent years.
Businesses embedding financial services into their product’s ecosystem are finding higher engagement rates and greater customer acquisition. 2023 is likely to see embedded finance, particularly embedded payments, becoming more widely available.
With security around digital payments always a concern, many payment providers are looking to integrate biometric authentication further, using physical characteristics to identify users and allow them to transfer money safely.
Biometric authentication is a critical tool to ensure people are who they claim to be when making purchases. It can be used to authorize transactions over a specific amount or in response to new or unusual behavior. You may not have to use facial recognition to send $5 to a regular payee, but if you want to pay someone new, biometric authentication offers significant protection against fraud and identity theft.
There are many ways to measure biometric information, with the most common forms being fingerprint scans or facial recognition using a smartphone. However, the future will likely see new forms of biometric authentication finding wider use, including iris, retina, or voice recognition.
5. Payments through home assistants
Home assistants and smart hubs are a normal part of many people’s lives. Whether it’s Google Assistant, Siri from Apple, or Amazon Alexa, we are becoming accustomed to controlling aspects of our home using our voice.
Home assistant functionality is also extending to making purchases. By connecting their e-commerce accounts, users can now quickly place orders with a simple voice command to their smart speaker. For example, consumers can effortlessly buy home essentials as soon as they notice they are out rather than adding them to the shopping list and getting to them later.
Understanding customers and how they want to pay
Digital payments are becoming the norm for much of society. In large cities, it’s surprising how long you can now go without using cash. Business owners must keep a close eye on how consumers want to make purchases, finding ways to accommodate new trends and incorporating them into their operations to change internal workflows or even their business model.