One of the most exciting trends in fintech is the way the industry is changing the payments landscape. In the past, making a payment usually meant going to the bank and withdrawing cash or writing a check. Today, there are several different ways to pay for goods and services, and payment service companies are constantly coming up with innovative new solutions.
Here are five of the latest trends in payments and the top companies leading the way.
Buy now, pay later (BNPL) is exactly what it sounds like—a way to purchase something without having to pay for it immediately. Instead, the purchaser can spread the cost of the purchase over some time, usually anywhere from two to 12 months. This type of payment plan has become increasingly popular in recent years as more and more people are looking for ways to finance their purchases.
While these payment plans can be convenient for some, there are also a few potential drawbacks to consider. One of the biggest dangers of BNPL is that it can lead to debt problems. If the purchaser is not careful, it's easy to rack up a large amount of interest on a BNPL account. Additionally, late fees and other charges can quickly add up, making it difficult to pay off the balance. And because BNPL accounts are often reported to credit agencies, missed payments can hurt their score.
There are a few different companies that offer buy now, pay later services, but the most popular are Afterpay, Affirm, Klarna, and PayPal.
2. Mobile Payments
Mobile payments refer to any type of payment that’s made using a mobile device such as a smartphone or tablet. Mobile payments are convenient because they allow consumers to make purchases without having to carry cash or credit cards. These payments can include in-app payments, contactless payments, and peer-to-peer payments.
In-app payments have become increasingly popular in recent years as ways to make purchases within mobile apps. This convenience has led to a growing trend of people using in-app payments for a variety of items, from digital content to physical goods. While many different companies offer in-app payment solutions, some of the most popular include Apple Pay, Google Pay, and Amazon Payments.
Contactless payments refer to any type of payment that doesn’t require physical contact between the consumer and the merchant such as NFC (Near Field Communication) transactions or QR code transactions. Contactless payments are convenient because they allow consumers to make purchases without having to handle cash or credit cards. Some of the top players in contactless payments include Apple Pay, Google Pay, and Samsung Pay.
Peer-to-peer (P2P) payments are another big trend in the payments space. P2P payments allow a person to send money directly to another person without going through a bank or other third party. This trend is being driven by the increasing popularity of apps like Venmo and Cash App that make it easy to send money to friends and family members with just a few taps on a smartphone.
3. Cryptocurrency Payments
Cryptocurrency is a digital or virtual currency that uses cryptography for security purposes. Cryptocurrencies are decentralized and not subject to government regulation. Bitcoin, Litecoin, and Ethereum are some examples of cryptocurrencies. Cryptocurrency payments are becoming more popular because they offer a degree of anonymity and security that other payment methods do not provide. Some businesses that accept cryptocurrency payments include Overstock, Expedia, and PayPal.
While cryptocurrencies have been gaining in popularity as a method of payment, their volatility has been a major concern. One way to stabilize cryptocurrency prices is to create a Central Bank Digital Currency (CBDC). A CBDC would be backed by that nation's government and could be used to purchase goods and services just like any other currency. The value of a CBDC would be more stable than that of cryptocurrency, making it a more attractive option for merchants. In addition, a CBDC would be easily convertible into other currencies, making it easier for businesses to accept payments from international customers. The formation of national CBDCs would thus help to stabilize the volatile cryptocurrency market and make it more attractive as a payment option. As of May 2022, 87 countries are currently exploring a CBDC, according to the Atlantic Council; 11 countries have issued a CBDC. The United States is currently researching a U.S.-based CBDC.
4. Real-Time (Instant) Payments
Real-time payments are electronic payments that are processed and cleared immediately, without the need for batch processing. This means that funds are available to the payee almost instantaneously, making these payments an ideal solution for time-sensitive payments. Instant payments are typically used for peer-to-peer (P2P) payments, but they can also be used for business-to-business (B2B) and business-to-consumer (B2C) transactions. More and more financial institutions are offering these payment services, as the benefits of this payment method continue to become clear.
In addition to the speed and convenience of instant payments, they also offer improved security and fraud protection, as well as the ability to track payments in real-time. Instant payments by Zelle and RTP by The Clearing House are currently available, while the Federal Reserve is developing the FedNow service. RTP and FedNow will provide the backbone of real-time payment services for U.S.-based FDIC-insured institutions.
5. Cross-Border Payments
The globalization of the economy has led to a growing trend of cross-border payments. Whether it's businesses paying suppliers in other countries or individuals sending money to family members living abroad, the need to make international payments is on the rise. Traditionally, these payments have been made through banks, which can be slow and expensive. However, a new generation of payment providers has emerged that offers a more efficient and cost-effective solution. These companies use the latest technology to streamline the payment process, making it easier and faster for customers to send money across borders. As the world becomes increasingly connected, it's likely that the demand for cross-border payments will continue to grow.
MoneyGram is expanding services to include cross-border payments, while Wise, formerly TransferWise, is a digital-based alternative.
Ellen Cibula is the founder of EllenCibula.com, where she helps businesses with financial technology, security, and payments. She has over 15 years of experience in the financial technology industry.
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