April 15, 2024

5 predictions for next year

The size, scale and dynamism of the payments industry continues to make it one of the most exciting areas of financial technology. In 2024, we expect another busy year as more companies turn to payments to drive costs, revenue, customer experience and operational improvements.

While there are no shortage of trends to monitor in 2024, here are five predictions that deserve continued attention:

Strong emphasis on cost of acceptance will drive increasing focus on payment by bank

The cost of accepting payments is typically one of the largest expenses for a merchant behind payroll. As such, implementing initiatives to optimize acceptance costs are among the most impactful ways to optimize bottom line performance. While there are many levers to pull, including lower-cost routes and local sourcing, we see evidence that more and more merchants are looking to influence customers’ payment behavior at the point of conversion. According to Voice of the Enterprise: Customer Experience & Commerce by 451 Research, Merchant Study 2023, “encouraging customers to use lower-cost payment methods” and “offering more lower-cost payment methods” rank among the top 5 strategies payment that merchants plan to implement. in response to economic conditions.

With card acceptance costs becoming a growing point of contention, bank pay has become a prominent focal point in merchants’ efforts to fight interchange fees. The year 2023 was full of activity in this area. Selected ads included:

  • Uber
    ÚBER ÚBER
    and Airbnb
    ABNB ABNB
    partnership with Stripe to enable payment by bank
  • Adyen Partners with Plaid to Launch Bank Pay in North America in Early 2024
  • JP Morgan launches bank-to-biller payment capability in partnership with Mastercard
    MOTHER
  • BNY Mellon, in partnership with Trustly, launches its pay-by-bank offering, Bankify
  • Nuvei partners with American Express
    AXP AXP
    to bring the latter’s “Pay by Bank Transfer” capability to UK merchants

In 2024, we expect more merchants to adopt bank payment as part of their cost optimization efforts. While bill payment will remain the predominant use case, acceptance is poised to grow in traditional e-commerce verticals such as apparel and marketplaces. Here we expect to see the employment of bid management tactics, such as incentivizing customers with higher rewards point earnings on pay-per-bank purchases.

Contactless cards will account for more than half of face-to-face card volume in the US.

The pandemic unleashed the long-awaited growth of contactless payments in the United States. After more than a decade of lukewarm adoption, contactless as a percentage of Visa’s U.S. face-to-face card volume accelerated from single digits in 2019 to more than 40% in its Q4 earnings call. quarter of 2023. Driven by continued consumption momentum and favorable issuance and acceptance trends, we expect that figure to exceed 50% by the end of the year.

The significant increase in contactless card issuance over the past half-decade has served as a major driver of tap payment system growth. According to 451 Research’s 2023 Disruptive Experiences Consumer Survey, two-thirds of U.S. consumers now have a contactless card and about half of consumers overall use their cards to complete purchases. What’s encouraging for card issuers is that among contactless card users, two in five tell us they are using their card more frequently as a result of tap-to-pay functionality. This is especially the case for small transactions in high-yield verticals like convenience and quick service, where cash has traditionally been predominant.

In terms of acceptance, contactless technology continues to gain traction in critical verticals such as public transportation and food. KrogerKR, for example, began accepting contactless payments last year, while in June the New York MTA announced that it had recorded more than one billion contactless payments since its launch. We also see the recently launched tap-to-pay acceptance capabilities on iOS and Android smartphones as a major growth driver, especially among small merchants who can now enable contactless payments without the need to purchase peripheral hardware.

PCI DSS 4.0 will take many by surprise

For nearly two decades, businesses and their payment partners have turned to the Payment Card Industry Data Security Standards (PCI DSS) for guidance on how to mitigate payment data risks. The latest version, PCI DSS 4.0, introduces significant changes that businesses must adapt to before the March 2025 deadline. A Q2 2023 survey conducted by S&P Global Market Intelligence’s 451 Research and commissioned by Bluefin painted a bleak outlook for business readiness. Less than one-third (31%) of payment data security professionals surveyed indicated they had a solid understanding of all requirements associated with PCI DSS 4.0. Additionally, nearly half (49%) of respondents indicated that their organizations have not yet begun implementing changes related to PCI DSS 4.0, and 90% cited concerns about meeting the PCI DSS 4.0 timeline.

In 2024, we expect many companies to strive to familiarize themselves with PCI DSS 4.0 requirements and bring their organizations into compliance. Tellingly, nearly two-thirds of respondents (64%) say they would be likely or very likely to accept a schedule extension if it were available. The readiness gap should create an opportunity for vendors that can help companies abstract operational and technical complexities to achieve compliance. We believe this will especially be the case for vendors with tokenization and storage capabilities that can help create a new enterprise framework for PII security and usability.

A growing opportunity will arise at the point of sale

The US EMV liability change that went into effect in October 2015 required merchants to upgrade their point-of-sale (POS) terminals to devices compatible with EMV chips, or otherwise assume liability for any losses from fraud. This sparked an unprecedented wave of POS hardware upgrades across the country. The most recent data from VisaV shows that 3.7 million US merchants accepted EMV cards in September 2019, up from 392,000 in September 2015. With the typical lifespan of a POS terminal ranging from 5 to 10 years, the market American is once again entering a major upgrade cycle.

In 2024, we expect a growing number of US merchants to consider purchasing new POS terminals as their current generation devices approach the end of their useful life. This should especially be the case for early adopters who completed their EMV implementations in 2014. We believe the focus on POS will be further strengthened by PCI DSS 4.0, which mandates compliance with several new payment data security requirements by 2025. .

We expect next year to mark the opening of a single in-store entry point for payment processors like Adyen, Stripe Inc. and Cybersource, which have made significant improvements to their POS capabilities in recent years. This may create an opportunity for these traditionally e-commerce-focused payment processors to drive adoption of their omnichannel capabilities.

The dark side of generative AI will target financial services

The potential for generative AI to transform financial services is huge, but the dark side of this technology is emerging as fraudsters use it as a weapon against the industry. Starting in 2023, services like FraudGPT and WormGPT appeared for sale on the dark web, allowing scammers to release large language models (LLMs) for use cases including creating malicious code and producing emails. highly specific phishing attacks. In June, the Consumer Financial Protection Bureau and the Federal Bureau of Investigation warned of the growing risks of cybercriminals leveraging artificial intelligence tools for phishing chatbots and voice and video deepfakes.

We believe that LLMs in the hands of hackers and organized crime networks could accelerate the efficiency and effectiveness of numerous types of fraudulent attacks throughout 2024, especially account takeovers and new account fraud. GenAI could also promote the emergence of synthetic identities (identities that combine real and falsified data elements), improving the ability of criminals to pass undetected through financial institutions’ identity verification processes. Beyond financial account takeovers, we see the impact extending to retailers’ rewards programs, especially in verticals like travel and restaurants. Consider that among merchants who saw an increase in fraud over the past year, nearly a third (31%) indicated they have seen a notable increase in new account fraud, and a quarter say the same of account takeovers , according to Voice of 451 Research. The Company: Customer Experience and Commerce, 2023 Merchant Study.

Encouragingly, we’ve seen recent evidence of fraud prevention vendors making progress with GenAI, both in terms of leveraging it and targeting fraudsters who have weaponized the technology. At a minimum, we expect most fraud prevention vendors to have a GenAI narrative in 2024.

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