April 15, 2024

The adoption of digital payments displaces traditional methods

As 2024 progresses, digital transformation continues its march into increasingly nuanced areas of our daily lives, and payment experiences are no exception. Tech-savvy millennials and Generation Z consumers are driving systemic change in the way consumers pay. By engaging with new financial services and digital payments offered by various brands, financial institutions (FIs) and FinTechs, these consumers are validating many of the most extraordinary achievements in the payments space.

However, this has also created a peculiar challenge for payment providers: these same consumers are now setting the tone for expectations about payment experiences, and their thirst for fast, secure, transparent and low-cost payment options is forcing to a reckoning around the world. financial industry, one that rewards agility, flexibility and accessibility.

Cash out: Millennials and Gen Z push for digital payments

Cash is rapidly losing its supremacy. Amid the current global rise in digital culture, young consumers are increasingly opting for digital wallets and other payment alternatives, forcing businesses to pivot toward digital and contactless payment methods and take into account the spirit digital that drives its popularity.

More than 8 out of 10

Digital payments are posing an arduous task that small businesses must master.

With 85% of Generation Z and 82% of millennial consumers clamoring for contactless digital payments, many small businesses have been forced to scramble to keep up. A worrying 27% are stuck in a traditional payments rut, highlighting a major misstep with a key consumer trend. If businesses want to thrive, they must not only stay on top of tomorrow’s shoppers, but also adopt the digital payment methods they prefer.

Americans are rebooting their wallets and everything is digital.

Digital wallets are no longer a trend but a reality of the American payments landscape. More than half of American consumers are swapping leather for pixels, driven by a staggering 91% of Gen Z consumers, who are the most likely to adopt digital payments. Make no mistake, though: Millennials and Generation X are also joining the digital movement, transforming the way Americans pay.

Cash cools as consumers move toward digital payments.

24% of American adult consumers are already exchanging cash for digital alternatives. Meanwhile, 3 in 5 consumers, including 7 in 10 millennials, envision a future in which all payments will be digital. As the sun sets on traditional payments, the onus falls on banks and financial institutions to take advantage of the digital day. The question is: will they increase over time?

Banks and FinTechs are transforming old forms of payment

The wave of digital payments is sweeping the financial sector, forcing traditional banks and financial institutions to adapt or perish. Competition from payments FinTechs and even retail brands themselves is pushing financial industry stalwarts to reinvent their approach to payments, and even re-evaluate long-standing retail banking models.

94%

Brands are betting on financial services and it is working.

Traditional banks are no longer the preferred choice for financial services. A recent Vodeno/Aion Bank survey reveals a profound shift in consumer behavior: 52% of European consumers aged 25 to 34 are abandoning old-school banks for the convenience of financial products offered by brands . This trend highlights a growing chasm between traditional banking practices and the digital preferences of Generation Z and millennial consumers.

Banks are preparing for a payments technology showdown with FinTech.

The battle lines have been established. Traditional banks, besieged by the relentless advance of FinTech, are responding by embracing innovation. Recent research shows that almost all banks (94%) are about to invest in modern payment technologies. This pivot is not simply a response to FinTech challenges, but a survival strategy for the traditional banking industry, lest it cede even more ground to these agile rivals. The move is especially crucial as bank-based payments promise to usher in an entirely new disruption to the payments ecosystem.

High-speed payments: payment by bank is about to change commerce

More than just the art of paying is on the drawing board. The underlying concept of transactions themselves is being redesigned by advanced payment technologies. From bank payment tools to the collaborations behind them, the payments industry is witnessing rapid adoption of these unprecedented technologies in everyday commerce.

Bank payment solutions

Banks could be at the helm of the next digital payments revolution.

Account-to-account (A2A) payments, also known as bank transfer payments, could be the new future of payments. This method bypasses the usual debit and credit card networks and instead transfers funds directly between bank accounts, usually in real time. This not only reduces the cost of transactions but also minimizes the risk of fraud by eliminating the need for users to share sensitive data such as credit card numbers.

Despite the advantages of paying by bank, the method has yet to reach its potential: only 36% of consumers used it in the last quarter. The main obstacle to its use arises from the lack of knowledge of its availability. PYMNTS Intelligence recently revealed that about 33% of Gen Z and about 24% of millennial retail banking consumers are unaware of their banks’ A2A payment options. Banks now face the difficult task of increasing consumer awareness of their innovative in-house payment solutions, a crucial step toward achieving broader adoption.

“HSBC goes beyond traditional banking norms.”

HSBC’s new international bank payment app, Zing, is more than just a payments product. It’s a statement. By stepping onto the global digital payments stage, the banking giant is challenging FinTech heavyweights and taking an agile approach to addressing changing consumer demands. Zing’s universal accessibility underscores a broader banking industry trend that is accelerating: innovating and adapting to consumers’ insatiable appetite for fast, secure and flexible payment options… or the opposite.

Chase and Mastercard team up to reshape e-commerce payments.

The partnership between JP Morgan Chase and Mastercard aims to improve and optimize the US payments infrastructure. Their jointly developed pay-per-bank tool combines open banking technology with automated clearing house (ACH) capabilities, offering businesses retailers an unprecedented bank-based payment solution that reduces payment processing costs by up to 80% and increases efficiency for e-commerce merchants. . Still, despite their availability and potential benefits, transformative payment experiences like bank pay remain largely unknown to consumers.

Retail checkouts are updated with digital payments with bank payment options.

The retail payment experience is receiving a digital makeover, exemplified by the integration of Link Money’s bank payment solution by e-commerce solutions provider Bold Commerce. This partnership not only opens the door for retailers to take advantage of the efficiencies of open banking payments, but also represents a win for consumers who prefer fast, secure and flexible payment methods.

Strategies for 2024: Proactive steps to start digital payments adoption in the new year

Rapid advances in digital payment technologies over the past year have profoundly reshaped the payments industry. As we approach 2024, payment processors and traditional banks and financial institutions face critical challenges. These include:

  • Seamlessly integrate advanced technologies such as blockchain and artificial intelligence (AI) into existing, often obsolete, systems.
  • Navigating a fiercely competitive market where consumer loyalty depends more on service quality and user experience than brand loyalty.
  • Striking a delicate balance between meeting consumer demands and improving their payment experiences

The growing demand for fast, secure and frictionless payment solutions not only presents a substantial opportunity, but also requires a strategic recalibration on the part of providers: a new payment resolution.

PYMNTS Intelligence prescribes the following actionable roadmap:

  • Expand the reach of digital literacy: Address the digital knowledge gap by investing in consumer education programs to raise awareness about digital payment options. Focus on the benefits and security features of these new payment methods to build trust among consumers, especially among demographic groups less familiar with digital payment methods.
  • Embrace consumer-centric innovation: Drive innovation by keeping consumer preferences and behavior at the center of your digital payments strategy. Use data analytics to decode consumer spending patterns and create digital payment solutions that specifically meet these needs.
  • Build a digital payments ecosystem: Prioritize the development of integrated digital payment platforms that seamlessly connect consumers with a multiplicity of payment options. This should include a mix of traditional and modern payment methods, from credit cards to mobile wallets, A2A options and potentially even cryptocurrencies.
  • Leverage AI to deliver personalized experiences: Deploy artificial intelligence to analyze customer data, predict preferences, and offer personalized payment solutions. We’re in the early days of AI, but it can already help design flexible payment plans or recommend preferred payment methods, thereby improving customer satisfaction and building loyalty.
  • Explore strategic partnerships: Forge strong collaborations with retail, FinTech and FI brands. These relationships can lead to innovative payment solutions (for example, integrated bank payment tools or enhanced digital wallet functionalities) or, at a minimum, help foster new perspectives that drive advanced payment solutions. The strategic partnership between JP Morgan Chase and Mastercard exemplifies this potential.

The changing pace of digital payments is a dance of industry innovation and consumer expectations. As we experience a transformation unparalleled in history, one thing is certain: we are not simply witnessing the last waltz of cash, but a tango toward the era in which digital payments orchestrate every heartbeat of commerce.

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