Cash payments have been on the decline. Well not surprising seeing that 41% of the US population claimed they don’t make payments with cash in a regular week.
The data should not be quite surprising though, seeing that going cashless was propelled by COVID-19 and the aftereffects of rapid digitalization that still continue to boost the global economy.
Amid this cashless world, cash registers also digitalized and transformed from that age-old jingling cash register to its digital counterpart — the payment gateway. Therefore, payment gateways are a type of merchant service that handles credit card processing for both traditional brick-and-mortar establishments and e-commerce websites.
The proliferation of these new digital technologies has been driven by a consumer desire for electronic and mobile commerce as well as contactless devices including wearables, wallets, mobile phones, and cards. Customers now expect more efficient and fast payment options owing to the development of faster and more secure mobile phones.
The downstream pressure on merchant fees levied by card processors and the emergence of less expensive alternatives offered by fintech firms like Paypal are further factors influencing the adoption of online payment services.
For instance, the US Census Bureau of the Department of Commerce recently published its fourth quarterly report on retail e-commerce sales. The global e-commerce sales for 2022 were estimated to be USD 1,034.1 billion, a 7.7% rise from 2021. Also, from 2021 to 2022, the total retail sales increased by 8.1%. Moreover, 14.6% of all sales in 2022 were generated by e-commerce.
A new customer requirement has emerged as a result of the demand for quick digital payments. The Second Payment Services Directive (PSD2) has also altered the payment landscape, with new instant payment providers like e-wallets potentially challenging established payment methods in the marketplace. Hence, the convenience of use and quick access to funds are two key elements influencing the popularity of instant payments.
When a consumer makes a purchase of products or services, the gateway transmits the customer’s encrypted payment information to the payment processor. The gateway always encrypts the data it sends and receives. When a transaction is accepted or declined, the payment processor informs the bank that issued the card.
The payment processor then notifies the payment gateway of the authorization or refusal. The customer or the merchant that initiated the transaction receives approval or declines from the gateway. If approved, the money is transferred out of the customer’s account and sent to the merchant’s checking account. Merchants can post transactions in batches or one at a time.
Businesses will continue to undergo a transformation as a result of the development of new payment rails that enables quicker, and more effective real-time payments for B2B transactions. Also, real-time cross-border payments will benefit from the global adoption of the ISO 20022 messaging standard, which will also be expected to improve security and compliance on a global scale.
ISO 20022: The society for Worldwide Interbank Financial Telecommunication (Swift) will roll out ISO 20022 in March 2023. Financial Institutions must have the ability to receive ISO 20022 payment messages as of that date. Any messages sent and received after November 2025 must be based on ISO 20022.
The US FedNow payment service, which will be launched by the US government in Q2 2023, seeks to give clients next-generation, cutting-edge, and fast payment options. To provide sufficient flexibility to handle next-generation, real-time payment types, banks will likely start to take strategic moves toward infrastructure upgrades.
This effect is expected to trickle down to businesses with the advent of 2023 and the new standards set in place.
Payment gateways will inevitably streamline and automate the payment process. Businesses may find it simpler to interact with other payment services and systems, such as payment processors and payment orchestrators if they have a payment gateway. Payment services can automate the optimization of transaction approvals, boosting income and fostering better relationships with clients.
In the domain of payments, Web 3.0 can be used to provide users with more intelligent and personalized payment experiences. Moreover, Web 3.0 technologies like smart contracts and blockchain can be utilized to create more transparent and secure payment systems. These technologies make it possible to create immutable, decentralized payment networks, allowing for secure and transparent tracking of payment transactions.
Payments and securities, which serve as the foundation of Decentralized Finance (DeFi) and cryptocurrencies, are two developing uses of Web 3.0 in the financial services sector. Cryptocurrencies have experienced rapid development, surpassing the value of all in-circulation Euro banknotes, which was about €1.5 trillion in February 2022, with a total market capitalization of $1.92 trillion.
Payment delays are a result of the current cross-border payment system’s problems with middlemen, lengthy transaction paths, and laborious screening procedures. By linking international banks, Web 3.0 technology will aim to enhance this, making the system more effective, inexpensive, and interoperable, leading to easier liquidity management and treasury operations.
The API connectivity between Web 3.0 and Web2 formerly hindered the adoption of Web 3.0, but recent advancements in API connectivity will open up new possibilities for open banking in the Web 3.0 ecosystem.
Web 3.0 technologies have the ability to provide users with more sophisticated, individualized, and secure payment experiences. Although these technologies are still in the research and acceptance stages, we believe that they will become more extensively utilized in the upcoming years and represent a payment trend that early adopters could find interesting.
Did you know that by 2021, almost 43.5% of American consumers wanted to access their accounts primarily using mobile banking, making it the most widely used banking mode? Moreover, 61% of consumers utilize online banking services at least once each week.
Through the integration of APIs, the Banking-as-a-Service (BaaS) architecture bridges the gap between conventional banking and online banking. The ability to provide their consumers with access to a range of financial services like account opening, money transfers, and credit card issuing will be made possible. This is owing to the liberation of fintech companies of the obligation to create and run their own banking infrastructure.
BaaS may help fintech firms by enabling them to quickly and easily expand their service offerings, as well as banks by providing them with a new revenue stream and a method to connect with new clients. We predict that BaaS will become the preferred banking go-to model as more and more fintech companies look into ways to offer their customers a wider range of financial services.
Wrapping Up Payment Gateways
Our prediction for 2023 is that it will be all about making payments for customers extremely frictionless, both online and offline, courtesy of the rapidly growing markets for digital wallets, P2P apps, and payment gateways.
Payments will also be safer and more personalized for customers with the rise of Web 3.0 and new cybersecurity techniques. We are optimistic that there will be great innovation and competition in the year to come as payment gateways improve to become more convenient and consumer-focused.