Key developments and forecasts in the payment sector for 2024

The payments sector stands out as a dynamic and innovative force in the global economy, continuously adjusting to the evolving needs and preferences of consumers, businesses, and regulatory bodies.

Recent years have seen substantial transformations, with enhanced user experiences and real-time account-to-account payments gaining popularity among online shoppers and merchants.

The evolution of payroll software tools is also notable, providing a range of services, including direct payments and automated accounting, which differ significantly from just a few years ago.

Despite the challenges posed by COVID-19 in the recent past, the industry has rebounded with a positive trajectory. McKinsey's projections suggest that payments revenue is poised to surpass $3 trillion by 2027. The sector is marked by intense competition and diversity, with various stakeholders such as banks, payment service providers, and merchants actively seeking a share of the value and opportunities.

As we step into 2024, we delve into the upcoming trends and forecasts in the payments industry. These insights are gleaned from various industry experts and reputable sources.

Top 5 Payment Industry Trends

5. Instant Payments Will Take a Dominant Trajectory

Instant payments, also referred to as real-time payments, have been a longstanding concept, but their adoption is gaining momentum in the United States and Europe. This surge follows the 2023 launch of the "FedNow Service" by the US Federal Reserve, establishing an instant payment infrastructure that enables financial institutions to provide real-time payment services to customers, regardless of the time of day. According to experts from IXOPAY, this trend aligns with the global shift toward open banking, facilitating account-to-account (A2A) payments and innovative payment methods that circumvent traditional credit cards. Enhanced by digital wallets and an improved user experience, real-time account-to-account payments are becoming an increasingly appealing choice for both online shoppers and merchants. Additionally, advanced payroll software tools empower companies to execute direct payments to employees, ensuring prompt salary deposits into their bank accounts.

Nilesh Vaidya, the Global Industry Head for Retail Banking and Wealth Management at Capgemini, highlighted to Techopedia that "real-time payment systems utilizing daily batch processes are swiftly replacing traditional cash management and payment reconciliation methods." He envisions that real-time treasury services will play a pivotal role in enhancing competitiveness and fostering growth for payment firms in the coming months.

4. AI Will Transform Revenue Recognition and Billing

Artificial intelligence (AI) is anticipated to bring about a significant transformation in how finance departments manage revenue recognition and billing. However, according to Tom Zauli, Senior Vice President and General Manager at SOFTRAX, implementing AI won't be a straightforward plug-and-play solution. Zauli emphasized that the effectiveness of AI relies on properly configured and integrated underlying data sets.

He stated:

"While there will be considerable discussion around AI and the back-office, genuine transformation will occur when companies incorporate the technology into a comprehensive, long-term strategy."

Zauli outlined a four-step approach for finance teams looking to utilize AI for payment automation. The first step involves concentrating on processing within functional areas like accounting, billing, and revenue recognition, with the aim of eliminating spreadsheets and customizations.

The second step emphasizes ensuring a seamless data flow between modules by employing a transformation layer to handle business-specific scenarios, missing data, and error conditions.

The third step involves automating processing between functional areas, such as reconciliations and approvals, through the use of robotic process automation. The fourth and final step introduces machine learning and AI to identify invalid data entries and provide data analytics.

This perspective aligns with Anna Kuzmina, Founder at What the Money, who believes that artificial intelligence is on the verge of finding practical and innovative applications in fintech. According to her, AI is moving beyond mere hype to become a fundamental element of fintech solutions.

3. Embedded Finance to Gain Wide Adoption

According to the 2024 payment trend Whitepaper from NMI, the adoption of embedded payment technology is expected to expand this year across various platforms and industries. The growth of embedded payments will be particularly driven by the increasing prevalence of social commerce, which utilizes social media platforms for promoting and selling products and services.

Corroborating the findings of the NMI report, Lasma Kuhtarska, Strategic Consultant at Noda, shared with Techopedia that embedded finance is becoming more widespread and is anticipated to continue gaining traction in 2024.

She stated:

"Open banking will facilitate embedded finance solutions, seamlessly integrating financial services into non-financial platforms. This integration will lead to a more unified and personalized financial experience for consumers."

Embedded finance involves incorporating financial services into a non-financial platform or experience. Examples include Amazon offering insurance services or an M&S credit card. This approach not only opens up new revenue streams but also provides opportunities for platform providers to utilize data and insights for delivering personalized and value-added services to their users.

2. Digital Currencies Will Gain Momentum

Digital currencies, which encompass electronic forms of money facilitating value storage, payments, and the exchange of goods and services, emerge as a prominent trend in the payment industry for the upcoming year. This category includes two primary types: cryptocurrencies and central bank digital currencies (CBDCs).

Despite initial skepticism regarding the future of blockchain and cryptocurrencies, experts predict that CBDCs will play a pivotal role in shaping the payments landscape in 2024. According to a Bank for International Settlements (BIS) survey highlighted by Reuters, twenty-four central banks from both emerging and developed economies are anticipated to embrace digital currencies by the end of the decade.

The Wall Street Journal further reported that central banks in 114 countries, representing 95% of the global GDP, were in various stages of launching their national digital currencies as of the previous year.

Presently, several central banks have already implemented their digital currencies. Notable examples include the People's Bank of China with the Digital Yuan, The Bahamas with the Sand Dollar, the Central Bank of Nigeria with the e-Naira, the Eastern Caribbean Central Bank with DCash, the Bank of Jamaica with JamDex, the Reserve Bank of India with the Digital Rupee, and the Bank of Russia with the Digital Ruble.

1. ISO 20022 Adoption Will Accelerate

The global standard for electronic data interchange between financial institutions, ISO 20022, is poised to transform the payments landscape. The journey toward adopting ISO 20022 is already underway, with numerous market infrastructures in the Asia-Pacific region taking the lead.

Swift recently reported that momentum is expected to increase in 2024, as several domestic markets, including the US (CHIPS), Southern African Development Community (SADC), Hong Kong (CHATS), Romania (ReGIS), and Macau (SPTR), have announced plans to embrace ISO 20022.

Accenture also anticipates that new features like charges and E&I (inquiries and investigations) will be added by November 2024, enhancing the efficiency and transparency of cross-border payments.

Swift is expected to play a crucial role in expediting the implementation of ISO 20022 to facilitate a seamless transition by the end of November 2025.

In North America, a significant player in the global payments ecosystem, preparations for migration are underway in the first half of 2024. This move is likely to act as a catalyst, encouraging other regions to accelerate their adoption plans, according to predictions from Accenture.

The Bottom Line

The global payments industry is on the brink of substantial transformation in 2024. The ascent of digital currencies, progress in artificial intelligence, and the widespread use of mobile payment platforms are all anticipated to reshape the landscape significantly.

The dynamics of regulatory changes and the increasing emphasis on data security will also be pivotal factors. However, the success of these advancements hinges on their broad adoption and their ability to effectively address privacy concerns.

While the underlying principles of these trends and predictions hold merit, the critical question lies in how they can be translated into payment solutions that are seamless, secure, and inclusive, meeting the demands of our progressively digital society.