For thousands of years, humanity has been evolving how they pay for goods and services. Purchasing items or collecting money was traditionally about the physical transaction, exchanging cash or checks for presentment to the bank for credit. 2020 brought all kinds of challenges and opportunities to that process. With COVID-19, consumers were forced to change how they interact and how they buy goods and services and the market needed to quickly adapt.

Since March 2020, banks moved quickly to embrace digital solutions to increase the physical/health safety of purchasing transactions. This transition was overwhelmingly accepted and adopted by consumers. In the last year, 78% of U.S. consumers reported that personal health safety was the driving factor in determining how they paid for goods and services.[1] This proliferation of new solutions and products in this environment, driven by customers demand, seemingly redesigned the payments sector overnight. It would be fair to say that COVID-19 created an environment in which the payments industry achieved 3-5 years of growth in under a year! Looking ahead, there are several trends to keep an eye on in the payment marketplace. These trends continue to move away from physical methods to newer digital functionality.

The Changing Marketplace

Throughout the past year, many U.S. card issuers have been starting to issue contactless cards. While the types of cards are mainstream in Europe and Canada, contactless cards in the U.S. were predominately for convenience. As the pandemic spread throughout the world, the market shifted to the use of contactless payments to limit the number of physical interactions during the payment process which decreases the risk of illness. Today, more than 18% of debit card transactions are contactless – more than doubling the number of contactless transactions year-over-year (ABA Contactless Card Forum March 16, 2021). Across Asia, these types of transactions are being adopted at a much faster rate than the U.S. due to the perception that they are physically safer and more secure.[2] As we continue through the end of 2021, delivering features that differentiate will create a competitive advantage leading to increased client retention and acquisition.

Real-Time Payment Systems

As payment structures move towards more holistic digital solutions, the speed of collections is approaching real-time. Even payment solutions such as payroll are beginning to migrate to real-time digital solutions. Many consumers and businesses are familiar with real-time payment systems like PayPal and Venmo. In this situation, the company value proposition is the immediate collection of the money due. This significantly shortens the settlement time needed to recoup cash and significantly improves their operating capital position. From a consumer point of view, the immediate transaction provides insight into real-time balances, which significantly improves budgeting and planning. Although real-time payment systems such as Venmo come with plenty of advantages, it is important to consider some of the privacy and security challenges that continue to exist today. In many of the delivery platforms like Shipt or DoorDash, the delivery person can request an “instantaneous” payout for their work. Additionally, there are several platforms available today for traditional payroll that can accelerate this transfer of credit to the employee like earnin, DAVE, and Even.

QR Code Payments

This functionality enables seamless interaction between the user’s phone and mobile payment capabilities. Whether it is a user scanning the business’ QR code for a payment or a business scanning the users QR code for card information, this functionality allows for easy integration with increased safety. This is essentially a different form of a contactless card or mobile wallet transaction.

Pay by Selfie

The transition to digital is moving beyond a physical token as well. In 2018, during the Chinese Singles Day, the equivalent of Cyber Monday and Black Friday, 60% of shoppers paid for their purchases using biometric scans such as selfies and/or fingerprints.[3] In 2021, 2.5 million biometric cards are anticipated to be issued in the U.S..[4] This biometric solution, coordinated with a real-time collection/payment system, allows for safe, secure, and instant payments.

Will the Payments Sector Become the Next Betamax vs VHS Battle?

Monticello Consulting Group is a management consulting firm supporting the financial services industry through deep knowledge and expertise in digital transformation, change management, and financial services advisory. Our understanding of the competitive forces reshaping business models in capital markets, lending, payments, and digital banking are proven enablers that help our clients remain in compliance with regulations, innovate to be more competitive, and gain market share in new and existing businesses. By leveraging our digital transformation capabilities, Monticello guides its clients in the deployment of the latest digital technologies with confidence and resilience.

About Monticello

Monticello Consulting Group is a management consulting firm supporting the financial services industry through deep knowledge and expertise in digital transformation, change management, and financial services advisory. Our understanding of the competitive forces reshaping business models in capital markets, lending, payments, and digital banking are proven enablers that help our clients remain in compliance with regulations, innovate to be more competitive, and gain market share in new and existing businesses. By leveraging our digital transformation capabilities, Monticello guides its clients in the deployment of the latest digital technologies with confidence and resilience.

[1] VISA. (2020). The Visa Back to Business Study. Usa.Visa.Com. https://usa.visa.com/dam/VCOM/global/run-your-business/documents/visa-back-to-business-study.pdf

[2]Patel, B. (2020, April 30). Mastercard study shows consumers moving to contactless payments for everyday purchases. Mastercardcontentexchange.Com. https://mastercardcontentexchange.com/news/ap/en/newsroom/press-releases/en/2020/april/mastercard-study-shows-consumers-moving-to-contactless-payments-for-everyday-purchases/

[3] Liao, R. (2018, November 13). TechCrunch is now a part of Verizon Media. Techcrunch.Com. https://techcrunch.com/2018/11/13/biometrics-payment-china-singles-day/

[4] Gundaniya, N. (2021, February 2). Top 8 Digital payment trends for 2021. Digital Finance Solutions, Ewallet Payment System, Wallet App Development. https://www.digipay.guru/blog/top-digital-payment-trends/