The payment processing landscape has changed dramatically over the last decade with the rise of NFC technology and mobile payment platforms but the industry isn’t gone transforming in response to new technology, competition, and changing consumer demands. Here are some of the biggest trends in the payment industry and how merchant services providers, card issuers, and banks are responding.
An Emphasis on Rewards
Many of today’s consumers place a great deal of importance on rewards which has become a source of competition. Nearly half of consumers have said they are willing to switch primary cards for a higher rewards value for purchases while more than 40% are willing to make the switch for a sizable upfront bonus. Of course, someone needs to pay for the cost of these rewards programs. Interchange fees passed on to merchants through their merchant services provider are higher than interchange fees for traditional credit cards because the interchange fee subsidizes the cost of rewards.
Expanding Payment Networks and Collaboration
It wasn’t long ago that financial technology (fintech) companies were in stiff competition with each other but there is a growing trend toward collaboration that benefits all parties. Smaller fintech companies now supply a large share of the innovation in the payments industry with digital solutions that can partner with major established financial services to respond to today’s consumers.
For example, PayPal and Bank of America worked together to help BoA’s customers link their cards with PayPal and make in-store PayPal payments. Chase Pay worked with LevelUp, a scanner company, to expand its presence in restaurants. This collaboration has also improved the payments experience for consumers with an ever-growing payments ecosystem.
Peer-to-Peer Platforms Are Evolving
Peer-to-peer (P2P) payment platforms have made it easy to split bills and lend money between friends or even make payments to babysitters and dog walkers. A recent survey found that 16% of people between 18 and 24 use a P2P app like Venmo or Zelle at least once a week, a share that grows to 23% of 25 to 34-year-olds. While P2P payment platforms aren’t going anywhere, they are evolving. Most of these providers do not charge a service fee for P2P payments. In an effort to generate revenue, more providers are transforming their services with a consumer-to-business (C2B) option. Venmo and Square already started testing C2B payments in 2017 and Zelle has its own experiment underway.
Alternative Financing Options Are Increasing
Perhaps the first major financing alternative to a credit card came in the form of Bill Me Later in 2000. Now known as PayPal Credit, this proprietary payment method is offered on dozens of major merchant websites like Home Depot, Overstock, and Wal-Mart by offering a line of revolving credit to make online purchases without a credit card.
Not much has changed with the concept in the last 15 years but interest in the concept is increasing thanks to new companies like Klarna and Affirm. Even Square has introduced a new financing option called Square Installments. A recent survey found that over one-third of American e-commerce businesses are planning to offer purchase financing options within the next two years.
Credit Card Processing Infrastructure Is Changing
Payments infrastructure from the last decade simply isn’t made for digital, real-time payment processing nor is it designed for modern anti-fraud measures and API integration. To keep up with changes in the payment landscape, merchants are investing in new infrastructure for credit card processing including credit card machines that support NFC technology and advanced point-of-sale systems that can handle multiple payment types such as Samsung, Apple, and Android Pay, PayPal, and contactless tap-and-pay.