In 2020, the line between the online and offline worlds blurred as the digital economy became the business norm. The pandemic accelerated the adoption of digital payment methods and significantly changed consumer behaviour. As a result, industries and ecosystems rapidly adapted to the new reality.
Fast forward to now, digital payment transactions are projected to reach a staggering $9.68 trillion, thanks to the continued growth of digital wallets, virtual cards, and open banking. These advancements have made payment methods more versatile, faster, and secure.
Digital payments are now embedded into consumers’ daily lives, with access to mobile devices providing both convenience and efficiency. If merchants are to retain existing customers and attract new ones, they must continue to embrace new payment methods.
Digital Wallets Are Gaining Traction
A digital wallet stores a user’s credit and debit card information on a mobile device, such as a phone or watch. It’s estimated that by 2026, 5.2 billion people will use digital wallets to make payments. That’s more than half of the world’s population using digital wallets in just three years. Interestingly, QR codes are expected to account for 40% of these transactions.
Digital wallets offer convenience and flexibility by allowing users to link multiple payment cards or other payment methods, and easily choose their preferred option for each transaction. In addition to digital wallets, contactless card payments have become increasingly popular, with the percentage of contactless card payments at point-of-sale in Europe rising from 41% in 2019 to 62% in 2022, according to a study from the European Central Bank.
Digital wallets benefit retailers by increasing conversion rates and lowering cart abandonment. Research suggests that the online average for cart abandonment in 2022 was a shocking 70%, with a significant proportion of customers saying that a complicated checkout process causes them to give up. Digital wallets expedite the payment process, making it more straightforward and convenient and ultimately reducing basket abandonment.
Improving Cash Flow with Virtual Cards
Virtual cards are unique as they generate a new long virtual card number (VCN) for each transaction. These cards are linked to the user’s bank account, as with traditional debit cards, and are growing in prominence for corporate purchases. In 2021, the global market for virtual cards reached $11.7 billion, and it is set to grow at a compound annual growth rate (CAGR) of 21% to $65 billion by 2030. Many major banks, including Citi, Capital One, and HSBC, now offer virtual card services to their customers.
Virtual cards provide many benefits for B2B payments, including increased control, with 37% of C-suite leaders stating that it was easier to manage spending. The most significant benefit, though, is the improved security that a dynamic VCN brings, as even if the card’s details are exposed in a data breach, these same details cannot be used to make any further payments. Virtual cards have existed for many years, and it’s fair to say they have had a slow burn. Still, the security and control they deliver will encourage greater adoption in the current tumultuous economic climate.
Unlocking Opportunities with Open Banking
Open banking continued its upward trajectory, with the number of active UK users reaching 7 million in February this year. Customers can initiate payments to merchants through their online banking or mobile banking app. This increases both the speed and efficiency of payments, reducing checkout time for the consumer and processing time for the merchant.
Crucially for merchants, open banking payments deliver instant settlement, supporting improved cash flow. Our Merchant Perceptions report revealed one in four (25%) merchants predicted open banking will become the most popular payment method among consumers within five years’ time.
Another key benefit of open banking is the significant decrease in payment fraud, as much as 34%, as found in our research. This is due to the enhanced security measures in place for open banking payments, which seamlessly comply with Strong Customer Authentication (SCA) regulations and often involve biometric verification through a mobile device, providing added protection for both merchants and customers.
As technology and consumer demand continue to disrupt the market, this year will undoubtedly see further digital payment technology innovation. If merchants continue to adopt payment methods aligned with a better consumer experience, they will improve consumer satisfaction with the checkout process and reap the benefits.