EMERGING TECH IN THE PAYMENTS SPACE by Tony Shap, CPP
The next big thing in card-present authentication is biometric authentication. Relying on physical/biological traits of the buyer — such as facial recognition, iris scanning, or heartbeat analysis — it offers superior security that can be delivered efficiently with a new generation of POS devices.
As the technology behind authentication evolves, new stationary and mobile POS devices will be designed and developed to work with them. Merchants can expect to need to upgrade their POS systems or functionality well before their existing system wears out.
Approvals of credit, transactions, and security challenges are increasingly handled by artificial intelligence, aided by machine learning. Although AI is becoming widespread, it is still only at the early stages of its potential development. Merchant service companies are eager to acquire and apply AI for its ability to be agile and reduce manual hours, which is why companies such as Square and Chase have acquired AI companies in 2021.
A subset of AI is robotic process automation (RPA), which lets intelligent systems determine if certain criteria are met without requiring manual intervention. RPA could save time in areas such as underwriting or risk evaluation and significantly speed up that process for qualified applications.
While cryptocurrencies like Bitcoin are not yet widely used to make consumer purchases, financial organizations expect consumers to look for retail and merchant acceptance in the near future. One point of confusion is that with many cryptocurrencies and a large segment of the consumer population unfamiliar with them, it’s difficult to achieve standardization.
For this reason, financial institutions are looking at less volatile digital currencies such as stablecoins, whose value is pegged to something knowable (not speculative). We can anticipate that as banks adopt ways of handling transactions in stablecoins, companies like Quantum will need to help merchants understand, accept, and process them. One benefit of stablecoins is the potential for making international transactions simpler and instantaneous, so merchants with cross-border transactions will be anxious to accept stablecoins as payment.
We can anticipate that demand for cryptocurrency transactions will begin in 2022 and advance more rapidly in the years beyond.
Advancing Tech in the Payments Space
The proliferation of the use of digital wallets will dominate the next few years. Their secure tokenization is becoming compatible with more and more POS systems. They also enable more and more online purchases and account-to-account transfers. As such, their use will continue to grow dramatically and diminish the public’s use of cash. The top digital wallets in use today are Google Pay, Apple Pay, and PayPal, but there are many more, and we can expect their overall numbers to grow.
Authentication: Card-Not-Present Purchases
Increasingly, multi-factor authentication of purchases is tied to buyers’ phones, with one-time dynamic codes as part of the verification process. This makes purchasing from phones more secure; but even for consumers making online purchases at desktop or laptop computers, phone verification of transactions is becoming more common. While the technology behind authentication will continue to be refined, the growth of online purchases means multi-factor authentication will continue to evolve.
Related to this, 5G phone technology makes apps more secure over wireless networks, and 3G technologies will not be supported.
Authentication: Card-Present Purchases
EMV technology — embedded chips with dynamic coding — are more secure than PINs and have the advantage of enabling contactless purchasing. While EMV is not an emerging technology, the demand for contactless purchasing that it enables is increasing as a health and safety issue for essential workers, so merchants increasingly demand it as a minimum requirement for card-present transactions.
Merchants are demanding mobile point-of-sale technology so that they can take their goods and services directly to consumers rather than wait for consumers to come to their stores. Mobile POS demand is expected to grow by about 20% per year over the next few years.
Anticipated Future Developments
While these are not on the immediate horizon, we should be alert for developments.
Voice Payment Systems
Although penetration of smart speakers in homes is advancing, most consumers report reluctance to purchase over speakers because of security concerns. That said, about 28% of those with such speakers (for example, Google’s Alexa and Apple’s Siri assistants) have sent money or made purchases using their devices, which suggests that consumers would like to have this convenience. Look for developments in securing voice-activated payments, which will cause growth in smart-speaker-driven purchasing.
Blockchain Payment Settlement Systems
As major global banks explore and incorporate blockchain technology to settle transactions, they will find ways to develop blockchain approaches to settle merchant services as well. Blockchain development and acceptance are accelerating and have the full attention of all major banks, making this a future condition to anticipate at the retail level.
Virtual Reality Shopping
Potentially, consumers could shop in a store without actually being present by the use of VR headsets. This is most likely where retail environments position themselves as destinations or experiences, or when inventory would traditionally be viewed in person before making a purchase because of complexity or expense. Purchases made during a virtual visit will need secure payment systems with the ability to trigger the delivery of goods IRL.
Tony Shap, Quantum’s Payment Technology Officer, has spent more than a decade as an electronic payment expert, helping businesses of all sizes grow by using automated payment systems to accelerate their financial success.