Alexa Serra  ·  June 20, 2023 

What Does The Future Hold For Online Payments?

Payment technologies keep advancing as FinTechs keep popping up, emerging technologies change the online transactions landscape, and users demand better and faster online banking services.

Payment technologies keep advancing as FinTechs keep popping up, emerging technologies change the online transactions landscape, and users demand better and faster online banking services. But what does the future hold for online payments?

Even if it may sound evident by now, we’ve said it before, and we’ll say it again: online payments have revolutionized the way we conduct financial transactions. They provide a convenient, fast, and–ideally–secure way of carrying out monetary exchanges for goods and services within the digital realm. So, it’s no wonder that in today’s fast-paced and interconnected world, online payments have become pivotal for most of our daily online activities. Moreover, they have evolved from simple bill payment enablers to gateways that allow us to shop on e-commerce platforms, transfer funds to the other side of the world with little to no extra fees, and even pay for a cup of coffee instantly with just the swipe of a finger. So, yes, the modern digital payments realm offers a plethora of options for conducting financial transactions. However, as our world becomes increasingly digitized and consumer behaviors evolve, we can’t help but wonder how the online payments landscape will unfold and what key factors, if any, will influence its future.

Since we think that the future of online payments holds tremendous potential for transformation and innovation, we decided it would be interesting to explore all the exciting possibilities it holds. So, in this article, we’ll dive into what’s to come for online payments, examine some of the main advancements, and discuss how they will shape how we transact online. Let’s get started!

The current state of online payments

The current state of online payments

Currently, and ever since the COVID pandemic hit, online payments are the preferred way of transacting; we now rather pay for things online than use cash or physically go to the bank. This behavior reflects the rapid and efficient digitization of financial transactions and our increasing demand for more convenient and secure payment methods. That, coupled with the proliferation of e-commerce platforms, which allow us to shop from the comfort of our homes or on the go, has made online payments our go-to method of purchasing goods and services. In fact, digital payments are estimated to reach $9.46 trillion in total transactional value by the end of this year and a whopping $14.78 trillion by 2027, showing a projected annual growth rate of nearly 12% in 4 years.

These numbers come as no surprise, especially when we see more innovative solutions such as digital wallets, FinTech startups, blockchain technology, and mobile payment apps like PayPal and Venmo become staples among users looking for seamless and safe online transactions. Yes, we know these technologies and tools have been around for some time now (actually, digital wallets were among the top three most used payment methods in 2021). And we also know that the rise of mobile payments is nothing new, or at least not exclusive to 2023. However, the truth is that the online payment landscape is poised for significant transformation; it is rapidly evolving, and advancements in technology and innovation are increasingly driving its adoption. So, where does that leave the future of online payments? Here’s what we at Foonkie Monkey think lies ahead for online payments.

The rise of financial inclusion

The rise of financial inclusion

As online payments become more and more widely adopted and physical cash usage is waning, some people are bound to get left out of the digital transactions wave. In fact, research by The World Bank shows that 76% of adults worldwide have a bank or mobile account, which is a good figure but still leaves 24% of the population needing access to banking services. In a perfect world, we’d be at 100%, of course. Still, with the rise of online payments, there’s a chance to bridge this gap and promote financial inclusion, ensuring everyone, businesses included, has access to all basic financial needs.

Financial inclusion is crucial for our modern digital banking ecosystem because it aims to ensure the availability of affordable, accessible, and reliable financial services to all individuals, regardless of their age, gender, socioeconomic background, or geographical location. We predict that online payments will become catalysts for financial inclusion because they offer digital alternatives to traditional banking that have the potential to empower people to open digital products and access online banking services in a more secure, convenient, and efficient way. Furthermore, most mobile apps, digital wallets, and payment platforms allow users to perform all the activities they would carry out in a physical bank branch without needing one, meaning that even the unbanked population can start participating in digital economic activities.

Nonetheless, it’s worth noting that while online payments can potentially drive financial inclusion, there are still countless infrastructure and connectivity challenges in some rural and underserved areas of the world. In these areas, there’s a significant lack of internet access, minimal digital literacy, and non-existent technology infrastructure, all of which pose substantial barriers to adopting online payment solutions for people residing in or visiting these zones. So, even though payment solutions seem to be advancing at neck-breaking speeds and are becoming increasingly accessible, seamless, and widespread across various industries, their future as promoters of financial inclusion still look grim for some underdeveloped areas, which makes it essential for governments, financial institutions, and technology companies to take the necessary steps to improve connectivity and provide realistic solutions that address the internet needs of all underserved areas.

Central Bank Digital Currencies (CBDCs) will become widespread.

Central Bank Digital Currencies (CBDCs) will become widespread.

Digital currencies and blockchain have been trending as crucial components for the FinTech ecosystem for some years now and with good reason. They’ve provided a tamper-proof and transparent way of preventing fraud in digital transactions and streamlining payments by reducing the need for intermediaries and enabling faster, more secure, and cost-effective transactions. However, and in part as a response to digital currencies, the new era in online payments brings us the rise of Central Bank Digital Currencies (CBDCs).

Central Bank Digital Currencies (CBDCs) are national digital assets issued and regulated by governments or central banks. They are commonly fixed to that nation’s existing fiat currency (euro, dollar, peso, etc). They are centralized, operated, and controlled by the aforementioned central entity, which has full authority over issuing, distributing, and regulating CBDCs. They will likely become pivotal for the future of online payments because they provide most of the benefits of blockchain plus some additional ones of their own.

For one, they negate the need for decentralized currencies because, since central authorities oversee these assets, they operate within regulatory frameworks, have the power to provide heightened security, and can implement the necessary measures to ensure the transparency and integrity of all online transactions. Secondly, CBCDs are subject to regulatory frameworks and compliance requirements established by central banks and governments, meaning they’re inherently designed to meet policies, laws, and regulations such as anti-money laundering (AML) requirements. Finally, they can also handle large transactional volumes and process payments quickly, making them a great alternative, or even complement, to the blockchain.

Open banking, anyone?

Open banking, anyone?

As we’ve mentioned before, the world’s banking activities have been almost exclusively moved to the digital realm. This means that, for those services to be efficient and fully functional, there has to be access to open data so that there’s secure and effective data sharing and collaboration between financial institutions, FinTech companies, app developers, and users. Here’s where open banking starts gaining traction as a critical component of the future of inline payments.

Open banking refers to allowing third-party financial service providers to access users’ financial data from different financial institutions, with their consent, via open banking APIs. Thanks to promoting the sharing of users’ financial data such as credit card payments, bank account transactions, purchases, spending history, and other financial information with trusted banking and non-banking organizations, open banking helps increase competition, customization, and innovation in the financial industry, provides greater transparency, and gives users the control over their financial data, to name a few.

Open banking is already revolutionizing how digital financial services operate. Still, with the fast proliferation of its APIs and with technologies such as AI becoming more pervasive, it now has the potential to transform the online payment ecosystem in years to come altogether. It is bound to keep creating new opportunities for personalization, innovation, and financial inclusion by promoting a more comprehensive portfolio of online services, such as highly user-friendly apps and software, contactless payments, digital wallets, blockchain-based transactions, and simpler payment gateways, to name a few. As a result, businesses, users, app developers, and financial institutions can start to improve the online experiences they provide, helping create a more transparent, inclusive, and efficient financial ecosystem that ultimately caters to everyone regardless of their geographical location, age, or socioeconomic background.

Buy now, pay later (BNPL)

Buy now, pay later (BNPL)

Part of what makes online payments so popular and convenient is their flexibility. Now imagine that flexibility paired with affordability, an enhanced user experience, and a simplified payment environment. Sounds great, huh? That’s what the “Buy Now, Pay Later” (BNPL) model promises…and delivers.

This interesting and innovative approach to online payments allows users to purchase goods and services by splitting the cost into installment payments. These installments, which are typically interest-free, are chosen by the user and are so convenient to pay that BNPL is rapidly becoming the preferred payment method, even over debit and credit cards and personal loans. In fact, the buy now, pay later market should grow by 25.5% to reach a total of $94.9 billion by the end of 2023. What’s more, by 2024, it’s expected to rise by 18.2% and surpass the $100 billion mark to hit a staggering $112.1 billion!

This “recent” rise in the popularity of BNPL services–with companies such as Klarna and AfterPay already being big players in the BNPL game–is poised to play a highly transformative role in the future of online payments and is, in fact, already disrupting traditional payment methods in a lot of e-commerce sites. Internet behemoths such as Amazon and eBay have implemented BNPL in their checkout processes very successfully, and we predict a lot of companies following suit in upcoming years, which comes as no surprise when you look at the many benefits BNPL brings to the table for all stakeholders, some of which are:

  • Increased flexibility: BNPL allows users to purchase goods and services without the financial burden of having to pay hefty amounts upfront.

  • Increased convenience: BNPL streamlines the checkout process so users can choose their payment scheme directly with online retailers, with no banks, loans, or credits needed. There’s also no need for credit card information or lengthy forms, and most BNPL services offer interest-free installment plans, making them a highly convenient alternative to traditional credits.

  • Easy access to credit: BNPL allows users who may not have access to traditional bank loans to get financing options that don’t require application forms or credit history.

  • Increased sales: BNPL systems can tempt customers to make large purchases, which for merchants, can lead to higher sales due to the increased affordability and flexibility they provide.

Thanks to these and many other perks, the “Buy Now, Pay Later” model has the potential to be a reshaping agent in the future of online payments. It is a foolproof way of offering users a highly flexible, convenient, affordable, and straightforward way of paying for their purchases by spreading out the cost over time, which serves to not only enhance the online payment user experience but also promote financial inclusion and empowerment. And, as the popularity and widespread use of BNPL continues to rise, the online payments universe becomes a more inclusive, user-friendly, and secure place.

Closing statement

Closing statement

As of right now, online payments are already experiencing massive development, growth, and widespread adoption, which makes us think their future holds tremendous potential for transformative advancements. As physical banking services seem to be on the wane in most cases, and as FinTech startups keep blossoming and financial technology continues to evolve, we can expect to see essential innovations and advancements in areas such as open banking APIs, digital currencies, e-wallets, blockchain, customer service, and BNPL services. This shift towards more advanced, convenient, widespread, inclusive, secure, and user-friendly online payment avenues will indeed signify the reshaping and transformation of how we experience and perform financial transactions.

Moreover, and for the future of online payments to actually be as bright as we predict, there are some challenges, such as data privacy, security risks, infrastructure concerns, and connectivity issues in some areas, that we must address in order to guarantee that the benefits of online payments reach everyone and strike the right balance between innovation and financial inclusion.

We at Foonkie Monkey have ample experience implementing online payments into our FinTech apps and understand the importance of providing convenient, secure, and inclusive solutions. So, if you want us to make your idea a reality or have any questions about this article, please contact us!

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