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Role of Digital Payment Solution in Transaction Processing

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Since the dawn of the global pandemic, digitisation has increased exponentially. It has significantly changed how consumers complete payments with analogue payment methods steadily declining. They are being replaced by electronic and card payment methods which are quickly increasing in popularity. Meanwhile, alternate payment methods like cryptocurrencies and instalment loans are primed to take over the market in the near future.

As competition increases in the market, a digital payment solution integration can help businesses maintain a competitive edge, diversify their revenue streams and set themselves apart from the competition.

What are Digital Payments?

Digital payment is a broad term that encompasses the transfer of digital currency or money from a consumer account to a merchant solutions account using a mobile payment app or digital wallet. They are also called electronic payments or e-payments.

Digital Payment Technologies:

A digital payment solution refers to any technology that simplifies digital payments using Artificial Intelligence and Machine Learning. With consumers making more and more transactions using their cards, payment apps or mobile wallets, machine learning helps analyse these experiences and upgrade them over time. This ensures enhanced customer experience and improved security and fraud protection. Contactless e-payments run on NFC and MST (magnetic secure transmission) technology. NFC helps create a wireless connection between two smart devices.

Several different payment methods qualify as digital transactions.

1. Open banking APIs:

APIs (application programming interfaces) help legacy banks share information and data with each other using a third-party app. APIs help businesses (BaaS, B2B or B2B2C) embed their products into the platform of a non-financial company. An open banking provider helps in unlocking new streams of revenue by levying charges for services that clients use. They can create data-sharing deals among partners instead of or above these charges. They can also derive insights while working with clients which can help improve their key offerings. In early 2021, only 30% of FIs (financial institutions) reported using APIs. This was due to the resistance to change by existing legacy infrastructure. With modern financial and payment infrastructure like gateways and terminals, this problem won’t exist.

2. Biometric verification:

Biometrics refer to any unique identifying personal trait like a fingerprint, face scan, retina scan or digital signature. Biometric verification includes using any of these traits to identify themselves to a device to gain access.

In the financial service industry, biometric verification is a security measure that mobile apps and e-payment agents use for authenticating transactions. For instance, a smartphone can share data with a payment request which includes behavioural biometric data. The additional signals increase the security and fraud protection around each transaction by recognising any inconsistencies in payment behaviour or biometric data.

3. Distributed ledger technology or Blockchain technology:

Distributed ledgers are databases that exist in a decentralised manner across multiple locations. Most businesses use centralised legacy databases that exist in one location. However, distributed ledgers remove third parties from this process.

Blockchain is arguably the most widely-used and popular form of distributed ledger in use today. Blockchain provides new ways to efficiently and securely create tamper-proof logs of personal or sensitive data. Blockchain and other distributed ledgers are especially helpful in the financial domain as it reduces operational inefficiencies and saves money and time.

Digital Payment Trends:

Consumers have started abandoning analogue methods in increasing numbers. The increased digitisation of payments both online and in-store is expected to make new technology innovations mainstream. Predictions for this year tell of a 9% increase in unique P2P mobile payment users which will mean a valuation of $147.6 billion.

As the P2P mobile payment industry matures, it will mean an increase in the need and opportunities for providers to monetise their products since the rising volume improves the industry’s position when it comes to collecting revenues from existing services. Additionally, the trends observed in the growth of cross-border transactions and real-time card-not-present payments are quickly becoming a standard for the industry overall while determining the next stage of the industry’s evolution.

In any industry, several behaviours become trends over time and shape the growth and direction of businesses within that domain. Some of the trends that are growing and shaping the electronic payment landscape are as follows:

  • The looming financial market instability and returning waves of the pandemic will ensure debit card usage remains strong. However, experts predict stability by the end of 2022.
  • Competitive benefits like payment flexibility and reduced fees will influence and increase credit card transactions.
  • BNPL (Buy now, pay later) solutions have almost reached universal acceptance. This is a positive step for young audiences and consumers who don’t want to exist within the credit ecosystem.
  • To encourage spending, crypto payment providers have expanded partnerships with providers, networks and processors.

By now you must have realised that if you run a business today, having a digital payment solution is not a choice but a necessity. Make sure you understand the payment method your target audience prefers and provide relevant online payment solutions to make their experience more convenient and seamless.

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