5 Payment Trends To Watch For In 2021—And Beyond
If we’ve learned anything in the last year, it’s that human beings have a remarkable capacity to adapt to rapidly changing and challenging circumstances. Some of the changes introduced in the last year will likely go by the wayside (sorry, elbow bump). But other changes, like digital payments, will become part of the post-COVID normal.
While the adoption of digital payments was on the rise before the pandemic, COVID-19 has acted as a major accelerator. Accenture estimates that approximately 420 billion transactions worth $7 trillion are expected to shift to digital by 2023.
Let’s look at some of the payment trends we anticipate in 2021 and beyond.
1. Old-School Habits Will Turn Into New Payment Preferences
We all have stories about someone we know changing a long-held habit during the pandemic—an uncle using online banking for the first time or a grandparent ordering groceries online. While digital payment options aren’t new, their adoption has surged over the past year—digital wallet adoption jumped from 38 to 55 percent during the pandemic. As consumers get used to the speed and convenience of digital payments, options like digital wallets and contactless payments will become the new normal.
2. Tokenization Takes Off
Tokenization, or the use of non-decryptable data that acts as a substitute of a sensitive data element, plays a major role in ensuring that payments are secure. It helps reduce risk from data breaches and provides customers with a sense of confidence in the safety of their financial information and property. As more payments are made online, the use of tokenization will become more of a focal point for merchants and processers. The future of tokenization is bright—one forecast believes that the worldwide tokenization industry will reach $4.8 billion by 2025.
3. No Contact, No Problem
Many individuals, merchants and government agencies used contactless payments for the first time during the pandemic and found them to be efficient and intuitive. In fact, the usage of tap payments in the United States rose by approximately 150 percent in March relative to the prior year. Today, more than half of Americans are using at least one form of contactless payments. Not only are contactless compliant with social distancing guidelines, but they are also secure and flexible. Even as restrictions associated with the pandemic subside, consumers will continue to expect contactless payment options.
4. More Governments Modernize the Citizen Experience
The pandemic upended workflows for not only the private sector, but for government agencies as well. When the pandemic hit, state and local governments rushed to keep government business progressing and revenue coming in. Governments have accelerated their adoption of new, flexible ways of operating, including accepting online and ACH payments for the first time and supporting bill payment through interactive voice response (IVR). Now that these stop-gap measures have been widely implemented, governments will need to keep moving forward with more digital offerings.
5. Fraud Prevention Measures Will Be Tested
An unfortunate byproduct of the pandemic has been an increase in fraudulent activity. According to the Association of Certified Fraud Examiners (ACFE), 79 percent of respondents had observed an increase in fraud since the start of the pandemic. As a full economic recovery is expected to take years, we are likely to see an increase in fraudulent payments in the short to medium term. E-commerce businesses are particularly vulnerable to fraud. Payment processors will be tested by bad actors looking for vulnerabilities and will need end-to-end encryption and a secure token data vault to reduce risk.
This past year’s disruption has conditioned us to expect the unexpected. If there is anything positive to be found when looking back at 2020, it’s individuals’ and companies’ ability to adapt amidst adversity. Absent having a crystal ball, it’s impossible to know exactly where the payments industry is headed moving forward. But we can expect that payments will be more flexible, modern and digital.