The Future of Payments: Understanding the Rise of Paytech

The payments ecosystem is changing at an unprecedented pace, thanks to the disruptive power of fintech companies. With their technological capabilities and customer-centric approach, fintech has expanded into the payments market, and in doing so, has given rise to a new industry —?Paytech.

Paytech is the intersection of payment and technology, a sub-industry within fintech that focuses solely on payments and transactions. Paytech companies range from payment facilitators and payment service providers (PSPs) to networks creating new payment propositions and payment technology suppliers. In short, it is the future of payments. And in particular, the digital payments market is the largest fintech product segment, accounting for more than 80% of global fintech revenues.

Before the emergence of Paytech, payments were just an exchange of money. Today, transactions have taken on a much larger role in our lives, thanks to wearables, new payment methods, and embedded finance. This transformation has led to a complete reinvention of the customer experience, turning payments into a ‘branding opportunity’ rather than just a simple transaction.

With globalization and the rise of digital and mobile payments, cross-border transactions have become more important than ever and PayTech offers an infinite opportunity to use innovation and technology to rethink the customer experience. Convenient payment methods are fundamentally changing the way people interact with money, with no signs of slowing down. New regulations and initiatives, such as PSD2 and Open Banking, are fueling its expansion, and the Covid pandemic has only accelerated the shift towards cashless transactions. Experts predict a staggering growth of 1.3 billion mobile payment transaction users by 2023.

Fueling this growth are 2 key payment methods: QR codes and Instant payments.

QR Code payments

Facebook’s foray into the payments space has not been without controversy, but the company has been working to make the feature more secure and reliable. With this new development, the company has taken yet another step towards securing its position in the fintech space.

The implementation of QR codes enables Facebook users to seamlessly transfer money to friends or family through the app. All one has to do is scan a friend’s unique QR code using their smartphone’s camera, and voila! The payment is processed within seconds. With this feature, users can enjoy the convenience of making payments without having to switch between different apps. The addition of the “scan” button in the Meta Pay carousel means that sending or requesting money has never been easier. By simply tapping on this button, users can scan a friend’s QR code and complete the payment transaction with ease and changing the customer experience at checkout.

Independent research firm Juniper Research?forecasts?that global QR code payment users could reach 2.2 billion by 2025, up from 1.5 billion in 2020. This implies that almost 29% of all mobile phone users worldwide would be using QR code payments by then.

?? With this feature, users can enjoy the convenience of making payments without having to switch between different apps

Similarly, instant payments are on track to a CAGR of around 29% between 2021 and 2025, reaching 428 billion in volume.

Instant Payments

Now, I know what you’re thinking. “Instant payments? What’s the big deal? We’ve had PayPal and Venmo for ages” But there is one that’s blazing a trail in the world of instant payments and it’s none other than Sopra Banking Software subsidiary Fidor Solutions, based out of Munich, who’s teamed up with payments services firm SIA to unveil their new instant payments service in Germany and several other European countries. We’re talking about sending and receiving payments of up to €100,000 in under ten seconds. That’s right, ten seconds. A service that would typically take you approximately 3 days to do, not to mention outside of bank working days.

So, what does it mean for us? For one, it means no more waiting for days as payments are now cleared instantly. With the latest encryption technology, your hard-earned cash is safe and sound, reducing the risk of fraud.

There’s no doubt that banks need to be able to offer a resilient, scalable, and elastic Instant Payments infrastructure to cater to growing volume. The problem is that offering Instant Payments isn’t free for banks and financial institutions. And this is where Sopra shines by offering payments in a mutualized set-up, which means shared costs for the bank. This solution involves sharing the infrastructure, servicing, and platform costs of running Instant Payments with several other organizations

It means no more waiting for days as payments are now cleared instantly

With all that being said, instant payment adoption rates vary by region, with the UK being an early adopter since 2008, and other countries such as India, Sweden, Australia, and Mexico following suit. Despite this, as of the end of 2021, only 11% of credit transfers in the EU were conducted via instant payments.

The Paytech industry has become a vital player in the financial services landscape, and its impact on the payments ecosystem is indisputable hence it is not just a ?? buzzword; it is the future of payments and it is leading the way.