What the payment industry will see in 2025
Daniel H?glund Werngren
?? Guru of Payments and PM at Northmill (NOT looking for outsourcing dev’s)
With more payment methods than ever before, digital wallets, crypto and new initiatives from central banks, it is very important to try to stick to a strategy if you want to succeed in the payment industry.
I have listed what I think is most important to be updated on, when it comes to setting the strategy for this new year.
Instant payments and money transfers
First some background to set the scope.
In Europe different countries have come differently far when it comes to real-time payments. With real time I mean that a payment is seen on the recipients account within seconds after it was sent. It is often because of legacy reasons and slow-moving banking systems that real-time is not the case today.
On my home market, Sweden, real-time has not been on the big bank’s agenda until lately. The two big cross-bank solutions, Plusgirot och BankGirot has completely dominated the market for C2B- and B2B-payments, but it has been far from payments in real time. Best case is that money on the recipients account is T+1 day – meaning that if you send the payment on Thursday it will arrive on Friday. If you pay on Friday it will arrive on Monday.
When it comes to person-to-person payments we have in Sweden had Swish now since some years. It is a successful payment solution brought to the market by the biggest banks in Sweden using your cellphone number as identifier. Similar solutions have seen the daylight in Norway, Denmark and in Finland with Vipps and Mobile Pay (now merged to only Vipps). Swish and Vipps payments are instant, but they are rarely used when you pay your invoices or when a company pays to another company (B2B payment).
In Europe’s biggest markets Germany, France, Spain and Italy, B2B is well used to SEPA network for payments, which is more or less instant. Until January this year, banks were allowed to charge extra for an instant bank to bank SEPA payments, but this is now changed and no fee is allowed. Also, consumer payments to business (C2B) when it comes to pay your invoice etc., is often a SEPA payment (meaning you enter the IBAN number in your internet bank and send money that way) on these markets.
So, the people and the companies in some European countries are today used to do instant payments even if they maybe do not know about it. SEPA is seen as a way of transferring money via your bank and local payment methods like Swish are seen as an app connected to your cellular phone number.
What now?
During 2025 we will see a lot of new consumer applications that make instant payments. Use cases can be private payments (person to person) to share the cost for a dinner or a C2B payment to pay for some gods at a street market or to a small restaurant (where we today are used to pay by card or cash).
It is the underlaying connections between banks that makes it possible and cheap. The SEPA system makes it possible to do instant payments for any bank that operates on the SEPA rails. For other countries where not the SEPA system is used for domestic payments, like Sweden, it will be other solutions supported by the central bank. For cross-border European payments, it will be the central bank’s connection to SEPA that makes instant payments possible.
There are bright possibilities to create stunning consumer and business payment solutions with this technology and of course offer low fees for both businesses and consumers. The losers on this new instant hype will be the big card schemes (Visa, Mastercard and American Express) that no longer can create business around high interchange and card scheme fees.
I think local payment methods like Swish also will face problems. A C2B payment with Swish cost the merchant a very big amount (normally around 2-3 SEK per transaction). This type of fee makes a payment for a coffee (SEK 20) cost 10 % in fee. The same goes for Vipps who run on card scheme rails and because of that need to charge percentage-based fees, which makes it good for small tickets but not for the bigger ones.
In Asia instant payments have been there for a long time and is already completely dominant. For the US we see FedNow Instant Payments kicking off and in India there are Unified Payments Interface (UPI) that is starting to finally get big traction.
More reading:
Read more about the European Union’s initiative TIPS – Target Instant Payment Settlement - https://www.ecb.europa.eu/paym/target/tips/html/index.en.html
Read more about FedNow Instant Payments for the US market - https://www.frbservices.org/financial-services/fednow
Read more about UPI – Unified Payments Interface in India - https://www.npci.org.in/what-we-do/upi/product-overview
“New currencies”
We can now see this coming. In China the digital yuan is a core part of the China central bank’s goals. In Europe the ECB works hard to launch their digital euro.
The basic idea with a digital currency is to make payments free of charge, just like with cash. It is not good news for businesses and banks making a big income from payment fees, but it is a natural way of the evolution of currencies and payments.
I can also see that there is a big wish to get less reliant to the big card schemes because of uncertainty I world trades. If the US cuts off Europe from the card schemes we would be in big trouble. The unclear agenda of big-power “leaders” is firing this fear big time.
According to several channels the digital yuan and the digital euro are expected to be fully operation in 2025.
Read more about digital yuan in China - ?https://en.wikipedia.org/wiki/Digital_renminbi
Read more about digital Euro - https://www.ecb.europa.eu/euro/digital_euro/html/index.en.html
AI
The never-ending talk about AI is here to stay. AI will power many of the daily interactions we have with money.
While already in use at many places, we have only scratched the surface when it comes to AI in money transfers. I see AI firstly to be used for security matters. The old rules with an algorithmic type of security solutions will be exchanged to more AI driven real time monitoring. AI can analyze big and vast datasets in almost no time, resulting in much more security around money transfers.
AI also comes in handy for the scammers. We already hear about people getting fooled by AI voices speaking like people they know and trust, making it very hard to know who you can trust when it comes to orders for payments or money movement. I hope the use of AI stops burglars stealing money faster than the burglars learning how to use AI for their purposes. Currently the banking and card systems have always been the slower mover compared to never ending ingenuity of fraudsters. Credit losses for the card schemes are well buried in the mud so it is not shown in the daylight, as this would take away some of the trust we have to use our cards. The big fees the card scheme earns are nothing versus swallowing some refunds for fraudulent transactions.
Of course, AI will also mean a lot when it comes to simplifying regulatory compliance. We already see companies like Klarna bragging about how many employees they can lay off because of AI. AI-driven background check and AI-driven work to gather credit analysis data, is already in place at many financial institutions.
2025 will be the year when everyone invests in AI in some way. I think this saying is great “AI might not take your work. But somebody that knows about AI might take it.”
I think we during 2025 also will see smart and clever AI-tools to help both consumers and businesses with insights in their financial data. This can be either stand-alone apps or built into banking apps. Create a budget, understand your spending, get an overview of your fees and many more, are perfect a simple ways to implement and use AI in daily life.
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Digital wallets
There is a lot of buzz in fintech about digital wallets. I do not see any big change in this in Europe immediately, but I can see it be a very important thing I less bank-developed countries. For low developed countries digital wallets could help everyone to be included in the financial ecosystem. It is 100 % mobile, works for both poor and rich and the financial institutions need less workforce when going all-in digital.
In Europe the big players Apple, Google and Samsung (there are more) currently offer what the users need. A digital wallet is just to hold your cards, can be payment cards or loyalty cards. Also tickets like boarding passes and concert tickets are there. Except for this, digital wallets do not offer much features.
For many a service like Apple Pay is their digital wallet. It’s not how it works, but it doesn’t matter. With Apple Pay you can choose which payment method from your Apple Wallet you want to use for this specific payment transaction. What matters is that the plastic (or metal for those who pay extra) card now preferably is stored digitally. There are even cards that you do not get in physical form any longer. In Sweden I see many that puts their ID-card in their smartphone case but there is no wallet anymore. The money is digital and in the form of digitally stored cards in the smartphone’s digital wallet app. Less stuff to carry around – except the power bank you more often seem to need.
The digital wallet plus the payment application plus the NFC hardware, is what makes it possible to use the digital wallet in combination with POS and payment terminals. Just open your wallet and hold your device within range. Your digital payment method is read and your payment is done. Fast, secure and in the future also cheap.
I hope and think that new things will happen to digital wallets for 2025. This will be for the new real-time payments. I foresee a connection of your bank app directly to your digital wallets so you can do instant payments right from the wallet to either another person or to a merchant. Just like we did before, when you took some cash out of your wallet and paid. The same will now go for your digital wallet. You open your (digital) wallet, choose to pay with your bank account and you then just tap with your device to the terminal (screen) and you give away some money. There are no need for Visa, Mastercard or Swish to get paid a lot of fees, just because you want to give some of your money to the merchant you want to buy a coffee from.
Fintechs are experts to create fees out of nothing, but maybe the trend is now shifting.
As a Swede you can easily get the feeling that cash is no longer used anywhere. The truth is though that in many countries in the world, and even in Europe, cash is still very much a valid payment method. If we believe that cash will be changed for digital solutions, then the digital wallets will play a big role. Even if the money is digital, you still need a place where you can access them.
Finally, if we really will see the digital currencies that I wrote about – then digital wallets will be an obvious thing for all of us. Not only for consumers, but also for businesses.
I think during 2025 we will still se a lot of Visa, Mastercard and Amex in digital wallets, but this year we will also see the real time payment logos showing up in the wallet. It can be the banks, it can be the digital currency or it can be something that we yet not know about.
Open banking
I have for many years been very interested in Open Banking. When the first API:s where out on the streets from the Swedish bank Swedbank I was one of the first to get the API-documentation. Since then, several years now, I have received Swedbank’s newsletter about their open banking offering. You can see that it has changed a bit in attitude, from “Here are the infot hat the mean authorities force us to give you” to “We powers your fintech offering into the future” ?? . ?
Very recently I was in a meeting with Mastercard, where they showed me their offering for open banking. It was an impressive range of connections and nice tools. One can get the feeling that they do not trust their card business to be the 100 % right fit for the future to come…
2025 will be the year when open banking comes out of the shadows and results in features in our daily financial life. Here are some examples that highlights things we can do with open banking:
During 2025 we will see information that is accessible via open banking, in combination with AI, help creating tools for budgeting or planning a house loan. Instead of you manually preparing a lot of info for your meeting with the bank, the household budget-app already have the info about your savings, monthly salary, monthly house hold costs etcetera. AI helps you create a 360 view and exactly the insights your bank wants, so the bank can give you a loan promise. And you can go ahead and place the bid on your new dream home.
Environmental, Social and Governance (ESG)
Last but not least – sustainability.
You might think that fintech already are the super star in low carbon footprint. I will not go into this as I do not have any data to back either view. What we though can be sure about is that we need to be more considered about the impact we have. We can also be sure that everyone needs to do more than we do, and that counts also for all the fintech companies. 2025 will be the year when ESG takes a big part in our budgets.
Today ESG in fintech is mostly about compliance. In 2025 we will start to see new initiatives that go beyond compliance.
Brands will need to differentiate themselves to enlarge customer loyalty. This will spill over to the payment side and create new things in digital wallets and payment solutions. We will see features for calculating carbon footprint, donating money at low fees and loyalty programs to increase awareness in sustainable spending.
Not directly related to fintech, but I think that in 2025 the shopping apps will be better in showing where products are made and how it is shipped. This will help consumers make better purchasing decisions.
Conclusion
2025 will offer a lot of possibilities in a shaken world. Make sure to keep your eyes both on the details and on the horizon. Instant means instant and is driven by digital money. Traceability of money and compliance will be easier when central banks connect to each other via the networks. Make sure to start learning about AI for your business, everyone else will.
Happy New Fintech Year!
2025-02-13 Daniel H?glund Werngren
About Daniel H?glund Werngren
From Sweden, but now living in France he has been in the fintech industry since 1999, founding several fintech, retail and IT companies. Today he is working as product manager for Northmill who acquired his company MoreFlo three years ago.
An interesting read Daniel