Technology has changed virtually every aspect of our lives, and nowhere is this more evident than in fintech, particularly payments. Over the past five years, the way we manage our money has undergone a significant transition due to the evolution of an online-first consumer base. In fact, Covid has only accelerated this transition. As a result, the payments industry has attracted significant investment and interest. Consumers and businesses want faster, more reliable and more secure payment methods to ensure a stress-free experience with money.
According to a report by RedSeer, one in four investment deals in the Middle East in 2021 was in the Fintech sector, accounting for almost a third of all capital raised ($2.1 billion in 220 deals). Fintech start-ups in particular have become a driving force in the region’s innovation ecosystem. As this industry expands, several important trends have emerged, especially as consumers expect more from their payments.
Internet of Things (IoT)
The shift to mobile has already seen advances such as Apple Pay, and Google Pay making payments via a mobile device routine, but now we’re seeing a shift from mobile to the Internet of Things (IoT). As wearables become more ubiquitous, we can foresee an increase in this category, as well as a plethora of additional payment-enabled devices.
IoT has enabled us to connect everything from cars to refrigerators to the internet, and has the potential to help customers make purchases. Adding voice activation and perhaps even gestures to the experience will make payments far more natural and convenient. Soon, payment systems will become mainstream, eliminating the need to reach for your phone or wallet to conduct online transactions.
Buy now, pay later (BNPL)
The second trend is the new generation of Buy Now, Pay Later (BNPL). According to Insider Intelligence, BNPL is expected to grow and reach USD 680 billion worldwide transaction volume by 2025. To offset the costs, savvy consumers are moving away from high-interest credit cards and toward merchant-backed services. This not only makes retailers sit up and take notice, but also the credit card industry as it considers how best to serve customers.
Apart from the fact that retailers can increase their sales by embracing BNPL, the draw is that it can be used for far more than just payments. BNPL firms have vast amounts of data that retailers can use to drive consumer loyalty with more targeted products. Moreover, they can also be leveraged to provide a “try-before-you-buy” service by relieving sellers of financial burden. The future of this segment will be determined by regulation, but it is here to stay and can be expected to grow and produce a more comprehensive customer experience.
Data-driven identity
The latest trend is data-driven identity, which will soon be determined almost entirely by digital companies. In recent years, there has been an increasing emphasis on payment security, especially as more of our spending has moved online. However, authenticating the participants in a transaction is a significant concern, and banks, processors and card issuers have had to create complex anti-fraud and AML solutions to verify customers’ identities to reduce transaction risk. Going forward, these will have to continue to develop. Data-driven identity will soon be necessary not only to combat the ever-changing threat of fraudsters and hackers, but also to educate consumers about payment options and help them make decisions as they consider the best ways to purchase something.
Undoubtedly, the payments and fintech sectors will continue to evolve to suit changing customer and consumer demands. We have seen rapid progress over the past five years, which is expected to continue. Generations that have grown up with contactless and fast online payments wherever they go are unlikely to return to cash transactions. As we move closer to a cashless society, businesses must continue to invest in new technology and innovation to keep up.
Nick Curran is head of Endava MENA
