Picture this: It’s the 1990s, and the internet has just arrived. It might be hard to believe, but that was when the first digital payment systems were created. Things have come a long way since then, and today, people are relying less on cash and physical cards and more on digital payment methods that allow them to send and receive money seamlessly.
The rise of digital payments has been great for consumers and businesses. Their convenience, speed, and security have made them easy to adopt as a big part of everyday life. In this article, we’ll explore some of the most popular digital payment methods and discuss their benefits, challenges, and future possibilities as technology evolves.
Digital payments today
Digital payments are steadily becoming more popular, which is good news for businesses worldwide. The global digital payments market is expected to grow at a compound annual growth rate (CAGR) of 20.5% through 2030. According to a 2021 study from Boku, 4.8 billion mobile wallets (nearly 60% of the world’s population) will be in use by the end of 2025.
There are a couple of key technologies that make digital payments possible today. The first is NFC, or Near-Field Communication. NFC enables electronic devices to securely communicate payment information from a customer’s phone to a business’s payment system.
The second is RFID, or Radio-Frequency Identification. It uses electromagnetic fields to automatically identify and track tags attached to objects. Today, most credit cards have a built-in RFID chip, and many businesses now allow customers to use tap to pay functionality. All they have to do is tap their card on the POS system, and the RFID chip sends a radio signal to make the transaction go through.
The role of mobile technology
Mobile payment platforms have made it easy to leave the wallet at home. They’re one of the most popular digital payment methods because they’re super convenient for consumers who always have their phones handy. The popularity of mobile wallets could make credit cards fully digital within the next decade. This is good for business owners, too, because accommodating mobile payments can help them scale.
Mobile payment platforms like Apple Pay, Google Pay, and Samsung Pay store your card information in a mobile wallet, allowing you to easily shop online or in a physical store with a payment terminal.
Benefits of digital payments for businesses and consumers
There are several benefits of digital payments that make life easier for consumers and business owners alike.
Convenience
Digital payments reduce the need to carry cash, which could be lost or stolen. They’ve also made it possible to pay for goods and services online, removing the need to visit (or operate) a physical location. This is more cost-effective for businesses and can lead to a considerable boost in sales.
Speed
Digital payments make transactions quick and easy. Consumers don’t have to spend time searching for cash or counting change—all they need to do is tap a few buttons on their mobile phone or hold their card near a payment terminal to complete the transaction. Business owners don’t have to spend time making changes and can move through more transactions more efficiently.
Security
Features like multi-factor authentication and encryption typically back up digital payment methods. These features keep account information and personal details private, reducing fraud risk and maintaining trust between consumers and business owners.
Transparency
Digital payments make tracking real-time transactions and balances easier for consumers and business owners. They also paint a clearer financial picture, making fraud investigation more efficient.
Support
Digital payments improve the overall customer experience. They also reduce the time a business owner spends on manual processes, opening the door for growth opportunities.
Challenges of digital payments
One of the biggest challenges in the digital payments space is cyber-attacks. The most common types include phishing, identity theft, malware, and data breaches.
Phishing is when cybercriminals use deceptive emails and fake websites to impersonate legitimate institutions. Their goal is to steal personal information and payment details. Someone might receive an email that includes links that, once clicked, will infect their device with malware or lead them to a fake website designed to steal their data. These attacks can also take place over text, and that practice is known as smishing.
Malware is malicious software that can be embedded within seemingly harmless email attachments or downloads. Once installed, malware can record keystrokes, steal data from a person’s device, lock them out, or even demand ransom payments.
Data breaches occur when unauthorized individuals access a business’s databases and steal information such as credit card details, passwords, or PINs.
Digital payments typically offer enhanced security measures, but consumers and business owners can take additional precautions to protect their finances:
- Use a two-factor authentication app like Duo Mobile or Google Authenticator
- Use a strong password, update it often, and use a trusted password manager like 1Password to remember it for you (don’t rely on your browser, because that’s not as secure)
- Stay vigilant when identity thieves try to pose as your bank and steal your info through phishing (email) and smishing (text)
- Avoid using public Wi-Fi
- Set up fraud alerts via text or email
Regulatory changes have also been a challenge, as the digital payments landscape is changing rapidly. Regulators must protect consumers’ rights, and businesses need to do everything they can to keep up. Some updates business owners should keep an eye on include regulations around cryptocurrency, data security, and mobile wallets.
Even though the adoption of digital payments is on the rise, disparities still exist. Not everyone can afford a computer or a smartphone, and digital payment methods aren’t always designed with accessibility in mind. The good news is that digital payment providers can play a pivotal role in driving toward a more equitable future.
Meeting consumers where they are
Digital payments have shaped consumer behavior and expectations. The businesses that consistently deliver a frictionless experience in this area are more likely to increase brand loyalty and turn people into repeat buyers. There are several strategies every business can use to do just that:
- Offer a variety of payment options. Consumers expect to be able to pay how they want, so business owners should aim to allow all credit card networks, debit cards, mobile wallets, and bank transfers (ACH).
- Simplify checkout. Reduce the steps required to complete a transaction so consumers can quickly buy what they need. This can increase conversion and revenue.
- Focus on security. Implement measures like encryption and fraud detection tools to protect customer data and build trust.
- Prioritize mobile payments. Find ways to optimize payment processes for mobile devices, rather than copying the desktop experience over to mobile.
- Analyze the data. Digital payment data can provide valuable insights into customer behavior, preferences, and trends. You can leverage this data to help optimize processes and improve engagement.
Innovations in payment processing
Digital payments will continue to be a significant driver of economic growth. In the future, we can expect to see even more sophisticated AI and machine learning used to enhance digital payments. These technologies can sharpen fraud protection and provide a more personalized shopping experience for consumers. They’ll also likely be helpful for things like predictive analytics, which can help business owners with forecasting, and chatbots, which can provide real-time customer support.
Blockchain technology will likely significantly contribute to providing a secure, decentralized way to transfer funds. A growing number of businesses are already implementing blockchain-based payment systems.
IoT (internet of things) devices have the potential to make digital payments feel even more integrated into daily life. According to a study by Juniper Research, the global IoT payments market is forecast to be worth $935 billion this year. Consumers will likely be able to pay for things through their wearables, smart speakers, or other connected devices. Businesses will be able to acquire real-time customer data and use it to create better payment terms and incentives. IoT integration can open up an exciting new world of competitive advantages.
Emerging technologies can add an extra layer of security. Biometric authentications, such as fingerprint and facial recognition, ensure that only an authorized person can make payments. AI is an incredibly powerful tool that can identify, investigate, and prevent cyberattacks on the global payment ecosystem.
It’s time to go digital
The right digital payment system can be a game-changer. As digital payments evolve, they’ll continue to streamline financial transactions, reduce reliance on physical money, and make small businesses more profitable.
Embrace the future of digital payments with Bluevine Business Checking.
