Mushrooming the Future of Payment Gateways
2021 has been a noteworthy year with the Covid 19 pandemic bringing in huge digital transformation across organizations and customers moving towards digital payments resulting in increase in volume and value of transactions. One of the industries that crossed multiple milestones is the digital payments industry. The total wireless subscribers increased from 116.60 crore at the end of September 2021 to 116.63 crore at the end of October 2021, showing a monthly growth rate of 0.02% as on 20th December 2021, as per the Telecom Regulatory Authority of India (TRAI). This has led India to become the second-largest internet population with 1.5 billion card users. India is also paving the way to become the fastest growing digital payments market in the world by strategizing various innovative digital payment modes.
As per the data provided by the Reserve Bank of India (RBI), INR 2,326.02 crore digital payments were recorded in FY19 which increased to INR 3,400.25 crore in FY20. The volume of digital transactions increased to INR 4,374.45 crore by FY21. On the other hand, RBI’s digital payment index stood at 304.06 during September 2021 as against 270.59 in March 2021 and 217.74 in September 2020, thus reporting a 40% YoY jump in digital payment transaction as per the latest index by RBI. There was 456 crore UPI transactions worth about Rs 8.27 crore that was conducted in December 2021, 422 crore transactions worth about Rs 7.71 lakh crore in October and 230 crore transactions worth Rs 4.31 lakh crore in January 2021.
These data points indicate that there would be sharpest growth. All thanks to the UPI transactions, which accounts for nearly half the volume of digital payments. As per a recent publication, NPCI expects the UPI to hit a 100 crore transactions per day after RBI enabling the UPI wallets for lower-value transactions. The numbers also indicate increasing adoption of digital payments leading to growth in various sectors such as banking & financial services, telecom, retail, healthcare, automobile, IT and agriculture. The creation of digital financial infrastructure, tokenization, offline payments, and UPI on feature phones was made possible due to collaboration between banks, fintech, regulators and governments. The adoption of digital payment modes will continue to touch new highs in the future reaching out to even semi-urban and rural areas of the country.
What is a Payment Gateway?
Payment Gateway is a software solution that payment service providers use to process payments for online purchases originating on a merchant’s website/app. It acts as an interface between the merchant’s website/app and a payment processing bank known as an acquirer. Generally, a gateway can be used for many types of payment methods like online credit card payments. The gateway helps in encrypting the credit card details as it is sensitive, thus ensuring that the information is passed securely between the merchant, the customers and the acquiring bank. A good payment gateway can give a better shopping experience to the customers as with its speed and security. As the process of payment approval takes a few seconds, both customers and merchants don’t have to wait for a long time in order to complete the transaction. It doesn’t matter if anyone running a small business or just getting started with a start-up, merchant can setup their payment gateway with minimum cost. Payment gateway allows user to accept payments in multiple currencies via multiple methods, so merchant can freely grow your international customer base without worrying about anything.
Key Areas of Focus in 2022 & Beyond
Ø Higher demand for frictionless experience
Frictionless experience removes the barriers involved in the checkout process by reducing the TAT to make a purchase. It involves one-click payments, digital wallets, auto-renew subscription, automated recurring payments, contact-less card payments, tap-to-mobile technology etc. This has led to increased adoption of eWallet, loyalty apps, & mobile payments. Flexible payment methods help increase the customer base thus helping in reducing the risk of bad debt. There is a huge shift towards mobile wallets which is driven by merchants avoiding the hefty card “swipe” fees charged by major credit card companies. This has led to higher engagement between young customers who appreciate these payment alternatives. There has also been higher innovation shift from micro payments to nano payments. Creation of nano-payment networks is bringing in huge opportunities for new fractional payment models. Nano is considered as a new currency just like cash in hand that facilitates local and international transactions, thereby making the transaction feeless and effortless.
Ø Increase adoption of real-time & smart payments
Merchants around the globe are increasingly adopting real-time payments (RTP). RTP have open loop systems wherein the payments are directly connected to personal accounts instead of relying on prepaid balance to accelerate the process. The tremendous change taking place in RTP systems are rooted in the proliferation of smartphones, P2P apps, social pay, digital currencies, biometrics, and real-time settlement systems. Direct digital transfer helps in improving businesses’ cash flow by virtually removing any delays in payment processing. The total number of real-time transactions in 2020 amounted to 70.3 billion, up by 41% from 2019. The real-time share of global electronic transactions was 9.8% in 2020 and is expected to reach 17.4% by 2025. Smart payment is also taking over the B2B space by streamlining the accounts receivable process thus making the entire payment process faster, more efficient, more accurate, and significantly less labour-intensive.
Ø Next-Gen Payment Processing Architectures & Technology
The financial system has seen many threats when it comes to traditional credit card payment systems. Higher innovated technology has led to the development of different payment processing technologies allowing customers to have more secured and convenient transactions. Organizations are providing EMV credit cards/Chip-and-PIN cards wherein the chip stores the cryptogram that detects the modified transactions, also requiring users to provide pin for extra authentication. This chip is difficult to counterfeit and is not duplicated or read easily. Many of the custom payment and gateway development have eliminated the magnetic strips. With 60% fraud reduction, 2 million POS terminals and 855 million chip cards EMV Software Solutions including migration, testing, validation, and integration services for POS terminals and ATMs has been high in demand. On the other hand, payment technologies like the Contactless RFID Credit Cards uses passive Radio Frequency Identification that allows the cardholders to wave the cards in front of RF terminals to complete transactions. Enterprise businesses had to setup Card on File Tokenization (CoFT) solution to provide seamless checkout experience to the customers. As per the circular by RBI businesses and payment service providers will not be able to save customer card details that came into effect from 1st of January 2022. The reason behind this was to bring reform to secure critical financial information of customers thus avoiding any kind of data breach.
Ø Increased comfort of Biometric authentication
Biometric authentication like facial or fingerprint recognition has a huge role to play within the payment industry thus making it faster and simpler than using a pin/password. GAFA (Google, Apple, Facebook and Amazon) has a huge role to play in the payment space by authorizing users to new payment methods and experiences. This is also allowing them to understand customer behavior through transaction data thus providing personalized experience. Biometric authentication is taking over the payments market keeping behind all the other methods of authentication.
Ø Increase usage of Voice commerce
Customer behavior has been highly influenced by voice commerce. Voice commerce has helped smart retailers and brands to increase their connectivity, and access information in the digital space. Big organizations like Amazon are innovating technologies wherein they have filed patent to enable changes in the customer voice that can be sensed by Alexa. In future customer voice can be interpreted by network of devices. Customized online payment solutions like voice commerce using Google Assistant with Google Pay or Alexa with Amazon Payments will create a big wave in the future.
Ø Increased implementation of Buy Now, Pay Later (BNPL)
Buy Now, Pay Later (BNPL) has redefined the financial decisions made by customers at the checkout. The transactions with regards to BNPL are expected to reach $680 Billion by the end of 2025. BNPL acts as an alternative to traditional credit card payment modes wherein users can spread payments in installments over a defined period. Many banks and FIs are coming up with their own BNPL products where the focus is on providing smoother checkout experience and providing manageable payment options who are denied of traditional forms of credit.
Ø Rise in Cross-Border Transactions
Transferring money to different countries is expensive and time-consuming in the traditional banking system. The Covid Pandemic has seen a huge digital shift leading to an increase in P2P and other digital alternatives for faster transfers across borders. Merchants have a positive response to the cross-border trend in the payments segment by looking for solutions that enable faster and more seamless global payments independent of the location of the buyer or seller.
Ø Rise in Crypto payments
Bitcoin is a widely recognized legitimate cryptocurrency which is important in secured payment and gateway software development. Many of the top FIs have gone mainstream to integrate APIs in Bitcoin software development. Many of the retailers have started accepting bitcoin as a payment method as it is less traceable and more secure as the transactions are recorded in the blockchain distributed ledger. The verification of payment stays reliant on the cryptocurrency.
Ø Increased investments in Embedded Payments
Merchants along with e-commerce platform intermediaries are making higher investments in payment integration gateways to provide better customer experience and to reduce friction in digital payments. They are delivering better customer services by embedding payments in the checkout journey. The customer data also helps in delivering personalized option at POP thus reducing friction. Embedded payments will see a higher growth rate by building a frictionless purchase journey thus minimizing payment processing costs.
Ø Rise in MarPay Technology
Loyalty & rewards are becoming the core of digital solutions for both the merchants and the customers. MarPay allows in connecting members of loyalty programs with online stores thus allowing them to maximize their spending at the checkout. They are very different from traditional loyalty programs that focused more on affiliate marketing bringing challenges in tracking due to privacy concerns thus seeing a drop in customer engagement. The recent innovations allow customers to spend and earn points on every purchase thus increasing their top up balance. Merchants can see the increase in value of online baskets and capturing higher share of customer spending also allowing customers to tap into reward points wallet. In the coming years MarPay will play a huge role to increase brand engagement and retention as redeeming those would become simpler with greater adoption of digital payments.
Ø Enabling Payment Orchestration
As per MarketWatch, the payment orchestration is growing at a rate of 26.7% YoY and is expected to increase to $2 Billion by the end of 2025. There is consistent growth in e-commerce segment. Merchants are handling huge transaction volumes. This requires integration in the payment value chain to maximize efficiencies, drive improvements in revenue to deliver better payment outcomes with higher approval rates, lower fees and a smoother user experience. Orchestration will help in connecting payment acquirers, processors, multiple payment gateways to provide “one-stop-shop” platform thus optimizing payments. Technologies like intelligent routing (real-time analytics & AI based tools) are helping merchants to enhance their payment flow. This in turn is helping SMEs, businesses, and global merchants to see better payment approvals, checkout conversion rate, lower fees.
Ø Concentration on building Cybersecurity solutions
Though there has been a huge increase in the number of digital payments on mobile devices, on the other hand there has also been a rise in cyber-criminal threat and frauds. This has led organizations to build new tech advanced solutions to address these vulnerabilities. For instance- organizations are building AI based authentication prompts, behavioral biometrics based on consumers’ swiping, typing, or phone-holding patterns. They are also providing next-gen anti-fraud solutions that has features like as Switcher, F.D.S., Vault, B.I., and Helper. This will help in reinforcing security, streamlining payments by connecting merchants to all global payment methods as well as a dashboard where they can analyze data and their business evolution.
The payment systems are not an end, but has greater means to achieve wider financial inclusion, efficient banking services, business continuity at the time of emergency and for making it easier for the customers to make transactions with ease. This requires higher technology investments and upgrading the current technology to meet the demand of the customers.
