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The Future of Payment Technologies

by Jessica Weisman-Pitts
iStock 1312765909

The Future of Payment Technologies 

By Hugh Scantlebury, CEO and Founder of Aqilla

Believe it or not, it’s been less than a century since the charge card was invented. Frank McNamara was inspired to create the Diners Club Card in 1950 after realising he’d left his wallet at home and couldn’t settle his restaurant bill. 

Today, Visa and Mastercard—rather than Diners Club—are the dominant global payment technology providers. But despite their virtual duopoly, both face significant challenges. Many of these come from payment technologies that have moved away from traditional account-based and credit/debit card transactions to a more decentralised technology-driven market. This article explores some of these challengers, how they’re shaping what’s come to be known as the Decoupled Era, and what their rise means for consumers and businesses. 

Open Banking and Virtual Recurring Payments

Over the last few years, Open Banking has emerged as a game-changer for payment technology. By opening up transactional data, it has revolutionised how UK consumers and (to a lesser extent) businesses access banking and financial services.

Open Banking can potentially speed up lending decisions and reduce borrowing costs—bringing significant benefits to smaller businesses and sole traders. It could also accelerate payment processes, especially cross-border transactions, ultimately creating more efficient and robust supply chains. This could help organisations of all sizes improve cash flow and develop greater economic resiliency.  

Open Banking also facilitates Sweeping and Non-Sweeping Virtual Recurring Payments (VPRs), which have massive potential to disrupt the payment technology market. Sweeping VPRs let customers move money from their main account to demarcated saving spaces to help them better manage their finances. 

Non-Sweeping VPRs offer an alternative to standing orders and direct debits. They could enable wider use of Open Banking for commercial payments, particularly among larger organisations.  Customers have more control over the timing of payments, and there’s more protection against having insufficient funds and incurring charges—plus, they are more secure than direct debits and standing orders. 

Native mobile and digital payment service providers

Native mobile and digital payment service providers like PayPal, Google Pay, Samsung Pay, and Apple Pay have their roots in Big Tech rather than finance. Google’s, Samsung’s, and Apple’s digital wallets are deeply embedded in their smartphone and smartwatch operating systems. The manufacturer will likely have installed their own on your device—just like they might add a proprietary browser and search engine.  

Ultimately, digital wallets make it easier for consumers to use their existing credit or debit cards in even more locations and without the need to present a physical card. So, it could be argued that they entrench rather than challenge the likes of Visa and Mastercard. 

But PayPal presents a significant challenge. It’s a payment gateway. It can also offer credit facilities on its own terms. It allows customers to hold funds in their accounts and use them to pay for goods—a current account in everything but name! In addition, PayPal continues to strengthen its business offering, which now promises invoicing and analytics capabilities plus facilitation of international transactions. 

Then there are native mobile and digital card payment processing companies, such as SumUp, which allow businesses to take contactless payments—just with a smartphone. That’s a long way from the days when Visa, Mastercard and American Express monopolised Point of Sale machines and set a very high bar (and fees) for businesses wanting to take card payments. It’s also interesting to note the symbiosis between the growth of these digital native payment technologies and the success of digital native companies like Uber, Airbnb, Etsy and Deliveroo.  

Buy Now, Pay Later (BNPL) 

The UK’s BNPL market has more than quadrupled since 2020. Once only available online, signs tempting customers with BNPL purchase options can be spotted outside a variety of high street stores. UK providers include Klarna, Laybuy, OpenPay, Payl8r, and Curve Flex. 

Figures suggest that BNLP borrowing will reach a record total of £30bn by the end of 2024. This has led to charities such as Citizens Advice—and some MPs—expressing concerns that the BNPL market needs more regulation. 

But, while it is fair to say BNPL itself is not regulated, many of the financial, marketing and lending-related elements are. For example, the FCA has rules and guidance on advertising and financial promotion. This includes the newly launched FCA Financial Promotions Gateway, which BNPL providers must use to ensure their marketing materials are not misleading. Whatever your view on BNPL, it certainly represents a significant challenge for Visa, Mastercard and other traditional payment technologies.  

Blockchain, cryptocurrencies and Decentralised Finance  

Blockchain and cryptocurrencies offer the prospect of cheaper transactions, while advanced encryption boosts privacy and makes them harder to hack than banks and card providers. 

Cryptocurrencies also could offer a more open and democratic payment system than conventional ones because they are not overseen by any government or financial institution. However, that strength also contributes to crypto’s more formidable challenges, including its ability to scale, volatility, and lack of regulatory framework. For these reasons, newly emerging Central Bank Digital Currencies (CBDCs) might be the way forward in the short term and offer a compromise between traditional payment systems and the Wild West of cryptocurrencies. 

More mainstream acceptance of blockchain and cryptocurrencies should also lead to increased Decentralised Finance (DeFi) adoption. DeFi is based on secure distributed ledgers like those used by cryptocurrencies and should deliver financial products without using banks and exchanges as intermediaries. 

DeFi uses Ethereum’s decentralised blockchain to enable two parties to exchange currencies by entering into an agreement known as a smart contract. Recorded on the blockchain, the DeFi transaction is completed once both parties decide on their agreed conditions. But, right now, it’s a risky option as there’s no third-party involvement or regulation. 

Conclusion 

Almost three-quarters of a century on, it’s doubtful Frank McNamara would recognise many of today’s newest payment technologies—although the main principle of taking a small handling fee for each transaction and charging interest on late payments remains the same. Quite what he’d make of Bitcoin and blockchain is anyone’s guess. But as someone who did so much to simplify the process of securing and mobilising credit, I’m sure he would be both fascinated and intrigued. 

For my part, I think the next few years will see the Decoupling Era go further and faster than ever before as Big Tech companies overtake traditional financial establishments as payment technology leaders. Perhaps we’ll finally see the cashless society we’ve been talking about for so long. And, looking even further into the future, maybe we’ll become the actual payment conduits. How long will it be until we’re using retina, DNA, or even brain scanners to authorise our financial transactions?

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