One industry that has flourished rapidly in recent times is the fintech industry. It is evolving fast to cater to the needs of the evolving consumers’ preferences with the help of new technologies. While in 2022, everyone thought that fintech would collapse just like the Dot.com bubble in 2000, the industry made a comeback with more resilience after screening out the business models that were not up to the mark.
One of these successful business models or sub-segments in the fintech industry is payments, which nearly accounts for 66% of the fintech companies listed publically.
| Segments | Market Share |
| PayTech | 66% |
| LendTech | 15% |
| Fintech Infra | 12% |
| InsurTech | 3% |
| Others | 4% |
This article will revolve around the current trends in the payments segment of the fintech industry and future of payments. How this segment is evolving, trends driving the growth, and more.
Major Trends in Payments Segment
In the payments industry, there are three major fintech trends, which are spotted to currently drive the entire segment across the world. Together these three are helping to improve payment services, enhancing speed, convenience, and most importantly security of the transactions to facilitate growing demand.
- Embedded Payments: Users of different payment apps have one thing in common and that is they want a seamless platform offering smooth transactions without any glitch. This is what embedded payments are doing for the customers; it is revolutionizing their experience by offering frictionless payment transactions by eliminating the conventional checkout obstacles, which in turn is boosting conversion rates and engagement. The embedded finance market is anticipated to reach $138 billion by 2026 growing at an annual rate of 23% as per Juniper Research.
However, there are multiple challenges to achieving this target as integrating embedded payments into the payments system is quite a task with rigid and complex regulations around the service and security concerns. Integrating embedded payments needs tokenization, and robust encryption along with following and maintaining the compliance rules.
- Generative AI: In payments, Generative AI’s contribution is unparalleled. With this, fraud detection can be enhanced by developing synthetic data for the simulation of fraud patterns with the help of AI. As the projected loss from global card payment frauds in the coming decade stands at $400 billion, enhancing the security measures while offering customers frictionless transactions is crucial to developing the PayTech sector.
Gen AI technology has been in use across the financial services sector to detect frauds and build a barrier to prevent them. This in turn helps the fintech firms save millions. With the use of Generative AI, companies have already started noticing a reduction in frauds by 30-40% as per Juniper Research and this makes Gen AI’s use inevitable in the future and the market sees potential growth up to $11 billion by 2027.
Gen AI helps fintech customers in their daily lives as well mainly by safeguarding their identities. Identity fraud is considered to be the most common financial fraud or digital fraud nowadays, accounting for 64% of all cases of fraud. Gen AI helps payment vendors handle this issue with ease.
However, here the challenge is incorporating AI more into the system means affecting users’ privacy. Companies need to use AI ethically and follow compliance regulations.
- Cross-border Payments: Finally, the third payment trend, which is influencing the payments business across the globe, is cross-border payments. Transmitting money to a foreign country is no big deal today with transparent and seamless transactions by fintech firms compared to the traditional method of remitting funds abroad by banks and other traditional service providers. The growth in cross-border transactions is on the rise due to an uptick in e-commerce on a global platform, and increasing remote work opportunities.
The cross-border payments are guided by certain sustainability goals, which were set for the G20 countries by FSB
- Cost
- Transparency
- Speed
- Access
Following these targets helped the fintech offering cross-border payments prosper and have a positive impact on the customers by maintaining high operational standards.
The B2B companies in this space have immense growth potential especially those that are offering other services such as forex risk management, international transactions, and others. Though this market is still dominated by traditional banks, the customers’ preferences are changing. Fintech firms’ improvised and personalized approach for managing FX for payments, receipts, salaries, etc., and others is mainly driving the growth.
Payments and PayTech Outlook
The payments segment in the fintech industry is at a pivotal point currently. The use of embedded payments, Gen AI, and cross-border payment solutions is here to stay and grow significantly. Real-time cross-border payments can be a thing in the future while embedded payments get integrated into more sectors and industries to facilitate transactions.
Having said that, security and privacy will also become top priorities for the industry to build a sustainable future of payments, and businesses balancing these with the adoption of technology will prosper in the long run.
Source: Finextra
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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.