From Paper Trails to Digital Footprints: The Ongoing Evolution of Payments

Payments innovation, digital payments

In today’s digital age, money talks in bytes, not bills. 

And PYMNTS has been closely tracking the “What’s Next” in digital payment trends as money movement increasingly evolves from greenbacks to screen taps. 

That’s because traditional and legacy payment systems are primed for an upgrade when it comes to delivery of funds, predictability of funds, security of transactions, and settlements and reconciliations. 

There exists a lengthy list of white space opportunity areas. Increasingly, innovations like virtual cards for commercial payments, open banking, RTP (real-time payments), programmable or smart payments, mobile device tap-to-pay, account to account (A2A) payments, and even blockchain-based assets are hoping to expand into these areas. 

So what makes a winning offering, and which innovations might end up changing the game for the long term?

It typically comes down to three things, as Ron Bergamesca, general manager of banking and FinTech solutions at Paymentus, told PYMNTS. Successful payment offerings “need to be comprehensive, they need to be easy to use, and they have to be fast.”

Read moreDeath by Paper Cut: The Hidden Costs of Checks

A Wild Ride for Innovative Money Movement

Real-time payment schemes are proliferating around the globe, and with the emergence of the FedNow® Service, which officially debuted over the summer in the U.S. as a public sector alternative to The Clearing House’s RTP network, the availability of real-time payment networks is only growing.

The value proposition of initiating, clearing and completing payments 24/7 year-round in mere seconds is undeniable, and it has already found wide acceptance around the globe. 

PYMNTS Intelligence found Thailand led all countries in real-time payment transactions per capita in 2022, with the payment method accounting for 34% of all transactions, while Switzerland — like the U.S. — is currently expanding its capacity, with expectations that real-time payment will reach nearly 1.5 billion transactions by 2027. 

Still, the capability has yet to take off in some countries despite wide availability. In the UAE, instant payments accounted for just 1.1% of transactions in 2022. 

There is an important distinction between real-time payments in the U.S. and other markets: In the U.S., real-time payments are credit push transactions, rather than debit pull ones. That means that the sender must instruct their financial institution (FI) to go ahead with the payment and authenticate each payment.

Interoperability among real-time payment schemes and platforms will be crucial as nations around the globe enhance their existing systems and infrastructures. 

“There’s nothing that’s impossible, it just is going to take work … there’s a foundational level around the globe where real-time payments, immediate payments, are now a ‘real’ thing,” Sarah Billings, senior vice president, head of payments and international product operations and transformation at PNC, told PYMNTS. 

Read alsoCommercial Payments Trades Legacy Processes for Modern Digital Efficiencies

Innovations Need Infrastructure for Adoption 

Link Money CEO Eric Shoykhet explained in an interview with PYMNTS that real-time payments are a precursor to the emergence of account-to-account or pay-by-bank payment options in the U.S. market.

And Brian Scott, chief growth officer at credit union service organization PSCU, said to PYMNTS that “there are a lot of things that are coming next. Some of them we’re aware of because we can look around the rest of the world and see them coming, like open banking… and faster and instant payments with the new FedNow® Service.”

“Now is a great time to double down on the innovation,” Scott concluded. 

Still, bottlenecks around scalable adoption of innovative payment vehicles continues to be centered around whether their use case can perform better than the options that already exist today — and whether that performance warrants a rug-pull investment into an all-new infrastructure. 

Insiders have told PYMNTS that despite an ongoing shift toward electronic and digital transactions, more than six in ten firms (62%) use legacy methods to pay for commercial goods and services. 

“Let’s be honest, [legacy processes are] candidly way more susceptible to fraud” than electronic solutions, Ernest Rolfson, CEO and founder of Finexio, told PYMNTS.

That’s why many B2B players are turning to virtual cards for their commercial transactions, leveraging the payment option’s ability to help firms reduce B2B errors, improve cash management and increase the transparency of their accounting processes, by removing the complexity and redundancy inherent to the process of trying to track disparate expenses across multiple categories and vendors.

Additionally, options like A2A are getting more attention within the marketplace, as they don’t expire, can be more transparent, and don’t require the approval of an issuer or acquirer. 

“There’s a larger change that’s taking place in terms of converting less efficient forms of payment to digital forms, and we see that trend continuing,” Todd Manning, head of commercial strategy, M&A and alliances at American Express, told PYMNTS.