Innovations in payments have paved the path to progress throughout history.
And while the journey has not been a linear one, it is increasingly becoming a digital one.
“The technology and payments infrastructure is there in most global markets,” Eric Shoykhet, co-founder and CEO of Link Money, told PYMNTS as part of the “What’s Next in Payments Series: The Current State of Innovation.”
These advancements in payments technology, rails and capabilities are also helping to evolve the behavioral expectations of end-users and consumers.
Shoykhet highlighted the global landscape of payments innovation, emphasizing the rise of account-based payments and account-to-account transactions. Notable examples include open banking standards in the European Union, Unified Payments Interface (UPI) in India and Pix in Brazil.
“We’ve seen a number of key markets where open banking-related services, whether it’s payments or credit extension or data aggregation and sharing, have really taken off and have taken a lot of market share, and that’s led to some great innovation on the payments front,” he said.
These innovations have driven down the aggregate cost of payments and provided consumers with more choices and enhanced security.
“The U.S. tends to lag in some of these trends, given the less regulatory-driven and more fragmented nature of the market,” Shoykhet added. “But the developments in these other markets have definitely caused a resulting evolution in the U.S. that’s similar — and we’ve seen an aggressive movement toward open banking standards in the U.S., even though it hasn’t come from the government.”
This movement is largely driven by banks, FinTechs and cooperative organizations, resulting in the development of new financial services and products.
The evolution of payment technologies is a driver of innovation. In the U.S., there has been a focus on aggregation and orchestration layers, making it easier for merchants to access and offer a wide array of payment methods and related services.
This simplification is critical for merchants to reduce friction in payment processing and provide additional services like reconciliation, billing and tech integrations.
In terms of payment rail evolution, Shoykhet noted that there has been “a ton of development.”
“In the U.S., what we’re seeing is a real push to cheaper real-time account-to-account rails,” he said. “And a lot of that volume is coming, in some markets, at the expense of cards because account-to-account is a more frictionless and secure and cheaper payment method.”
For payment innovations to scale, Shoykhet explained that “service providers, merchants and consumers” need to drive adoption.
“As we look at 2024, it’s really going to be about the merchant and consumer adoption and how people in a lot of these markets leverage the tech and the functionality that already exists,” he added.
The success of the innovations transforming the payments industry will be more about end-user preferences and cost savings rather than any significant technology shift, Shoykhet said, re-emphasizing that the challenge lies in ensuring that providers facilitate the easy adoption of these innovations by merchants and consumers.
Behavioral shifts and merchant adoption will play a crucial role in the coming years, particularly in markets like the U.S. where the cost of payments remains high, he said.
Additionally, interest rates and consumer preferences will impact the payment method of choice, further emphasizing the importance of delivering cost-effective solutions.
“Cost is probably the No. 1 issue, at least in the U.S., and making sure people align with the payment method that makes sense for them,” Shoykhet said.
That’s in part why he said he does not believe that hardware innovations and technical advances powering future-fit payment capabilities like biometrics will make much of a dent in the near future.
While hardware innovations are undoubtedly fascinating, the introduction of technologies like biometric authentication, contactless payments and wearable payment devices is expected to have just a modest impact on consumer payment preference.
“Biometrics and things like that are nice, and to some extent they reduce friction, but I don’t think for most consumers in most use cases they will replace other methods,” Shoykhet said.
The payments landscape is evolving at a global scale, with innovations in technology, rails and behavioral shifts driving changes. As we move forward, the emphasis will likely remain on cost-effective solutions that provide value to all stakeholders, ensuring a more convenient and secure payment experience for everyone.
“I think the high cost of payments in the U.S. versus other markets is pushing and incentivizing various players to tackle that,” Shoykhet said.