Technology has altered practically every aspect of our lives and nowhere is this more evident than in fintech, particularly payments. Over the last five years, the way we handle our money has undergone a significant transition due to developments in an online-first consumer base. In fact, Covid has only accelerated this transition. As a result, the payments industry has drawn significant investment and interest. Consumers and companies want faster, more reliable, and more secure payment methods to ensure a stress-free experience with money.
According to a report by RedSeer, one out of every four investment deals in the Middle East in 2021 was in the Fintech sector, accounting for almost a third of all capital raised ($2.1bn in 220 deals). Fintech start-ups, in particular, have become a driving force in the region’s innovation ecosystem. As this industry expands, several significant trends have emerged, particularly as consumers expect more from their payments.
Internet of Things (IoT)
The shift to mobile has already seen advancements as Apple Pay, and Google Pay make payments via a mobile device routine, but now we’re seeing a shift from mobile to the Internet of Things (IoT). As wearables become more ubiquitous, we can anticipate a surge in this category, as well as a multitude of additional payment-enabled devices.
IoT has enabled us to link everything from cars to refrigerators to the internet, and has the potential to assist customers in making purchases. Adding voice activation and maybe even gestures to the experience will make payments far more natural and convenient. Soon, payment systems will be mainstream, eliminating the need to grab your phone or wallet to conduct online transactions.
Buy Now Pay Later (BNPL)
The second trend is the new generation of Buy Now Pay Later (BNPL). According to Insider Intelligence, BNPL is expected to grow and reach $680bn worldwide transaction volume by 2025.To offset costs, savvy consumers are shifting away from credit cards with high-interest rates and onto services covered by the merchant. This is making not only retailers sit up and take notice, but also the credit card industry as it evaluates how it might best serve customers.
Aside from the fact that retailers can increase sales by embracing BNPL, the draw is that it can be used for far more than just payments. BNPL firms have large amounts of data that retailers may utilise to promote consumer loyalty with more targeted products. Moreover, they can also be leveraged to offer a ‘try-before-you-buy’ service by relieving merchants of financial burden. The future of this segment will be determined by regulation, but it is here to stay and can be expected to grow and produce a more comprehensive client experience.
The final trend is data-driven identity, which will soon be determined nearly entirely by digital corporations. In recent years, there has been a growing emphasis on payment security, particularly as more of our spending transitioned online. Authenticating the participants in a transaction, on the other hand, is a significant concern, and banks, processors, and card issuers have had to create complex anti-fraud and AML solutions to verify customers’ identities to reduce transaction risk. Going forward, these will have to continue to evolve. Data-driven identity will soon become necessary, not just to battle the ever-changing threat posed by fraudsters and hackers, but also to educate consumers on payment options and help them make decisions as they evaluate the best ways to buy something.
Without a doubt, the payments and overall fintech sectors will continue to develop to suit changing customer and consumer demands. We have seen rapid progress over the previous five years, which is expected to continue. Generations that have grown up with contactless and quick online payments wherever they go are unlikely to return to cash transactions. As we move closer to a cashless society, businesses must continue to invest in new technologies and innovation in order to keep up.
Nick Curran is the Head of Endava MENA