There’s no shortage of evidence showing that digital payment methods are nearing a tipping point.
As PYMNTS Intelligence and the Federal Reserve have reported, consumers and businesses are accelerating their use of digital wallets and instant payments.
The Fed’s Consumer Research Brief found that 57% of consumers expect to use faster payment options more extensively in the future. Among the top use cases to benefit from instant payments are online shopping and last-minute bill payments. The Fed linked to the “2024 Global Digital Shopping Index: U.S. Edition,” citing the joint effort by Visa Acceptance Solutions and PYMNTS as “highlight[ing] the growing incidence of digital payments and the breaking down of boundaries between online and in-store shopping experiences.”
But there is a cost for merchants and financial institutions involved in this rapid expansion, and they need to be ready for it. Joe Meuse, vice president of product at Spreedly, told PYMNTS that this growth rate is notably higher than previous years — double the rate seen three years prior and triple that of six years earlier. This rapid expansion underscores the increasing complexity and cost associated with modern payment systems.
“There’s a lot of complexity behind the scene as merchants solve new problems and make investments to support that modernization,” Meuse said during a recent “What’s Next in Payments” interview.
Staying abreast of consumers’ changing tastes requires investments in both hardware and software.
“It’s not cheap to do digital payments,” he said, pointing out that merchant processing costs are a substantial part of the expense of payments acceptance.
Spreedly’s orchestration platform is designed to mitigate these challenges by delivering economies of scale, enabling merchants to access a broad range of payment options and new markets without hefty investments in back-end technology. This approach helps merchants navigate the expense and complexity of enabling diverse payment methods, including local payment methods and digital wallets, which continue to gain momentum.
Meuse also highlighted the potential of open banking and other technologies to nudge consumers toward more cost-effective payment methods.
“We’re very bullish on the growth of open banking and what that could potentially mean for merchants,” he said, illustrating how such technologies allow merchants to influence payment behaviors in economically beneficial ways.
In terms of technological advancements, Meuse pointed out the role of data in enhancing transaction performance.
“The same data that can help ensure that merchants are meeting and anticipating end-market demand can be applied at the transaction level so that routing is efficient, cost-effective and safe with tokenization,” he said.
Real-time data analytics and artificial intelligence are increasingly vital, optimizing payment processes and operational efficiencies.
Emerging technologies like blockchain and the Internet of Things (IoT) are also becoming integral in evolving the payment landscape, according to Meuse. Blockchain is being used to send data securely, improving transaction performance, while IoT extends the capability of payment methods to devices like cars and wearables, facilitating transactions anywhere. The same data that can help ensure that merchants are meeting, and anticipating, end market demand can be applied at the transaction level, so that routing is efficient and cost-effective — and safe with tokenization.
“Paying by text is another use case that will likely see momentum,” Meuse said.
The orchestration of these technologies creates customizable workflows for merchants, allowing them to optimize every payment with best-in-class solutions from across the industry.
For Spreedly’s platform, which connects to more than 140 payment service providers (PSPs), partnerships and collaboration are paramount, he said. The evolving partnership trends in financial services emphasize specialization over the “jack-of-all-trades” approach. These collaborations are crucial because optimizing payment flows and managing risks like chargebacks and fraud demand focused expertise.
“We can share costs and technologies through the open payment platform — and bring modern capabilities to the masses,” he said.
This model not only democratizes access to advanced payment systems but also allows merchants to exercise greater control over the payments they accept and to craft “layered payment strategies” that streamline various payment scenarios, Meuse said.