How the Last Five Years Will Shape the Next Five Years of Payments Innovation

The old maxim says the more things change, the more they stay the same. The payments industry may have disproved that wisdom, at least in part, as world-shaking events keep pushing digital commerce in new directions from which there is no going back, nor a desire to.

PYMNTS’ Karen Webster and PayU Global Payments CEO Mario Shiliashki put that adage to the test, looking back at where the industry stood in 2018 versus where it’s heading in the next five years or so — and very little appears to be staying the same.

In 2018, innovations like national real-time payment schemes including Brazil’s Pix and India’s UPI (and soon, FedNow) were still talking points. Today, those payment rails feature prominently in any discussion of cross-border payments and expansion into emerging markets.

“We thought, ‘OK, we need to integrate Pix. That’s fine, but let’s see. Will it really take off?’ It’s taken off and then some,” he said. “You see local merchants on the street and kiosk vendors accepting Pix. The new way to donate on the street is Pix. People may not have a place to sleep, but they have a Pix account. It’s pretty incredible. We’ve seen something similar in India with UPI, and Blik came out [in Poland] and created its own trend.”

What these schemes have in common is their local nature, and Shiliashki said that’s among the most meaningful changes of the last five years: payments localization for emerging markets.

“For our business in 2018, we had just started to work with global merchants and global brands in eCommerce,” he said. “Now, five years later, about 40% of our business is driven by global brands. In the last five years, we have seen the increasing sophistication of local shoppers, and also local eCommerce merchants, which has meant that global brands have had to up their game both to provide the best local payment options, but also localized experience.”

Yet ironically, despite the Fourth Industrial Revolution of digital — and a global pandemic factored in — “something that I find counterintuitive, coming from the institutions I used to work with prior, cash is still around,” he said.

PayU has had to accommodate the use of cash in eCommerce in some markets as it remains embedded among nations and cultures.

Besides local payment methods — about which he had more to say regarding the future — Shiliashki also said a major change of recent years is the rise of alternative payment methods (APMs) from buy now, pay later (BNPL) to digital wallets to contactless cards and more.

That, in turn, has minted a new type of consumer.

“Certainly, in the last five years, we’ve seen sophistication increase,” he said. “Consumers have become [pickier]. They have more options. They won’t suffer through a broken consumer experience or a checkout that doesn’t have their preferred options. They’ll go somewhere else and find the same product.”

See also: Adidas, PayU and Mastercard Say Emerging Markets Remain Important Stepping Stones for Retail Growth

Localization Looms

Adoption of digital payment methods mushroomed due to the pandemic, invoking the general notion that 10 years’ worth of innovation got packed into three years. As a result, the B.C. era (before COVID) has become the A.D. era (adoption of digital). That’s triggered a worldwide phenom in cross-border eCommerce and the localized payment integrations to support it.

With its expertise in local integrations for consumer access to global markets, PayU has been busy as it first made the connections to enable pandemic-era commerce, and now looks to the future and how a gumbo of payment methods and platforms will change how we live and pay.

What Shiliashki said he hears from global partners and global brands is: “‘Help me localize even more. Help me add the local loyalty cards that are prevalent in that market or loyalty schemes or help me add a buy now, pay later option that I can then participate in, that I can make even more personalized.’”

Personalization is a core part of the next five to seven years in payments innovation as new real-time rails and new ways of offering consumer credit become more specialized, powered by artificial intelligence (AI) and machine learning that’s at the start of its usefulness in payments.

As that activity heats up, Shiliashki said he believes merchants will need more help than they may foresee managing the complexity of integrations across new geographies, all uniquely challenging.

“It means, for retailers and certainly for us in payments that support retailers, a lot more complexity,” he said. “We need to manage that complexity. Things like being able to credit score a lot more smartly so you can optimize the offer to that consumer at the point of checkout in a split second become potentially a game changer. But it does increase complexity, especially if you need to do it, and you do need to do it in every local market differently.”

Read also: AI Becomes the Human-Machine Bridge That Makes Payments Safe and Smart

Payments Will Get Smarter, Faster and More Personal

Shiliashki said fundamentals like payments, fraud management and authentication will remain a constant in coming years, adding that “looking at ways in which we can further optimize those, particularly through machine learning and AI technologies or biometrics for authentication, have been already game changers in many ways and will continue to be game changers around fraud management, risk management and authentication of consumers.”

Along with that comes the new importance of payments orchestration — “smart routing” as PayU calls it — which will power the seamless local payments for cross-border transactions across different payment types. Entire continents from Africa to Latin America loom as still largely untapped opportunities for merchants and their payment partners.

While he said he’s not a big proponent of the super app concept outside of populations and geographies where the concept is already established, Shiliashki doesn’t rule out super apps as a trend in the next five years, mostly based on his experiences of the past five years.

“This industry moves tremendously slowly, but then once the trend catches on, it can go like wildfire,” he said. “We saw that with buy now, pay later taking off. We are seeing that with open banking. I think that is here to stay. I think affordability, access to financial services, and credit for consumers” will be major payment trends in coming years, as he noted that more than 2 billion people are still underbanked or unbanked.

Along with the constantly changing regulatory hurdles that come with technological innovation, he said he foresees more of the localization focus paying off for small- to medium-sized businesses (SMBs).

“When you talk to small businesses — and that’s the core of most local societies is small businesses — they’re left wanting by the local banking institutions for banking and financial services,” he said.

Over time these merchants will also benefit greatly from digital payments and the ability to trade seamlessly and securely using preferred methods in every market.

“That’s a big part of what we’ve seen helping merchants compete locally,” he said. “The history of PayU, way beyond five years ago, is rooted in local eCommerce, serving local retailers, connecting to local consumers. We have both perspectives, and we serve both. We can make that distinction and help the global brands get closer to that localized experience.”