The system for moving money worldwide is undergoing massive change, out with lumbering banks and expensive credit cards and in with flashy crypto protocols, seamless fintech wallets, and even digital central-bank money.
Several emerging technologies are making the process faster and cheaper. This special report explains how and why.
The term ‘peer-to-peer’ (P2P) refers to a network arrangement that connects individuals directly rather than through a central server. The modern P2P concept has been popularized by file-sharing systems and other online services that allow users to collaborate to function as user-created search engines, virtual supercomputers, and even music-sharing platforms.
As a result of technological developments and consumer demand, retail payments are becoming more convenient, instantaneous, and available 24/7. These improvements started with wholesale payments and recently also with retail payment systems.
Some of these innovations are focused on improving the front end by making it easier for consumers to initiate transactions (e.g., mobile payment apps). Other efforts are addressing the back end, aiming at increasing the speed of payments.
Distributed Ledger Technology (DLT)
DLT, also known as blockchain, moves record-keeping from a single location to a global network of participants. As a transparent and trusted system, it is designed to reduce fraud by demonstrating ownership and conveying an unchangeable source of truth.
Many financial institutions are running proofs of concept to explore the potential impact of DLT on various processes such as cross-border payments, trading and settlement of securities, and asset registrations. However, DLT will only achieve its benefits if there are sufficient volumes to provide the economies of scale needed.
Artificial Intelligence (AI)
The AI revolution influences the payments industry, making it much more accessible and convenient for businesses and consumers. It is helping to streamline the whole payment process and reduce the time and cost involved.
Aside from improving the overall customer experience, AI is also making it easier for payment gateways to process high volumes of transactions with minimal errors and fraud. This is made possible by the ability to detect and predict fraudulent activity based on a person’s behavior.
It can also automate KYC procedures by automatically reviewing identity documents and flagging suspicious activities. This saves a lot of time and resources while still meeting the required regulatory standards. Another use of AI in the payment industry is enhancing the personalization of payments by gathering specific data on a customer’s buying history and suggesting relevant payment methods. This can help to increase conversions and boost revenue for businesses. AI can also eliminate the issue of card declines at checkout by analyzing transaction patterns and identifying unusual behavior.
Internet of Things (IoT)
The Internet of Things (IoT) brings internet connectivity, data processing, and analytics to physical objects and the people who interact with them. IoT systems include:
- Smart home devices like voice assistants and automated vacuum cleaners.
- Retail environments where IoT sensors enable payment without a card or cash.
- Work settings where IoT can help gain operating efficiencies or optimize equipment use.
For example, IoT sensors in a company’s factory can monitor machine performance to identify potential breakdowns before they cause a loss of productivity. IoT systems integrating with marketplaces can enable fleet operators to sell spare capacity on their trucks to other shippers or cargo owners.
IoT payments are automated and triggered by real-time data, requiring no human decision-making or manual input to complete. For consumers, this means a seamless experience that can make repetitive or low-value purchases automatically. For businesses, IoT can mean more regular and dependable revenue compared to payments that depend on human motivation and memory.
Lynn Martelli is an editor at Readability. She received her MFA in Creative Writing from Antioch University and has worked as an editor for over 10 years. Lynn has edited a wide variety of books, including fiction, non-fiction, memoirs, and more. In her free time, Lynn enjoys reading, writing, and spending time with her family and friends.