Capgemini’s Top Trends in Payments 2022 sheds light on the growing importance of personal identity and transaction authentication in the Payments 4.X era, an experience-driven environment where payments for consumer lifestyle purchases are invisible, frictionless, and enable functions that boost customer experience . As a result, the report notes that Payment Service Providers will seamlessly handle retail payment transactions at the back-end.
Therefore, in 2022 and beyond, digital ID infrastructure will be essential, particularly as non-cash payments flourish and the payments instrument mix increasingly shifts to digital.
With an eye on CX, financial institutions will collaborate with FinTechs/PayTechs, third parties, and other payments ecosystem partners to offer retail consumers frictionless service. As some services are standardized and available via white-label products, customer data will become a prized asset and success factor. However, before>Data digitalization and Application Programming Interface monetization will encourage participation in multiple ecosystems in the Payments 4.X era. Creating win-win value exchanges through collaboration is critical as network effects, such as increased participants improving product and service value, become high-impact success drivers.
Therefore, future-focused PSPs will invest in allied infrastructure to support burgeoning non-cash transaction volumes. Moreover, we can expect these providers to increasingly share information about cyberattacks and software vulnerabilities with their partners as they build tools and offer incentives to heighten awareness about security among vendors, clients, and consumers.
Robust digital ID infrastructure is a Payments 4.X cornerstone
Source: Capgemini Financial Services Analysis, 2021.
Digital ID emerges as a vital enabler for safe and inclusive growth
Providing a frictionless experience for customers will be a key performance indicator in the contactless future. Yet, fragmented and unwieldy authentication processes are in dire need of an overhaul. And the situation becomes more complex as the industry’s robustness attracts new players hoping to grab a lucrative slice of the Payments pie.
Both customers and businesses are demanding safeguards to protect against payment fraud and identity theft. What’s missing? As highlighted in our trends book, a robust digital ID framework for fool-proof remote identification and authentication.
As part of our 2021 World Payments Report, 30% of the Voice of the Customer survey participants said they experienced friction during the check-out process − online and in-store. And CX challenges may continue as the global volume of identity verification checks exceeds 92 billion in 2026, up from 45 billion in 2021, according to a recent study.
The European Banking Authority stated that the Strong Customer Authentication under Payment Services Directive Two , scheduled for implementation in March 2022, relies upon digital identity as the second level of authentication.
Digital identity ecosystems are trending. Across the globe, industry associations and stakeholders are formulating uniform standards and partnerships. For example, the World Economic Forum curates a shared Platform for Good Digital Identity to bring together inclusive, trustworthy, safe, and sustainable identity solutions.
Digital identity trust frameworks are now emerging in Canada, the EU, the Smart Africa Alliance, Australia, and New Zealand. They are even growing in popularity amongst vertical market sectors, encompassing data responsibility, cyber security, interoperability, inclusion, governance, redress, and liability.
- For example, in 2021, Eftpos became the first private sector digital identity exchange accredited by Australia’s government, allowing the network’s use in online transactions needing digital ID verification. Eftpos launched ConnectID to enable users to authenticate their identity with merchants, hotels, hospitals, insurers, and government agencies by linking to a verified digital ID.
- Ten Spanish banks, including Santander, Caixa, and Generali, are developing Dalion − a blockchain-based self-managed digital identity solution. The partners completed the concept test and the second phase of the project in summer 2021.
Identity has become a competitive battleground. And as the digital identity market flourishes, banks are enabled to regulate data use, establish digital Know Your Customer functions, and boost consumer confidence. Trust is critical for PSPs seeking to lead in the Payments 4.X era as the focus shifts from payments as a product to payments as a customer reach and engagement tool.
Cybersecurity is critical as open ecosystem partners share data
As more and more consumers embrace new payments systems in the wake of the pandemic, cybersecurity becomes even more essential. According to industry estimates, account takeover fraud rose from 34% in 2019 to 54% in 2020 – a clear call for a sharp focus on cybersecurity. As a result, banks and FinTechs are reinvesting in automation and advanced analytics to build consumer confidence for online payments.
- Payments platform Stripe launched a self-service identity verification system for online businesses that leverages computer vision and AI to match official IDs from more than 30 countries.
Beefed up by industry consolidation, PayTechs and PSPs are scaling − and payments incumbents feel the competitive heat
The payments industry has undergone significant Mergers & Acquisitions activity over the past decade. This consolidation trend is visible across all players ranging from FinTech and FinTech mergers to PSP and FinTech acquisitions. New-age players that entered the market with specialized or niche offerings find M&As to be an effective way to grow across the value chain.
In a bid to future proof, payments firms are bulking up to offer one-stop shopping for end-to-end services and a wide variety of competitive value propositions – and incumbents are taking notice.
- US technology services provider Global Payments is expanding its capabilities by acquiring Software-as-a-Service firm MineralTree, which automates procurement processes and enables virtual cards and integrated payments across vertical markets.
We expect consolidations to be a near- to short-term trend as firms offset negative returns from unprofitable segments or markets.
- Netherlands-based PayU acquired India’s BillDesk for nearly USD5-billion to become one of the leading online payment providers globally by volume, processing about 4 billion transactions annually.
Nearly 72% of banks consider BigTechs as competitive threats because of their deep pockets, platform-based capabilities, and customer outreach. With robust ecosystems, BigTechs muscled their way into small and medium-sized businesses in recent years and are now well-positioned to tap B2B payments opportunities. But, here’s the paradox – 31% of the executives we polled said they favored collaborating with technology and e-commerce giants to improve distribution.
- For example, Goldman Sachs is integrating data shared by third-party Amazon sellers into its digital underwriting decision platform to provide inventory and operational financing that support the growth of businesses.
Multi-dimensional disruption was already altering the face of the Payments before the pandemic. Now, the industry is racing toward an open-finance future where payments are transparent. While a focus on frictionless experience is paramount, industry frontrunners must stay alert to the importance of supporting infrastructure. Of course, collaborating at scale will expedite capabilities to succeed.
Jeroen Hölscher, Global Cards & Payments Practice lead, Capgemini Financial Services
Elias Ghanem, Global Head of Market Intelligence, Capgemini Financial Services
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 Capgemini, World Payments Report 2021, Oct 7, 2021; Voice of Customer Survey N=6,300.
 Juniper Research, “Number of Identity Verification Checks Globally to Exceed 92 Billion in 2026,” Jun 21, 2021.
 World Economic Forum, ”4 principles for securing the digital identity ecosystem,” Mar 18, 2021.
 World Economic Forum, “How digital identity can improve lives in a post-COVID-19 world,” Jan 14, 2021.
 Pymnts, “Payments Network Eftpos Gets OK From Australia for Digital ID Verification,” Sep 27, 2021.
 Think.Digital Partners, “Digital Identity: Global Roundup − Spain;” Mar 29, 2021.
 InfoSecurity magazine, “Fraudsters Ramped Up Account Takeover Attacks in 2020,” Feb 3, 2021.
 AI Magazine, “Stripe Launches AI-Based Identity Verification System,” Jun16, 2021.
 Mineral Tree, “Global Payments Agrees to Acquire MineralTree, a Leader in Business-to-Business Software-Led Payments,” Sep 8, 2021
 Business Standard, “PayU acquires BillDesk for $4.7 bn in one of largest Indian fintech deals,” Sep 1, 2021.
 Capgemini, World Payments Report 2021, Oct, 7, 2021.
 CNBC, “Amazon unveils small business credit line with Goldman in latest tie-up between tech and Wall Street,” Jun 10, 2020.