Technologies, trends, and tips for finance

A commuter uses a smartphone to pay a bus fare. A group of friends settle a dinner bill with a social payment app. Two multinational trading partners use blockchain technology to streamline their cross-border payments.

These examples illustrate the power and potential of digital payments. Technology is already radically transforming the basic process of buying and selling. Digital wallets were used globally for transactions worth $13.9 trillion in 2023, or half of all online and 30% of consumer spend at point of sale (POS), according to Worldpay’s Global Payments Report 2024. By 2027, they are expected to account for more than $25 trillion in global transactions, representing 49% of all online and POS sales combined.

As organisations increasingly embrace digital solutions and globalisation, payments are undergoing their own transformations. Much change is already underway: According to an EY report on the future of payments, “The disruption of the traditional payments ecosystem has been rapid and impactful.” This article describes how the payment ecosystem is changing, the trends driving that change, and which future trends finance teams should be aware of.

Embracing payment technologies

“Retailers, aiming to enhance customer satisfaction and competitiveness, readily embrace the latest payment technologies,” said Peter (Yuan) Jin, FCMA, CGMA, vice president and CFO at China-based Huifu Payment Limited.

Digital payments are being widely adopted by consumers. China, for example, is one of the top countries for mobile payment adoption in the world. In GlobalData’s 2023 Financial Services Consumer Survey, 84% of respondents in China had shopped using mobile wallets in the previous year. This enthusiasm is largely due to pervasive smartphone and internet accessibility, QR code-based payment adoption, and the popularity of local payment tools such as Alipay and WeChat Pay in China, the GlobalData report said.

Digital payment tools can be used by consumers and businesses in several ways, according to Patricia Partelow, managing director, financial services consulting, Ernst & Young LLP. For example:

• Digital wallets enable customers to make immediate payments for goods or services or to store tickets for travel or events.
• Consumers can receive immediate credit with buy now, pay later payment methods and pay off the debt over time.
• Social payment apps and streaming services can use embedded financial options for reimbursements or payments. Payments can now be embedded into the commerce flow instead of being a separate process.
• New cross-border payment solutions allow import and export businesses to use faster and less costly financial channels. There is the potential for interoperable data-rich cross-border payments that are immediate, transparent, and predictable. These could make it possible to send a payment between any two countries, append data to the payment, and track its movement.

What’s driving change

At the outset, digital payments were concentrated in retail and consumer payment transactions, such as online purchases, bill payments, and peer-to-peer transactions. The transition to digital payments on the business-to-business (B2B) side has been slower due to transaction complexities and the need to integrate new payment options with existing financial systems, according to Brian (Xuan) Zhu, ACMA, CGMA, the CFO and chief sustainability officer for United Overseas Bank (China) Ltd.

However, John Jin, FCMA, CGMA, CFO of Paypal China, said: “B2B payments are gradually incorporating digital invoicing and blockchain for better transparency and efficiency, and this has become one of the fastest growing areas for digital payments.”

Digital payments have become the foundation of enterprise digitalisation. As companies incorporate technology into all business areas, digital payments help them supplement traditional B2B online banking and meet payment needs. “They integrate information, logistics, and capital flows, thus digitising industrial platform operations,” Peter Jin said.

Artificial intelligence (AI) is also supporting digital payment growth. According to Partelow, AI is used in authentication, identification of fraud, and to personalise the customer experience. However, organisations should be aware of data governance concerns with using AI and of potential biases in data analyses, she advised.

Digital payments: Tips for finance leaders

Finance leaders can focus on four areas to maximise the digital payments opportunity:

• Understand the digital payment landscape: Finance teams will need to understand how digital payment technologies work, the regulatory environment, and how best to integrate new payment technologies into the organisation’s existing systems, Peter Jin said.
• Rethink approaches: Treasury departments will need to reconsider how best to monitor their cash positions if transactions are no longer going to take three days to clear, said US-based Partelow. Systems will have to be modernised to achieve greater agility in keeping up with the pace of payments as well. Finance teams and their organisations will also be receiving additional data with payments, which will provide new information but also create additional privacy concerns.
• Focus on risk: Invest in cybersecurity aimed at minimising risks related to digital payment technologies, and adopt scalable, compliant payment solutions, John Jin said. “Ensuring transaction transparency and integrating AI for enhanced fraud detection and personalisation are crucial,” he added. He also noted that continuous monitoring and regular audits of payment systems are essential to mitigate risks, while educating clients and stakeholders on related benefits and risks can allow the organisation to navigate potential pitfalls and maximise advantages. Contingency planning can help organisations to ensure business continuity by preparing for technical failures or security incidents, Peter Jin said.
• Foster innovation: According to Zhu, finance leaders should ensure compliance with evolving regulations and be ready to adapt to technological advancements that will mitigate the risks associated with digital payment systems. Peter Jin recommended developing partnerships — with financial institutions, technology providers, and other industry experts — to foster innovation in working with digital payments.

Looking ahead

“In the next five years, digital payments are likely to become even more integrated with AI and blockchain technology, leading to greater security and efficiency,” Zhu said. The development of central bank digital currencies, such as the digital yuan (e-CNY), should also have a significant impact on both consumer and B2B transactions because it will provide a state-backed alternative to existing digital payment systems, he said.

Technology advancements will continue to drive change, according to Peter Jin. “Payment processes will become smoother and more seamless, exemplified by one-click payments via biometric technologies,” he said.

B2B use will grow, as digital payments streamline previously fragmented information and capital flows, generating data on consumer payment habits, preferences, time, and location. “Businesses can leverage digital payment technologies to complete transaction data and gather, organise, and analyse these data,” Peter Jin said. “[Companies can then extract] valuable insights to optimise services, develop new products, improve operational efficiency, and even create new business models,” he added.

In response to all of this growth, there is likely to be evolving regulatory oversight. For regulators, data privacy is a key concern, according to Partelow. More guidelines can help promote confidence in digital payments, which can accelerate growth. On the other hand, overregulation can hinder progress and innovation, she said. It will be important to maintain a balance when setting guardrails.

Partelow recommended that finance leaders take a payment portfolio approach, creating a vision and a road map for payment transformation in collaboration with the digital and IT teams. An end-to-end view recognises that decisions made in commerce systems have implications for a multitude of areas including payments, accounting, and reconciliation. Staying connected to all the other initiatives makes it possible to understand the role and impact of many functions in the payment process, she concluded.

— Anita Dennis is a freelance financial writer based in the US. To comment on this article or to suggest an idea for another article, contact Oliver Rowe at [email protected].