5 payment trends to look out for in 2021

Philip McHugh, CEO at Paysafe Group

What a year it has been. It’s been one that none of us saw coming, there have been some highs and lows, but overall it continues to be an exciting time for the payments industry.

Undoubtedly COVID-19 is going to continue having an impact on us all, but there are still reasons to be optimistic about the future.

Here are five trends to watch out for in payments in the next 12 months.

1. A surge in subscription models

Almost one fifth (18%) of stores told us that they had launched a subscription services during the pandemic, and this is not only a result of business need but also customer demand. Overall, 27% of consumers told us that they were already planning to increase the number of subscriptions they had in the future, and this rose to 37% for consumers aged 18-34.

The growth will not be limited to digital either. Pret A Manger recently launched the first in-store coffee subscription service in the UK, and we expect to see similar models populating malls and independent stores soon.

Also, only the initial purchase of a subscription is subject to PSD2 multi-factor authentication. So for some businesses, launching a subscription service may be a way to reduce friction in the online checkout.

1. Digital payments landscape to be changed by new to online consumers

As more consumers headed online during the first wave of COVID-19, businesses noticed that their customers were also paying differently. Three quarters (76%) of the businesses we recently asked for our Lost in Transaction research report series said that consumers were using different payment methods during the pandemic, with the increased use of digital wallets being the most common. Having more customers that were new to eCommerce, and customers now shopping regularly with businesses that they were not comfortable sharing their financial details with, were key reasons for this.

Consumers confirmed this was true. When we asked in April, 18% of consumers told us they shopped online for the first time during the pandemic. With 38% of consumers telling us they are planning to shop online more even when COVID-19 is no longer a factor in their lives, we should see this shift to alternative payments continue.

1. Further growth of digital peer-to-peer payments

One final trend we predicted last year that bears revisiting in the growth of digital peer-to-peer (P2P) payments. In the US, 2021 has long been predicted as the year that more than 50% of consumers actively use P2P apps to send money to friends and family, but with cash use declining in the US in the wake of the pandemic this prediction may be an underestimate. In other regions, such as South America, P2P payment apps also set to explode in popularity in the next 12 months.

Similarly, while the international remittances market is predicted to shrink overall in 2021, the percentage of remittances that are made using digital remittance methods will significantly increase in 2021, with the declining use of cash and greater familiarity with these services due to physical remittances stores being closed at points during 2020.

1. SCA will drive mass adoption of biometric authentication 

Perhaps the first factor to shake up the payments industry in 2021 is going to have the greatest impact of any trend we will see in the coming year. That is because, after a series of extensions, the deadline for PSD2 Strong Customer Authentication is fast approaching. From December 31 2020 any transaction that isn’t verified by multi-factor authentication will be automatically declined.

One of the inevitable consequences of this is going to be a huge increase in the use of biometrics to verify payments. With the growth of mCommerce that we have seen before and during COVID-19, it seems very likely this will accelerate beyond predictions made at the initial SCA deadline in 2019. Juniper Research has already predicted that biometrics will be used for more than 18 billion transactions in 2021, with a value exceeding $210 billion in 2021.

1. AI and machine learning as the cornerstone of fraud prevention

We’ve known about the importance of artificial intelligence (AI) and machine learning to financial services for years, but in many cases the industry has been slow to implement the technology. With the sophistication of financial crime increasing, and the growing concerns of consumers of being a victim of fraud, it is no surprise that adoption is now accelerating rapidly.

Banks have currently spent as much as $217bn on AI applications already, and in 2021 AI and machine learning based systems will be the standard in fraud prevention.