What the Future of Digital Payments Looks Like

future of digital payments

The seeds for digital payment technologies were sown as far back as 1871 when Western Union pioneered electronic funds transfer (EFT) technology, but with the pandemic pushing transactions online even in cash-dominated parts of the world, the future of digital payments as a replacement for cash transactions looks stronger than ever before.

From online shopping to digital currencies, methods of digital payments are evolving to better meet customer needs: secure, transparent, efficient and convenient—and above all, with increasingly less need to handle physical cash.

As customers around the globe turn to digital payments, e-commerce merchants need to be familiar with the rising trends and technologies in the digital payments market:

  • Contactless payments
  • Mobile point of sale (POS) technology
  • Digital wallets
  • Digital currencies
  • Buy now pay later (BNPL)
  • Fintech
  • Payment security

Contactless Payments

Contactless payments have been on the rise since tap-to-pay was introduced in 2010, but they rose a full 30% year-over-year between 2020 and 2021 thanks to biosecurity concerns related to COVID-19. Whereas physical cash and point-of-sale terminals are notorious for spreading germs, contactless payments allow customers to complete an in-person transaction without touching a third-party object at all.

The two main ways that customers complete contactless payments types are with a card or a phone that is tapped on a terminal equipped with near-field communication technology:

Contactless Cards

EMV (Europay, MasterCard, Visa) chip cards can be tapped against a card reader to complete a transaction in seconds using near-field communication. Instead of sending the customer’s account information directly, a unique code is sent instead to complete the transaction so that the customer’s card information isn’t exposed.

Because transactions made with contactless cards are PIN-less, criminals can easily complete tapped payments using a stolen card. This is why many countries set a low purchase amount limit for tapped transactions.

Mobile Payments

Alternatively, customers can pay using a payment app on their mobile phone that is linked either to mobile wallets or their bank accounts. In both of these cases, the customer signs in to the payment app using their fingerprint or a constantly changing code, selects the card or bank account and taps their device against the reader to pay.

A unique, one-time code is sent to the merchant’s payment gateway and no account data is exchanged. Because this payment method requires the customer to sign in to their phone and then sign in to the payment app, it is much more secure than a tapped card.

A Note about Contactless Payment Limits

In Europe in May 2020, the limit for contactless payments ranged from €22 in Poland to €76 in Switzerland with a median limit of €50. In 2019, there were only six European countries with limits at or above €30, so these figures demonstrate how the pandemic has accelerated the acceptance of digital payments.

Mobile Point of Sale (POS)

Mobile point of sale systems (mPOS) make it more convenient to accept both cards and digital payments without being tied to a fixed location. As more and more customers use digital payments rather than cash, mobile point of sale terminals allow merchants to accept payments on their mobile phones at conferences, trade shows, farms, food trucks, Tupperware parties or even when selling door-to-door.

To accept credit card payments on their mobile phone, the merchant simply adds an attachment to their phone that reads magstripe, chip and contactless cards as well as digital payment tokens and QR codes on the customer’s phone using near-field communication. This information then passes through the merchant’s virtual terminal and merchant account, authorising and authenticating the transaction through the customer’s card-issuing bank.

Digital Wallets

Mobile wallets or e-wallets are the digital equivalents of a physical wallet on the customer’s phone. Some of the most popular mobile wallet apps include Apple Pay, Google Pay, Samsung Pay, AliPay and Amazon Pay. These digital payment methods allow customers to make secure, contactless payments using near-field communication as well as sending and receiving peer-to-peer payments through the app.

Transactions using digital wallets grew around 24% from 2020 to 2021, according to an article from CEOWorld Magazine. As payment security concerns motivate people to use payment methods that require two-factor and/or biometric authentication (fingerprint, facial recognition, iris recognition), we can only expect the use of mobile wallets to rise.

Digital Currencies

To permit easier international trade, some providers offer digital currencies that can be purchased with the local currency and used to make electronic payments anywhere in the world. The idea is that this eliminates problems associated with conversion fees and difficulties accepting international cards, and provides some resilience against fluctuations in the global economy.

In contrast to cryptocurrencies (which are private, company-based digital currencies), digital currencies are tied to central banks to keep the supply in check and prevent devaluation and inflation. According to a BIS survey, 60% of central banks are considering developing their own digital currency and 14% are actively conducting pilot tests, although most don’t think it’s likely that they will issue a digital currency any time soon.


Motivated by the unprecedented mobility of global citizens in the twenty-first century, financial services organizations have emerged in the payments industry that provide easier, quicker, and cheaper cross-border transfers than traditional payment providers such as banks. While they are not financial institutions themselves, these companies work with banks around the world to help users receive and transfer funds. Basically, you can think of these cross-border companies as the digital version of MoneyGram.

To offer lower rates than traditional financial institutions, some fintech companies like Wise (formerly TransferWise) issue users their own bank accounts in the receiving country so that others can deposit funds in the source currency without a fee. Once these funds are received in the user’s account, they can add funds to savings “jars,” pay for goods and services directly from a mobile wallet or transfer funds internationally for a small fee.

Buy Now Pay Later (BNPL)

Physical cash isn’t the only payment phenomenon that has fallen out of favour with the new generation. Credit cards are also falling in popularity, with newer options like BNPL coming onto the scene. Instead of giving customers a large amount of borrowed funds to spend on anything they like, BNPL allows customers to spread out the cost of a purchase over time, typically dividing the amount into four or six interest-free instalments.

For customers, BNPL allows them to receive goods and services now and plan out their repayments on a schedule that works for them. This is particularly helpful for young people who need professional equipment or attire for a new job but haven’t received their first paycheck yet.

For merchants, offering BNPL removes a lot of the hesitancy generated by a large up-front cost that customers might not have right now. In fact, by offering BNPL, merchants often see a 20-30% increase in conversions and a 30-50% increase in average ticket size, and as the BNPL provider pays the merchant in full, there is effectively no risk to the merchant.

Digital Payments and Data Access

Ultimately, the move toward digital payments creates a flow of data that makes transactions visible. No matter where they are located, merchants, payment providers, and financial institutions can “see” the transactions taking place in their systems all around the world.

For merchants, this visibility presents unprecedented opportunities:

  • Every transaction is fed automatically into sales data.
  • Merchants are able to gather detailed information about their customers and their customers’ purchasing habits.
  • Merchants, payment providers and banks can intercept fraudulent transactions and halt the transactions before they go through.

The challenge with increased visibility of payments data, however, is ensuring data privacy for customers and making sure that payment information doesn’t pass into the wrong hands. In Europe, merchants must comply with the General Data Protection Regulation, which includes such principles as only collecting the information you need and only storing it for as long as necessary “for the intended purpose”. Companies also need strong internal policies and protections to prevent a data breach within the company itself.

E-Commerce Payment Security

To address both internal and external security concerns, merchants need to have a comprehensive fraud protection plan. At a minimum, this plan should include:

  • A secure socket layer certificate (SSL certificate) to encrypt the flow of information to and from the site
  • A secure checkout that encrypts customers’ payment information
  • Two-factor authentication (CVV, AVS and/or a code sent to the customer’s email or mobile) to confirm a purchase

Beyond those basics, merchants can invest in new fraud prevention technologies that use machine learning and artificial intelligence to recognise and block (or flag) suspicious transactions.

As a digital SaaS product which is often included in your suite of merchant services, fraud protection software is constantly being updated to recognise and deal with new cyber threats that develop on the back of digital payment innovations. As a merchant adapting to the future of digital payments, advanced fraud protection software keeps you one step ahead.

What Digital Payment Innovations Mean for You

As an e-commerce or omnichannel merchant, it’s important to be aware of developments in digital payment technologies to make sure that you continue to meet customer needs as those needs evolve.

As customers develop preferences for digital wallets and other digital payment methods, offering those payment options at the checkout can help to boost customer loyalty and customer satisfaction with the shopping experience.

The future of digital payments goes hand in hand with the future of your ability to make sales. Being ready to adapt to change and having an up-to-date payment provider by your side is the best way to keep that income flowing to you!