Guide To Digital Payments will be described in this article. Commerce is quickly transitioning to digital payments, just like everything else in our world. The epidemic has exponentially accelerated what started more than ten years ago with the advent of e-commerce popularising digital means of payment.
Two-thirds of adults globally make or receive digital payments today, a trend that experts predict will only grow in the “new normal” that emerges after a pandemic. The Great Payments Disruption cannot be ignored by banks, credit unions, or other financial organisations.
A Complete Guide To Digital Payments
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They must invest in the technologies necessary to develop forward-thinking, future-ready digital payment solutions that satisfy consumer demand, enable frictionless digital payment experiences, seize opportunities to bank the unbanked, and provide the security benefits required to mitigate rising cyber risk.
What are digital payments?
Digital payments are transactions made possible by digital, online, or other electronic means. This covers everything from online bank transfers, wire transfers, and eChecks to mobile wallets and digital payment services like Apple Pay and Google Pay, as well as the expanding use of cryptocurrencies and related goods like the Coinbase Wallet. Statistics and developments in digital payments 59% of respondents used at least one sort of digital payment service, according to the 2021 State of the Union: Global Digital Payments and Fintech Ecosystem research by 451 Research, which was commissioned by Discover Global Network. Through 2030, the market for digital payments is anticipated to expand at a CAGR of 20.5%. By 2024, it is anticipated that digital and mobile wallets would make up more than half (51.7%) of all e-commerce payment methods globally.
In 2021, the market for digital payments was estimated to be worth USD 7.36 trillion, and by 2027, it is predicted to be worth USD 15.27 trillion. For the first time ever, global e-commerce sales will top USD $5 trillion this year, making up more than a fifth of all retail sales. From $7.5 trillion in 2022, the value of digital wallet transactions is expected to hit $12 trillion in 2026.
Why digital payments are increasingly important to financial institutions
There are three main reasons why every financial institution should prioritise digital payment solutions now and in the future:
Addressing consumer demand: The banking industry, like other industries, is becoming even more focused on customer experience, and customers overwhelmingly prefer digital payment methods.
More than half of customers, according to a new research, say contactless digital payment options are their favourite mode of payment.
Also, customers are saying that flexible payment choices are the most important aspect in their decision to use a particular financial institution as well as a major component in their decision to move.
Delivering a cutting-edge digital payment experience is increasingly crucial for luring in new clients and keeping existing ones.
The majority of consumer banking is done through digital channels, and this includes creating new accounts totally online or on a mobile device more and more frequently.
About two-thirds of poll respondents prefer to open a bank account digitally.
Financial institutions may offer a flawless online account-opening experience thanks to digital payments via digital card solutions, which also virtually instantaneously give new account holders purchasing power.
Safeguarding transactions: Fraud has a negative impact on reputation and revenue.
Yet, the costs of fraud continue to rise considerably, especially as more transactions shift online, where regular credit and debit cards are more vulnerable to hacking, compromise, and fraudulent use.
The harm done to client trust is more significant than the expense of fraud.
Nine out of ten consumers are very worried about falling victim to scam.
Yet when fraud occurs, people tend to hold the financial institution responsible: according to a survey, two-thirds of respondents switched banking institutions after learning of the crime.
Leading digital payment and digital card systems offer numerous additional layers of protection around transactions — both online and offline — to give customers and FIs peace of mind.
Key benefits of digital payments
Digital payments, such as digitally issued credit, debit, and prepaid cards, have a variety of advantages over traditional physical or analogue payments, including:
Security: Cardholders get a consistent approach to push and control digital cards from bank apps into every use case, with a unique token for each use case, using a digital card solution that enables tokenization. This significantly lowers the danger of credential theft and fraud. Leading-edge digital security solutions, such as high-assurance authentication, tokenization, encryption, and more, are now possible thanks to digital payments.
Control: A digital card solution gives the issuer (or cardholder) the ability to impose more stringent restrictions on the circumstances under which the card may be used.
The issuer can also give the cardholder flexible control over these limits through an online or mobile banking platform. Transparency/visibility: As each digital card transaction is associated with a unique card number, it is simpler for issuers and cardholders to view and follow transactions and balances in real-time. Additionally, it expedites and clarifies the fraud investigation process.
What are the types of digital payments?
Any means of transmitting money or digital currency between two parties utilising digital payment technologies is referred to as a “digital payment.”
Several other kinds of digital payments are frequently included in this:
Electronic bank transfers, eChecks, and wire transfers are examples of online electronic payment methods.
PayPal, Venmo, Zelle, and other mobile payment services are examples.
Mobile wallets, digital wallets, and e-wallets include Apple Pay, Google Pay, Samsung Pay, and others.
A credit, debit, or prepaid card provided directly from a financial institution to a customer’s mobile/e-wallet
This broad category includes mobile wallets that use magnetic security transmission (MST) technology as well as contactless credit, debit, and prepaid cards utilising near-field communication (NFC) technology.
Distributed ledger technologies, the most popular of which is blockchain, enable secure digital transactions.
Why digital cards will dominate the future of digital payments
Financial institutions and other issuers are switching to a new, better way to issue cards as mobile/digital wallets like Apple Pay and Google Pay gain widespread popularity and usage.
Instead of issuing a physical credit or debit card, banks and credit unions are employing digital card solutions to instantaneously issue digital payment credentials (i.e., a new credit or debit card) directly to the cardholder’s mobile/digital wallet.
These digital card solutions not only provide obvious advantages over conventional payment methods, but they are also quickly becoming a top digital payment option for both consumers and issuers.
Security of digital payments: Digital cards allow the issuer to implement all high-assurance digital security solutions to reduce fraud.
Trust and familiarity:
Digital card solutions are issued by the customer’s bank or credit union, building on a solid basis of trust and familiarity. This contrasts with mobile payment apps like Venmo or volatile cryptocurrencies.
Consumers do not need to wait for a physical card to be mailed to them before adding the new card to their mobile or digital wallet.
The digital card is instantaneously issued and made usable by being added to their mobile or digital wallets.
The growing popularity of mobile wallets shows how much consumers value the practicality of digital card solutions for both online and offline purchases.
How digital card solutions work
In its most basic form, a digital card solution consists of five components:
- Client Bank Account
- Mobile Wallet
The cardholder must have a mobile wallet installed on their smartphone or other device, such as Apple Pay or Google Pay. Another option is an NFC issuer wallet, which eliminates the requirement for a third-party wallet by allowing cardholders to make payments directly through their bank app.
Key components of a digital card solution
The financial institution’s digital credit or debit card with NFC wallet connects the customer’s bank account to their mobile wallet, enabling them to access funds to conduct transactions through the mobile wallet.
- Transmission and processing of digital data
- This is the channel, also known as payment rails, through which the transaction is executed.
- Payment System for Merchants
- Finally, in order to accept digital card payments, the merchant needs to have a POS system or other payment processing technology in place.
- A digital card solution’s essential elements
- The digital card ecosystem is described above in its most basic form.
- In actuality, digital card solutions can come with a wide range of capabilities and technology.
- To fully realise the potential and value of digital cards, issuers should consider integrating the following features and capabilities into their digital card solutions:
Immediate issuing: Instantaneous, real-time delivery of digital cards to cardholders’ smartphones.
Secure card display: To allow cardholders to make online purchases without using a physical card, securely show sensitive card information within the mobile/digital wallet application.
NFC issuer wallet: Convert your mobile banking app into an NFC-enabled wallet to preserve strategic connections with cardholders through in-app NFC mobile payments.
Push for X-Pays and online retailers:
Cardholders should be able to push digital cards directly into digital wallets to provide the greatest level of convenience and simplicity.
- Enable “Click to Pay” with supported e-commerce businesses as an extra functionality.
Card controls and alerts:
Provide cardholder controls, such as the ability to turn cards and tokens on and off and limit spending in particular payment categories, such as apparel or transportation, to decrease fraud and ensure trust.
Token manager: Using a cutting-edge payment management tool, enable cardholders to self-manage their digital cards and secure tokens to lessen the burden on the issuer.
PIN in and PIN out: Let cardholders to select their own PIN by securely displaying the PIN number in the application.
The PIN is immediately accessible on the app.
How to secure transactions with digital card solutions
Compared to traditional payment methods, digital card solutions naturally offer a higher level of transaction security. To reduce fraud and safeguard customers, issuers can improve transaction security in two major ways:
Protect all sensitive consumer data at its source and throughout transmission by tokenizing or encrypting it. Tokenization hides personally identifiable information so that only systems or authorised users with the right security key can decipher and use it.
Tokenization therefore gives a merchant-specific encrypted token for each purchase made by a consumer using a digital card, as opposed to directly exchanging a single card number. The cardholder’s information is safe, illegible, and essentially useless to hackers if the merchant experiences a breach.
Verify your identity:
A staggering 61% of breaches are the result of credentials that have been lost or stolen. Most of these attacks can be prevented by using enhanced authentication to verify that the person using a mobile/digital wallet (and the digital card it contains) is who they say they are.
This covers strategies like passwordless access, device reputation management, transaction verification, and adaptive authentication, all of which considerably increase transaction security without burdening cardholders with extraneous friction or inconvenience. These authentication technologies are crucial components of a thorough fraud monitoring programme, assisting the issuer in proactively identifying patterns of fraud and notifying the cardholder so they can take immediate action.
Investing in digital card solutions to build a competitive advantage
Customers want the flexibility to pay when and how they want, and Entrust makes that possible. In order to meet customer needs in this area, banks are progressively giving up on in-house peer-to-peer (P2P) and peer-to-business (P2B) solutions and putting their resources instead into partnerships. As more banks seek to offer postponed payment choices, buy now pay later (BNPL) capabilities are proliferating.
For frictionless and hands-free transactions, digital wallets are making a comeback. Issuers that ignore this trend and fail to integrate with a variety of payment apps will fall behind. Read more about how the Entrust Digital Card Solution enables banks to instantaneously provision digital payment credentials to the cardholder’s mobile wallet through your bank’s or credit union’s mobile application. With Entrust, you can quickly integrate digital payments into your banking app.