Whilst 2023 was a year still recovering and enduring the plight of a current downturn in the global economy, 2024 is aiming to break out of this slump by introducing several new financial innovations to an ever-evolving payments landscape. 

Barry O’Sullivan, Head of Payments Infrastructure at OpenPayd, shares with Payment Expert the current trends he has identified in the first quarter of the year and how these will impact the progression of the industry. 

Economic turbulence was a key theme of 2023, with unexpected inflation rises in December rounding off a year of corporate layoffs, high-interest rates and uncertainty for both consumers and businesses internationally. 

The global economic uncertainty has had a significant impact on the financial services industry, yet despite some tough times there are still some exciting developments expected in the payments space, which is still one of the most dynamic areas within fintech.

Developments within Open Banking, particularly pay-by-bank services and embedded finance, could revolutionise the financial sector. Regulatory changes for cryptocurrencies and stablecoins have the potential to upset the status quo while encouraging corporate investment. And the ever-present promise of artificial intelligence (AI) could help bring a new level of customer-led service to the financial services industry.

Merchants will be at the heart of the pay-by-bank shift

Pay-by-bank, which allows customers to make online purchases directly from their bank accounts without the need for a credit or debit card, was a hot topic within payments throughout 2023, and will surely continue throughout 2024. 

Yet, despite pay-by-bank reducing the overall risk of fraud and helping customers protect their data by eliminating the need for credit or debit card details, there is still a great deal of hesitation from users around security. 

Whilst most have no issue with making bank transfers through their app directly, many users distrust the idea of granting function access to their banking app, fearing that their account security might be compromised.

To address these concerns, we expect to see a shift within the industry to encourage more users to embrace pay-by-bank services, proactively showcasing the security and convenience enhancements of pay-by-bank transactions. Merchants, who want to elevate the user experience for their customers, will be the main driver behind this push. 

We anticipate an increasing number of providers insisting on pay-by-bank transactions and redesigning their checkout experiences to make it the default payment method. In ‘forcing’ customers’ hands by eliminating the option to pay-by-card, PayPal or Apple Pay, merchants hope that once pay-by-bank becomes the norm, consumer fears will be abated.

Regulations will encourage corporate investment in crypto markets

While cryptocurrency markets are notoriously volatile, some significant developments are on the horizon within the crypto space in the coming months. 

Wider adoption of stablecoins – cryptocurrencies whose value is tied to that of a fiat currency, commodity or instrument – can be expected this year, especially within cross-border payments. These payments can often take days to clear, whereas a stablecoin-based payment can be processed in a few seconds, resulting in a cheaper, faster and more transparent payment.

Regulation across the crypto space will also continue to be a hot topic. The FCA’s financial promotion regime for crypto assets and the US Securities and Exchange Commission (SEC) are continuing their push to subject crypto markets to financial regulations. These regulations could bring a lot more institutional capital into the crypto economy, as institutions and banks get more comfortable with crypto as an investment. 

We’re already seeing this with the SEC approving the first spot Bitcoin ETFs, opening the crypto market to potentially billions of dollars worth of institutional investment. 

AI will aid with transaction monitoring and risk detection

AI is primed to be one of the biggest disruptors in the coming year. AI tools will be utilised across the financial services sector more widely for compliance purposes, particularly for transaction monitoring and risk detection. AI can be used to enhance pattern recognition and transaction monitoring, flagging potentially fraudulent payments. These payments can then be analysed and acted upon by a human. 

2023 was also the year of hype around generative AI (Gen AI) across all sectors. In payments, many companies will look to mature their AI offering with the aid of Gen AI in the coming year, utilising large language models (LLMs) to analyse data and provide insights. Once businesses are reassured that their data isn’t at risk and the right guardrails are in place, we can expect Gen AI use to become widespread throughout the financial services industry.

Strategic alliances will bolster growth 

During tight economic times, companies have to grapple with two competing goals. They need to invest in new features and services to better serve their customer base (and unlock new revenue streams). On the other hand, they have to keep a lid on costs. To bridge that gap, companies are turning to strategic partnerships and new service providers, rather than building new services in-house. This is likely to continue and skyrocket in 2024. 

Embedded financial services will be a prime area for many of these partnerships. However, companies need to be cautious that their embedded finance offering is relevant to their customer base. There is no point in integrating a whole suite of financial services if they aren’t aligned back to broader business objectives. Companies need to ensure their embedded finance offering is complementary to the services and solutions they already offer.

Companies seeking to embed these services also need to ensure their entire financial infrastructure is built for the scale they need. They are the first point of contact for their customers, and if something goes wrong, for example, if their money goes missing or a payment is sent to the wrong place, they will assume the company they originally engaged with is at fault. 

The thread running through all these trends is the customer and the customer experience. While anticipating what is going to happen this year isn’t straightforward, the direction of travel is toward realising an ambition to simplify and enhance the payment experience for customers. Customers are more demanding than ever and businesses that want to remain competitive must find ways of integrating these principles into their own strategies.