Risk Intelligence Insights

Top five payments industry trends to watch in 2024

Anubhuti David 

Director, Sales Strategy and Execution

The payments industry continues to evolve and grow at pace, delivering speed, efficiency and opportunity for global stakeholders. At the same time, the risk landscape is changing – and industry players need to ensure that they keep well-informed of emerging risks. Let’s look at some key trends we anticipate in the payments space as the new year unfolds.

  • As digital transformation of the financial ecosystem continues, explore the new opportunities and risks that are emerging for the payments industry. 
  • Discover the 5 predicted risk trends for the payments space, and how to manage a complex risk landscape. 

As the digital transformation of the financial ecosystem continues apace, new opportunities and new risks are emerging. The payments industry in particular is evolving at speed – and alongside this evolution, risk stakes are rising.

The payments industry is key to the digital financial ecosystem. It delivers speed, efficiency and 24/7 connectivity to individuals, businesses and banks, helps to smooth global payments and transactions, keeps the pace of business swift, and more. At the same time, however, accelerating digitalisation and rapid growth within the payments space has meant that financial criminals have increasingly targeted the industry, which has seen an uptick in criminal activity – ranging from account takeovers and customer deception, to money laundering and more. 

Given growing financial crime rates, players in the payments space need to remain vigilant when it comes to identifying potential risk and complying with international regulations, especially given that regulatory fines are rising. 

Opportunity and risk: hand-in-hand

As the digital transformation of the financial ecosystem continues apace, new opportunities and new risks are emerging. The payments industry in particular is evolving at speed – and alongside this evolution, risk stakes are rising.

The payments industry is key to the digital financial ecosystem. It delivers speed, efficiency and 24/7 connectivity to individuals, businesses and banks, helps to smooth global payments and transactions, keeps the pace of business swift, and more. At the same time, however, accelerating digitalisation and rapid growth within the payments space has meant that financial criminals have increasingly targeted the industry, which has seen an uptick in criminal activity – ranging from account takeovers and customer deception, to money laundering and more. 

Given growing financial crime rates, players in the payments space need to remain vigilant when it comes to identifying potential risk and complying with international regulations, especially given that regulatory fines are rising. 

In 2023, total penalties for failing to comply with regulations amounted to US$6.6 billion, a significant increase from US$4.2 billion in 2022. Many of these fines were issued against crypto and payments firms – accounting for 69% and 21% of global penalties respectively.

 

                 Global financial institution AML and regulatory fines soar in 2023 (fenergo.com)

Looking ahead, we expect to see growth in the digital and contactless payments area – including mobile wallets and contactless cards – and we further anticipate a continued rise in cryptocurrency transactions as crypto and digital assets continue to gain more mainstream acceptance. Payments innovations will continue and we expect ongoing expansion in the payments options available on e-commerce platforms, for example BNPL. We also expect to see stronger security measures as firms focus on fraud detection technology, as well as AI- and ML-based solutions to help prevent unauthorised transactions.

Against this broad backdrop, here are our top five key trends to watch in 2024:

Image displays the 5 key trends for 2024

Risk will keep rising 

Sophisticated criminal activity will continue to drive risk levels across the payments space, and we expect risk to keep rising into 2024 and beyond. Financial criminals are ever-more adept at leveraging new technology to commit fraud and other forms of financial crime and this means that payments companies need to ensure that they remain one step ahead of such activity at all times.

PwC’s Global Economic Crime and Fraud Survey 2022 reveals an example of this, highlighting that as our collective global use of platforms has risen exponentially in recent years, so too has platform-related fraud. The survey found that this type of fraud is at alarming levels, with a substantial 40% of organisations encountering fraud experiencing platform fraud. Interestingly, fraudulent transfers to or from a platform topped the list of the most common type of platform fraud[1]

Speed will matter

Speed will remain crucial. Customers expect quick, seamless online experiences that do not slow the pace of business. They value speed and efficiency, and this means that organisations should focus on, for example, accelerating their instant payment adoption and their ability to verify payments in real time. All processes need to be as low-friction as possible to prevent customer abandonment rates from rising. 

In support of this point, a 2023 Citi survey – the “Future of Payments Survey” – found that speed is a key consideration for many clients. The organisation gathered insights from  over 100 of their financial institution clients and found that speed is one of the biggest pain points for bank clients, second only to cost concerns[2].

Regulations will tighten

Global regulations have been tightening, and this trend shows no sign of abating in 2024. Regulators are expected to be particularly active across newer, high risk industries – with examples including BNPL, crypto, casinos, gaming and online betting, and more.

Examples of relevant legislation include:

  • Across the EU, the Payment Services Directive 2(PSD2), MiCA and the 5th Money Laundering Directive (5MLD) are in force. 
  • In India there is a focus on regulations around non-payment operators and their need to comply with cross border payments regulations. In 2023, The Reserve Bank of India issued guidelines to regulate entities “facilitating cross border payment transactions for import and export of permissible goods and services in online mode”[3].
  • In the US, Fednow is an instant payments service developed by the Federal Reserve Bank (Fed). It was launched in July 2023 as a “soft regulation”[4], and we expect wider adoption next year.

Firms should also remain acutely aware of the sanctions landscape, which has become increasingly complex in the wake of the Russia-Ukraine conflict. 

Fully understanding the regulatory landscape is essential to remaining compliant, especially as we expect to see increased regulatory scrutiny and a potential rise in fines issued this year. We recommend implementing a risk-based approach, regularly updating sanctions lists and databases, and investing in employee training.

Technology will be increasingly important to detect and eliminate risk

The range of demands on the payments industry, including complying with evolving regulations and ensuring smooth customer processes, can be met by carefully choosing the right technology: screening and compliance processes need to be both fast and accurate. 

Many firms also face rising cost pressures, but the efficient use of technology can help to ease this financial pressure. For example, for Payment Service Providers (PSPs), omnichannel solutions and API technology in particular can offer cost-effective, speedy solutions across geographies.

Effective risk management will be a key differentiator

Those companies that successfully leverage technology in the payments space and implement effective risk management strategies can use this to build a very real competitive advantage.

Technology can help companies manage a range of priorities, including identifying and preventing fraud and other forms of financial crime, meeting regulatory obligations and delivering a positive customer experience.

This means that there could be a need for some hands-on transformation within risk management teams – processes may need to be adapted to support the use of new technology – but any such changes are likely to deliver positive results: it is safe to say that effective risk management can play a key role in differentiating one offering from another.

Managing a complex risk landscape 

As companies strive to manage a complex 2024 risk landscape – across the payments space and beyond – many may choose to partner with specialists that are able to deliver the technology needed to effectively manage risk, meet compliance obligations and deliver seamless, low-friction customer experiences.

When selecting solutions, compliance teams should look for end-to-end risk management and tools that span screening, due diligence, identity verification, account verification and digital onboarding, since these elements are all essential to developing a comprehensive risk management strategy.

As the new year unfolds, identifying, managing and mitigating risk needs to remain high on the agenda as companies work to remain compliant with global regulations, while focussing on maximising the many opportunities presented by ongoing digitalisation.

 

1. https://www.pwc.com/gx/en/services/forensics/economic-crime-survey.html

2. https://www.citigroup.com/global/insights/treasury-and-trade-solutions/future-of-payments-survey

3. https://www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/in-tax-gbt-regulation-of-payment-aggregator-cross-border-pa-cb-noexe.pdf

4 https://www.aciworldwide.com/fednow?utm_source=google&utm_medium=cpc&utm_campaign=pm-2023-bnks-rtpy-all-global-inside-real-time-google-paid-pdad&adgroup=&utm_term=fednow&utm_content=670956581448&gad_source=1&gclid=CjwKCAiAvJarBhA1EiwAGgZl0D3P3Zh40FnY3mpLMcC6_ssdoJzztmUhHO_qMARgUSr3PalBfuAuRRoC4LgQAvD_BwE

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