Digital payments, and the ecosystem partnerships required to enable them, are a cornerstone of the new digital economy and customers and businesses are increasingly relying on digital options to buy and sell goods and services, says advisory multinational PwC Strategy& Payments Transformation lead Chantal Maritz.

Some of the biggest players in the payments industry are creating value by offering a multitude of payment solutions, least-cost routing options and value-added services that can cater to the needs of small merchants and global multinational companies alike, she illustrates.

This has led to a Payment-as-a-Service (PaaS) model, which allows merchants and other participants in the payments ecosystem to use local, regional and global payment options by interacting with a single interface.

“The value of this model lies in the removal of complexities, improved processes and differentiated experiences. Most banks now have platform solutions that are integrated into their core banking systems via application programming interfaces (APIs) from PaaS providers,” says Maritz.

Additionally, banks have become more firmly grounded as the ultimate store of value owners.

“Banks ensure regulatory and financial compliance and, in most cases, are owners of the underlying clearing systems that make it possible to move funds from one institution to the other.”

As the level of digital payments activity continues to grow, compliance with anti-money-laundering legislation and knowing your customer and fraud management requirements continue to be scrutinised by regulators to ensure that customers are protected, she adds.

“Banks, governments, non-traditional financial service providers and financial technology firms must work together to enable this transition to a digital value-creating financial services ecosystem to further enhance these services' social licence, to build trust and to make sure that the most vulnerable are protected,” Maritz highlights.

Meanwhile, payments also provide insights to manage businesses better, understand customers more deeply and operate in a more efficient, effective and innovative manner. There is a growing focus on access to, as well as the use and management of, payments data across the payments ecosystem.

“The growing abundance of data within payments is enabling greater transparency and discovery of more creditworthy businesses to offer loans to. Payments have become a strategic priority for organisations that are serious about being relevant in the payments ecosystem and broader digital economy,” she says.

Payments will continue to play a crucial role in everyday lives. As the digital economy expands, payments will be a key enabler for digital financial services, she emphasises.

“The scope and scale of financial services will be more than just a movement of the transaction value, it becomes a value equation where payment transactions plus insights plus trust contribute to value creation within the value chain,” says Maritz.

Value creation has shifted across the payments ecosystem. Payments have largely undergone a major transformation doing away with many of the frictions, moving from card payments to contactless card and mobile payments.

“Most organisations want the payment experience to be as seamless as possible for their customers. To differentiate themselves in the market, companies are also focused on developing better products and services while incorporating seamless payments into a holistic end-to-end customer experience,” she says.

Some companies relegate the payments experience into the background so that customers can focus on their core intention for interacting with the business.

“Traditional payment systems are out of date and can’t keep up with the demands from a digitally focused economy. The global Covid-19 pandemic has also created a catalyst for change that is expected to perpetuate the growth of digital payments for years to come,” Maritz states.

“Digital payments have been evolving over the past decade with rapid acceleration in digital offerings available to consumers. From physical credit cards to prepaid debit cards and now with electronic payment services rapidly increasing across the world, it is only a matter of time before digital payments make physical paper money obsolete.

“In some countries such as Sweden, paying with cash is becoming increasingly difficult, with most transactions being digital. Beyond the horizon, several countries, such as China, are also exploring the concept of central bank digital currencies, which is a digital payment token that is legal tender issued and fully backed by a central bank,” she says.

Organisations within the payments ecosystem will have to keep up with changing customer expectations, regulatory changes, technology advancements and persistent innovations by new entrants, alongside a greater societal purpose for financial inclusion of the previously excluded and under-served segments, concludes Maritz.