EY’s recent report The rise of PayTech – seven forces shaping the future of payments assesses the level of innovation enabled by PayTechs across the most dynamic areas impacting the sector. These include areas such as open banking, real-time payments, cross-border payments, buy now, pay later (BNPL), digital wallets and super apps, embedded payments and central bank digital currencies (CBDCs), and digital currencies.

Through dialogue with industry leaders, EY senior strategists, technology leaders, and payments services providers (PSPs), the report analysed the depth of innovation across seven forces.

Open banking has allowed consumers to be firmly in control of their data, identity, and payments. The practice of securely sharing financial data by connecting merchants and customers directly has created compelling “open payments” or “pay by bank” options. While the global landscape is fragmented, there is a general opening up of access and infrastructure to support customer choice.

Meanwhile, real-time payments (RTP) are at an all-time high, due to a growing demand from consumers and businesses for instant money movement. RTP comes into its own when surrounded with value-added services, such as request to pay, instant cross-border payments, and fraud and liquidity tools. With these “overlays”, financial services PSPs, PayTechs and FinTechs can boost their bottom lines as well as their transactional volumes.

Buy now, pay later (BNPL) has been increasingly popular amongst both consumers and merchants. There are some headwinds, but BNPL is firmly established and looks set to expand. That said, the rising cost of capital and greater scrutiny from regulators mean that BNPL will need to evolve if it is to deliver sustained profitability while at the same time protecting the consumer. 

Elsewhere, digital wallets and super apps are helping to reduce payment transaction fees whilst offering a single destination for consumers to manage their finances. By leveraging data, they have the potential to fulfil almost any financial, leisure or lifestyle need.

Embedded payments have become a core value proposition for businesses looking to offer customers more personalised, frictionless experiences. They are increasingly common in B2B2C and B2B2B business models such as platforms and marketplaces. Embedded payments are expected to scale and become more invisible as non-financial services providers integrate payments into customer journeys.

Finally, digital currencies and CBDCs are gaining momentum, rising to the top of the agenda for payments providers seeking regulated alternatives as first industry solutions emerge. The ultimate benefits of digital currencies lie in instant and atomic settlement, increased automation, transparency, and efficiency.

For banks, the shift in payments is both a threat and opportunity. Banks must continue to embrace digitalisation and transform their current payment models and, by leveraging these forces, they can deliver better, far more efficient and frictionless experiences for their customers.