In times of uncertainty, analyzing the possible future of technology that you can actually predict has a therapeutic effect. So, let’s drift away from our ruminations of the shaky present for a little and analyze the future of payment gateways, which keep the digital economy up and running. Doesn’t seem like much fun? Don’t be hasty with your conclusions. The topic of the gateways is a little more complicated and interesting than it seems. Payment gateways still have plenty of room for improvement and plenty of opportunities to surprise us, pleasantly or otherwise. Considering the significance of payment gateways in all industries from FinTech to Logistics and Education, those opportunities are worthy of your attention.
From this article you will learn about the future of payment systems, some current payment processing industry trends, desired ways of payment gateways evolution.
A Current State of a Payment Gateway
A payment gateway is basically a middleman between a user and a bank. The gateway is responsible for the transfer of payment information, such as debit or credit card data, between a portal from which the payment is made (an online marketplace, an app with a subscription, etc) and a bank that processes the information. Usually, a middleman is an element of ineffectiveness as it adds a third-party link to a process chain. However, a payment gateway is a justified link, which is very expensive, risky, and complicated to remove. The gateway has all the means necessary as well as an established process for a secure transaction of huge quantities of payment data. Well-protected processing of payments in different currencies, on the scale, and in accordance with local regulations is a complicated task, and the gateways exist to make it seamless and smooth.
Payment processing condensed to its basics has the following steps
1) A customer enters their credit/debit card information on a merchant’s web resource. Then the data either goes through the merchant system, which transmits it to a payment gateway, or bypasses the system and goes straight to the gateway. The second option warrants lighter regulations the merchant should comply with.
2) A payment gateway takes care of the data, encrypts it, and sends it to a payment processor of an acquiring bank that works with a merchant.
3) The acquiring bank sends the payment data to a credit card association (Visa, MasterCard, etc).
4) The association decides the fate of the transaction checking its validity based on the state of the card and funds available. Then, the credit card issuer sends the authorization (or rejection with the reasons why) back to the payment processor, which in turn, sends it to the gateway.
5) Now, the gateway can show the merchant that the customer’s request is valid, so the merchant can satisfy the order.
The process looks quite complicated and a little bit convoluted even without diving deeper into details. However, the digital wonders allow a transaction to be processed in seconds. Nonetheless, the end of the process doesn’t mean that the merchant will receive payments immediately. Getting the money is a long process, which can take up to three days, which involves the processing of authorized requests by acquiring banks and a lot of bureaucratic noodling.
Where’s the Culprit?
It seems like payment gateways exist within a well-functioning system that has had years to improve and determine the best financial ‘logistics.’ Yeah, but not really. If you look close enough, you will notice that the digital economy hasn’t evolved in years. There might have been some changes to the algorithms and protocols, but the essence of the process hasn’t changed at all. Regardless of how fast transactions occur within the system, they still run on the same old squarish wheels. There are still a ton of steps with plenty of middlemen and protocols. Such a situation allows for a lot of fees and a lot of bureaucratic establishments to stay in the game. The evolution of the system is impossible with such a rigid system.
Payment gateways, if given the chance, can embrace the responsibility to make a meaningful change and challenge the status quo of the transaction processing system, improving the experience of merchants. There are several ways of reshaping payment gateways to disrupt the digital economy for the better.
We’ve divided the possible future payment solutions into two categories:
1. Distant, kinda sci-fi-ish, but wildly cool
2. Practical current trends
Wildly Cool Future Payment Technologies:
Sweet Dreams of P2P Payments
The wildest dream — a decentralized peer-to-peer payment network. No need for legacy legislations and complex systems that exist to keep the status quo, just raw and personal transactions between two parties. You couldn’t ask for more.
We have the technology for such an ambitious job — blockchain and co. They can make the P2P payment a safer third-party-free reality. Such a future payment system will be cheaper and simpler for both merchants and customers. Making it happen is a hardcore task though, but we believe that the Prometheus who would be able to bring such a technology to the table has already been born.
Considering that we’ve tickled that blockchain nerve, let’s double down on it and entertain a thought of cryptocurrency-based transactions. It’s quite difficult to predict how exactly such a future payment technology would function and which legislations would regulate it on a global scale (there are possibilities to pay in crypto nowadays, but they are rather local, to say the least). However, if a cryptocurrency-based transaction will become a practical reality on a scale, it is quite possible that a new set of regulations would have to be developed to monitor it, which would provide a great opportunity for reinvention of old practices. In any case, crypto transactions can be a cheaper and safer way of money exchange.
If the transaction cost is reduced to a negligible tiny amount, the transfer of incredibly small amounts of money would become viable. If so, it would allow for extremely accurate billing of the transaction services. It’s like renting a house, but instead of paying for a whole month, you pay for each second that you spend there. Not a single cent less. Not a single cent more.
So far, attempts at micro and nano payments were unsuccessful on a scale because of the infeasibility of the sufficiently low transaction fee. Currently, some providers implement micropayments but only to a limited number of services.
For instance, Flattr, a microdonation subscription service, measures the time users spend on web resources and based on this information pays to creators that work with Flattr. It involves a tiny amount of money, which varies based on how often users frequent a resource.
Another example is Jamatto, a micropayment provider that allows websites and publishers to receive payments as small as 1 cent.
The future scope of an online payment system based on micropayments is difficult to predict. Implementing such a system on a global scale is a very ambitious and not 100%-viable idea. However, such a paradigm shift is possible with the improvement of technologies and money transfer ‘logistics.’
Practical Payment Industry Trends
Automation of payments
A well-tuned payment network with ‘smart’ gateways within a corporate environment will allow for automatic payments to suppliers and service providers at predetermined periods of time with minimal involvement of people. The gateways that innovate the fastest and can support such a functionality first will have a cozy profitable place within such a B2B payment environment. Automation of payments is an attractive payment processing trend, as we hope it will continue to evolve.
NFC (near-field communication) technology enables contactless payments, which boost the convenience of the payment process on the user side. The trend is expected to spread even further, affecting different sectors from transportation to the retail and hospitality industry. NFC is perhaps one of the trendiest payment technology trends because it’s easy to implement and popularize.
The competitiveness of the payment sector coupled with the rise of the convenient fintech innovators and users’ demands for the cheapest option is pushing the payment providers towards cost reduction. Providers that will be able to find their ways around fees and complex regulations to reduce costs will come up on the top of the industry.
FinTech will continue to grow and develop, and sometime in the future, the drastic change will be absolutely required to push through another ceiling on the path of improvement or to satiate another market need. Payment processing trends strive towards simplification of the sector. The simpler the processes will be, the more leeway entrepreneurs will have to act and develop their businesses. And payment transactions are an essential part of the simplification. Nonetheless, so far we have to work with what we have. And we have plenty. Despite the archaic bureaucratic systems in some places, the ripeness of the opportunities, the availability of powerful computers and reliable software make the dreams of the cashless, transparent, and well-optimized economy are as close as they have ever been. You simply have to reach your hand and try to seize a couple of opportunities and enter the FinTech game to build the future. And if you need some help in doing so, we have a lot to offer. We know the hard work that goes into the creation of reliable Fintech systems, we know the intricacies of working with payment gateway providers, and the complexities of the regulatory environments.
So, if you want our experience and expertise to become your asset, contact us, we’ll be happy to help.