Looking back at 2024, it was a year of continued change within the payments industry, with the emergence of more alternative financing and payments methods, as well as the growing popularity of real-time payments.
While these trends will undoubtedly continue, in 2025, the payments industry will once again undergo a significant transformation, driven by several new emerging technologies and trends.
The many faces of AI
This year, payments functions are set to increasingly utilise artificial intelligence (AI) and advanced analytics. Through smart automation, AI will enhance payments processing, increasing straight-through processing (STP) rates, providing optimised routing, and supporting liquidity management. Similarly, analysis of transaction data will help to identify opportunities for enhancements to products and services on multiple levels.
What’s more, in credit decisioning, AI will be used with credit underwriting and risk decisioning to aid in evaluating financial history to assist employees in making informed decisions. Meanwhile, for transaction processing, AI can provide real time authorisation and conversion optimisation, enabling banks to keep up with the demand for instant processing and assistance.
AI is also expected to enhance security measures and fraud prevention in payments and fintech, helping screen transactions and improve financial crime detection, helping financial organisations prevent accounts from being taken over by malicious actors. Finally, in front and back-office, AI will assist across a number of areas, for example, with onboarding assistance, self-service chatbots, user experience (UX) personalisation and automated reconciliation.
Mainstream adoption of digital wallets
The rapid adoption of mobile wallets in Europe, coupled with diversified use cases – from making contactless payments to sending and receiving money between accounts – will create significant opportunities for innovation and disruption in payment acceptance methods. In fact, ignoring the popularity of mobile wallets may cause businesses to lose customers. Research into digital payments found that 68 percent of customers prefer to use digital wallets to pay for goods and services, with more than three in four (76 percent) of consumers unwilling to go through with a transaction if their preferred payment method is unavailable.
For merchants, digital wallets represent hubs for commerce and brand loyalty. For instance, consumers can store digital versions of loyalty cards from retailers on their mobile device in order to earn points and redeem rewards. This will make them feel valued and incentivise them to return to the retailer more frequently in order to use the wallet.
SoftPOS shaping the future of transactions
Another payment acceptance technology is set to come to the fore this year – Software point-of-sale (SoftPOS). Undoubtedly one of the most exciting recent innovations in the payments industry, this solution enables merchants to process payments through their smart devices, using near-field communication (NFC) technology to transform existing smartphones and tablets into fully operational payment terminals.
SoftPOS will shape transactions in 2025 in a number of ways – most notably, it will create significantly more flexibility for merchants by eliminating the need for additional devices. Through relying on existing devices instead of utilitising funds on expensive point-of-sale (POS) hardware, merchants will be able to manage transactions from anywhere and at any time. This will streamline operations, with necessary transaction information being available and accessible on one familiar device. SoftPOS will also benefit customers – since the devices can be used anywhere, customer checkout times will be reduced as they no longer need to wait in long queues and crowded areas.
Value-added services driving growth
In the last few years, value-added services have emerged as a key driver of revenue for payment providers, alongside traditional revenue avenues such as payments and hardware. The wide array of solutions that payment providers can issue to customers, such as PayFac-as-a-Service and multicurrency processing, offer payment firms opportunities to enhance topline growth while strengthening client retention and ‘stickiness’.
This trend is set to continue in the coming year, with payment companies expected to add Software as a Service (SaaS), financial services, and data and processing solutions to their portfolio. For example, large payment providers are looking to incorporate fraud prevention and cross-border payouts, while smaller firms are likely to add merchant cash advance and POS SaaS to their offerings.
Evolving regulatory landscape
The focus on generating simplicity and efficiency in the payments process, along with providing transparency for consumers, is already driving regulatory developments. The financial services industry is eagerly awaiting the issuance of regulatory technical standards for PSD3, which is expected to be finalised in the coming months. This will be followed by an 18-month implementation period for the payments industry, necessitating preparation amongst service providers before they must comply. PSD3 is likely to strengthen customer authentication, increase the security of payments, and protect the personal information of consumers.
For payments providers, 2025 is set to bring excitement and evolution in equal measure, through emerging trends and innovation. The landscape will be shaped by a number of AI-driven innovations, along with the widespread adoption of mobile wallets and SoftPOS technology, offering greater efficiency and flexibility for consumers and merchants alike. Value-added services will assist payment providers in driving revenue growth, while incoming regulations like PSD3 will improve transparency within the industry.
These trends will undoubtedly have revolutionary effects throughout the payments industry this year and beyond.
