Looking back at my 2023 Payment Topics to Watch:
1. Tap to Phone
2. Pay by Bank
3. FedNow Launch
4. Embedded Payments
5. Blockchain-Based Payment Schemes
Tap to Phone, different than Tap to Pay, turns your smartphone into a card acceptance device by using its built in NFC technology. Throughout 2023, the industry saw expanded adoption of Tap to Phone with additional Merchant Acquirers, and Merchants announced they have started or would start to offer this solution. In August, Sephora announced it would be the first U.S. retailer to offer this service across its free-standing stores. Tap to Phone showcases another innovation we see in the merchant acceptance space centered around the device we use daily.
Pay by Bank saw some traction in the U.S. as a handful of partnership announcements emerged. In this model, payments are made directly from bank accounts using bank credentials and not through a payment card such as a “Debit Card”. These transactions typically travel over the ACH rails but could also go over RTP or FedNow rails. Although this model has a promise, there are a few big obstacles our industry must overcome before we see any scale adoption, including 1) consumer education of irrevocable payments vs. revocable payments, 2) a standard dispute resolution framework, and 3) solving for verified credentials.
FedNow, The Federal Reserve’s new instant payment system, dominated headlines when it launched in July 2023. This marked the first new payment rail from the Fed since the 1970s! Along with the excitement of the Central Bank’s new payment system launch, we saw a brief period of misinformation spreading on social media, claiming FedNow is somehow related to a CBDC, which is inaccurate. Wrapping up the year, FedNow grew its network from 35 to 331 participants, most of which are in a “receive only” state.
Embedded Payments No, I don’t mean embedding a payment device under your skin, such as the product from Walletmor. Embedding payments through non-payment apps grew across industries from Automotive to Telco. Although this topic has recently gained attention, it’s not new. Banks have been supporting and offering embedded payments via digital wallets for many years, i.e., Apple Pay for consumers and embedded merchant services solutions for business customers. As we move into 2024, I see the narrative moving from embedded payments to “embedded everything”.
Blockchain-Based Payment Scheme news was overshadowed this year by larger Financial and Crypto industry events, such as the bank failures we saw over the summer. Signet, the blockchain payment network from Silvergate Bank, was shuttered following the bank’s voluntary liquidation. Other players, such as the USDF consortium, pushed for regulation clarity on using stablecoins vs. tokenized bank deposits. In summary, blockchain-based payment schemes are still emerging and novel from a retail payment perspective.