What is the Future of Credit Card Payments?

In the past few years, we’ve seen a total upheaval in the way consumers spend their money. The pandemic, a looming economic crisis, rising inflation and higher costs of living have contributed to a tumultuous and confusing time for consumers and the financial industry as a whole. Where do we go from here, and what are some of the trends we can expect in the years to come? In this post, we’ll talk about one aspect of the evolving financial landscape that experts are keeping a close eye on: the future of credit card payments. 

Current state of the industry

Credit card processing has become integral to any shopping experience. According to Forbes, more than one-third of retail store purchases in the US last year were made with a credit card. And this year, credit card ecommerce sales will exceed a whopping $500 billion for the first time ever. Most people have at least one credit card, and point-of-sale companies are increasingly integrating credit card processing as part of their offerings to meet demand. In fact, 84% of US adults have at least one credit card.

Despite an increase in debit card usage amid inflation fears and risks associated with borrowing in the face of economic uncertainty, consumers in North America continue to borrow and use credit cards at a rising level. 

The outlook on spending right now is mixed: despite inflationary pressures, consumers in the US are spending at a steady rate. In Canada, consumers are cutting spending, according to a recent survey. 

The bottom line is that credit cards will always be relevant, the way we pay will evolve, and retail and hospitality merchants must evolve with consumers if they want to stay competitive. 

In this article, we’ll discuss nine trends to expect in the world of credit card payments in 2024 and beyond: 

• The increasing use of credit cards
• The rise of mobile payments
• More wearable payment technology 
• New security and fraud prevention measures
• Increasing use of Buy-Now-Pay-Later (BNPL) technology
• The social commerce boom
• The impact of live commerce
• The exploration of Central Bank Digital Currencies (CBDCs)
• The importance of integrated payments

We’ll also cover the importance of having a good payments and POS partner that can evolve with your business.

Credit card use will increase

It may go without saying, but credit cards are the payment type of the present—and the future. With the emergence of new technology, though, they must evolve. And despite concerns about inflation and costs of living, Americans are applying for credit cards in record numbers.

With such challenges top of mind for most consumers, credit card issuers and networks will continue sweetening offerings to fight inflation and increase usage. 

Rewards programs, cash back, exclusive memberships, flexible payment options and attractive rates are just a few of the ways issuers are trying to promote credit card usage. These programs will continue to shift as data shows what matters most to consumers when it comes to using their credit cards. It all boils down to incentives. 

Contactless and mobile payments will become the norm

Shoppers are all about convenience. And mobile and contactless payments are delivering the seamless checkout experiences that consumers are looking for. The shift toward mobile payments will increase as they become a widely accepted form of payment everywhere, from independent restaurants to national chains. 

With digital wallets like Apple Pay, Google Pay and Samsung Pay, customers can easily complete transactions. Using Near-Field Communication technology (NFC) so users can simply place their device near terminals to pay, these wallets are secure and encrypt credit card information, removing the need for physical wallets.

Contactless payments include tap functions on credit and debit cards, which have soared in use over the past few years. Most POS systems and terminals accept tap payments and consumers can expect tap limits to increase in the near future as tap becomes even more widely used.

Plus, QR code payments are on the rise—customers simply scan the code and are prompted to enter their payment details or use a digital wallet to pay. QR code technology like Lightspeed’s Order Anywhere lets customers pay via QR code without downloading an app, and without having to wait for a server to drop the bill. 

“​​We use Order Ahead on our website and what we really liked was that we could just add the link to our website. It was just really easy to integrate with the technology that we were already using—we didn’t have to modify our operations to make it fit. It’s something that we can easily add on to things like our bio on Instagram.” — Sophie Ruprecht, Director of Communications, Tejano BBQ Burrito

Merchants recognize the value of mobile payments—the ease of digital wallets could contribute to greater sales. And for companies with high monthly transaction volume, these types of payments are invaluable because of the efficiency they deliver when it comes to making sales—they’re perfect for speeding up service.

Wearable payments will go mainstream

Wearable payments have gained significant traction in recent years, with devices like the Apple Watch leading the charge. Wearable payment technology integrated into watches, fitness trackers, rings, keychains and even wristbands allow consumers to make fast, secure transactions without the need to carry physical credit cards. 

Wearable payment devices use near-field communication (NFC), radio-frequency identification (RFID) or other wireless communication technologies to transmit payment information securely to a point of sale (POS) or other payment terminal, enabling fast and convenient transactions. 

The potential here is huge. From festivals to going to the beach, wearable payment devices offer unprecedented convenience to end users and more opportunities for businesses to drive sales. 

Imagine wristbands for the guests at your day spa that enable them to pay for products and services with nothing on them but a towel. With a point of sale system with an open API, these solutions have graduated from science fiction to reality. With Lightspeed’s open API, businesses can build custom integrations and workflows that can make running their businesses simple, efficient and scalable. 

Security and fraud prevention measures will improve

As this future payment technology evolves, credit card networks are placing renewed focus on security. With the rise of crypto payments and card-not-present options, there’s more opportunity for fraud and security breaches. 

Here are some security measures you can expect to see more of:

Tokenization

Tokenization is a form of security used by digital wallets that heightens security. Credit card information is encrypted and terminals receive a set of random numbers called a “token” rather than the actual card info. This ensures that no one can view customer data.

Even if the token vault is hacked, nothing valuable is actually revealed to the thieves. All they get are “nonsensitive tokens”, a meaningless string of random data that can’t be used for anything. The tokens themselves are protected and stored securely.

Biometric authentication

Biometric authentication uses a person’s unique biological or behavioral characteristics to verify their identity during a transaction, rather than traditional methods like PINs, passwords or signatures. These advanced authentication techniques provide an additional layer of protection and offer a seamless user experience. 

Examples of biometric authentication methods include:

• Fingerprint recognition, which involves scanning and matching the unique patterns of ridges and valleys on an individual’s fingertip. Apple TouchID is a prime example of this. 
• Facial recognition, which uses a person’s facial features to verify their identity. Apple is in the process of phasing out TouchID in favor of Face ID, despite some lasting concerns. 
• Voice recognition, which analyzes the characteristics of an individual’s voice—including pitch, tone and unique vocal traits—to authenticate their identity and authorize voice-activated payments. It’s the technology that makes it possible to ask Alexa to pay your phone bill. 
• Palm vein authentication, which scans the unique vein patterns in a person’s palm, offering a high level of security and accuracy. Shoppers at Whole Foods across the US can use their palms to check out thanks to Amazon One.

As mobile phone usage increases, contactless payments using biometric authentication technology may eliminate the need for physical cards altogether. 

That said, different demographics prefer different payment methods. Millennials and Gen Zers prefer digital-first solutions, but older generations tend to stick with traditional credit cards, so you’ll still need traditional card readers for the foreseeable future. 

Increased regulation

Consumers are becoming more interested in cryptocurrencies as a form of payment. But this isn’t without risk—and fraudsters can easily target this unregulated market. That’s why increased regulation of these online payment markets could come into play, despite experts touting one of the benefits of the crypto market is its lack of regulation.

What does that mean for merchants wondering if they’ll have to adapt to yet another newfangled payment method? For now, it’s too soon to tell. 

Artificial intelligence

Banks and other financial institutions have been using AI software and programs to regulate fraud for years, helping reduce the need for manual monitoring. These systems can help detect fraud in the early stages, prevent cyberattacks and heighten security for credit card transactions, as well as user bank accounts. 

Generative AI, however, represents an entirely new type of technology (and the future of credit card payments). From detecting fraud in real-time to powering biometric authentication, generative AI is poised to revolutionize payment processing and security. 

Here are just a few ways that generative AI can be used to fight security risks and fraud:

Generative AI can analyze vast amounts of transaction data to identify patterns in fraudulent activities. By training models on historical data, these systems can recognize unusual spending patterns, potentially compromised accounts or suspicious transactions in real-time.

Generative AI can help improve behavioral biometric authentication methods. By studying the unique patterns of how individuals interact with devices and systems, AI can create more accurate and secure user profiles. 

Generative AI can be used to analyze email and text content to identify phishing attempts. It can recognize patterns and language cues that are commonly used in phishing emails and flag them for manual review or immediate quarantine.

As deepfake technology continues to advance, generative AI can be employed to detect fraudulent attempts involving fake audio, video or even text messages. AI models can scrutinize content for inconsistencies or signs of manipulation.

Generative AI can play a role in ensuring the legitimacy of transactions in real-time. By analyzing various data points, including user behavior, device information, location and transaction history, AI models can assess the risk associated with a specific transaction and either approve, deny or require additional verification.

These are just a few of the newer and emerging technologies being used to counter cyberattacks, security breaches and fraud. As these activities become more sophisticated, technology is keeping pace. 

Buy-Now-Pay-Later will become standard

Buy-Now-Pay-Later (BNPL) technology has shaken up the state of credit card payments. With this technology being implemented at point of sale, credit card issuers have had to up the ante to ensure consumers keep borrowing credit, the traditional way of collecting debt. 

BNPL is a short-term loan. Consumers purchase products at point of sale online (and even in-store) and pay over time in installments. BNPL companies like AfterPay and Klarna offer (weekly, bi-weekly or monthly) payment plans over a certain period of time, usually ranging from 3-12 months. 

As life becomes pricier, BNPL is a tempting way for many consumers to make purchases they otherwise wouldn’t be able to afford in one go. This can be a slippery slope, but if consumers can make their payments on time, it’s extremely convenient. Most companies don’t charge interest on the payments either, unless you’re late or don’t make the payments at all. 

Either way, the credit card industry has to come to terms with the fact that BNPL is rising in popularity and here to stay as a form of short-term financing. 

Social commerce will continue to rise

What does social media have to do with the future of credit cards? Well, everything. There are billions of consumers on social media, marking endless potential for the payments industry. 

What is social commerce? It’s when businesses and individuals sell products and services online on platforms like Facebook, TikTok, Instagram and more. In fact, over half of businesses globally expect to sell online this year and beyond. That’s a massive opportunity for the payments industry. 

It’s important for big players to ensure that customers have seamless checkout experiences online so that they continue to shop. Credit card networks and payment companies are taking the opportunity to streamline processes to ensure shoppers get a frictionless online experience. Many large retailers will start to adopt all types of payment methods online, including digital wallets. 

As more technologically savvy consumers come into play, these platforms will continue to boom. The payment industry will have to keep up to ensure shoppers don’t abandon their carts due to complex or slow checkouts or websites that aren’t user friendly. 

Live commerce will create new opportunities

Live commerce, also known as live shopping or livestream shopping, is a growing credit card industry trend that combines traditional ecommerce and live streaming. 

With livestream shopping, sellers or influencers host live video broadcasts where they showcase products or services to potential buyers. Viewers can interact with the hosts through comments, questions and chats, and make purchases directly through the streaming platform. 

Already hugely popular in China and India, livestream shopping is expected to account for more than 5% of total US ecommerce sales by 2026. 

This is great news for retailers—but what about restaurants?

With a little creativity, the possibilities for restaurants to capitalize on live commerce are endless. (Or if not endless, very interesting.)

For example:

Governments will continue to explore digital currencies

Central Bank Digital Currencies (CBDCs) represent another significant development in the world of payments. A CBDC is a digital form of a country’s national currency, issued and regulated by the central bank. 

You can think of CBDCs as virtual cash. Unlike cryptocurrencies like Bitcoin, CBDCs are fully backed by the government and offer stability and trust. 

CBDCs provide a secure and transparent way to transact, reducing the risk of fraud and counterfeiting. CBDCs also have the potential to simplify and expedite cross-border transactions, making international payments using credit cards faster and more cost-effective. 

The United States Federal Reserve and the Bank of Canada are  actively exploring the possibilities of a digital dollar. Several pilot projects and studies have been initiated to assess the technical, economic and policy implications of a CBDC.

However, the adoption of CBDCs is dependent on regulatory approvals, technological infrastructure and international cooperation. Until these challenges are addressed, CBDCs are unlikely to become a mainstream component of credit card payments.

The importance of integrated payments

There are plenty of other credit card industry trends that we didn’t cover. Those include the declining use of cash for in-store purchases and customers’ shift toward self-checkout. With all these trends in mind, what does this mean for merchants? 

Well, it’s more important than ever to have a payment and POS solution that can keep up with payment trends and help merchants position themselves as leaders in their space. 

Merchants should work with payment processors that allow for a wide range of payment methods, online and in-store. In this day and age, customers expect to be able to pay in a variety of ways—the days of cash and debit-only are over. 

Businesses should be able to reconcile payment data easily, automate transactions, and view valuable insights on their customers and operation as a result of an integrated solution. All of these features combined can empower merchants to stay ahead of changes in the credit card industry. 

Plus, an all-in-one payment processor and POS is crucial for online payments. A self-hosted, integrated gateway and processor ensures smooth mobile checkout experiences for customers.

Lightspeed’s unified Payments and POS platform offers all these features, and more. It’s a one-stop solution for growing businesses, designed to help ambitious retailers level up in their industry. With Lightspeed, merchants can scale, identify top revenue streams, and offer premium customer experiences from start to finish. 

FAQs

What will replace credit cards?

The future of credit cards is constantly evolving, and while it’s difficult to predict with certainty what will replace credit cards, there are several emerging technologies and trends that could shape the way we make payments. These include mobile and contactless payments using smartphones and wearable devices. With the Internet of Things (IoT), we may see the seamless integration of credit card payments into everyday life. Imagine your car paying for gas or parking while you enjoy a hands-free, cashless experience.

How is the credit card industry changing?

The credit card industry is undergoing significant changes. One major trend is the mainstream adoption of contactless and mobile payments. Fintech companies and digital banks have also introduced innovative credit card alternatives that offer streamlined user experiences, competitive rewards and quicker approvals. These disruptive players are forcing traditional credit card issuers to adapt and improve their offerings.

Is the credit card industry growing?

The credit card industry is continuing to experience growth, but it is also undergoing significant changes and facing various challenges, including advancing technologies, fintech disruption and regulatory changes. 

Will digital wallets replace credit cards?

Digital wallets are unlikely to completely replace credit cards completely but will continue to coexist and evolve alongside them. Digital wallets offer convenience and security by allowing users to store multiple payment methods, loyalty cards and more in one app or device. Credit cards, on the other hand, remain a widely accepted and trusted payment method globally. They provide access to credit, offer rewards and benefits and are deeply ingrained in the financial infrastructure.

What is the credit card outlook for this year?

The credit card outlook for 2024 suggests a mixed scenario influenced by several factors. Globally, the credit card industry is adapting to evolving consumer spending habits and widespread adoption of digital and contactless payments. The future of credit cards will also depend on enhancing security features to combat fraud using technologies like biometrics and AI. Interest rates and fees may fluctuate depending on economic conditions, particularly in response to inflation and central bank policies, which could affect the cost of carrying credit card debt. 

Who dominates the credit card market?

Visa and Mastercard are the most prominent card networks globally, facilitating a vast majority of card transactions. American Express and Discover are also significant players. Among banks, the largest issuers of credit cards in the United States include JPMorgan Chase, Bank of America, Citigroup and Wells Fargo. These companies dominate due to their extensive customer base, global reach, advanced technological infrastructure and strong brand recognition. However, the market is witnessing the emergence of fintech companies and digital banks, which are challenging traditional players by offering innovative payment solutions and customer-centric services.

Merchants can evolve with the payment industry

While it may seem the payments industry is changing at a dizzying speed, having the right POS and payments solution in place can make a world of difference in a time of inflationary uncertainty, rising debt and other challenges. 

Despite these challenges, the credit card trends we covered in this article are exciting for consumers and businesses alike. There are more opportunities than ever to make sales, and more channels for merchants to thrive in. With the right payment tools, merchants can tap into these opportunities to drive revenue. 

To learn more about Lightspeed’s unified Payments and POS platform, talk to one of our experts today. 

Editor’s note: Nothing in this blog post should be construed as advice of any kind. Any legal, financial or tax-related content is provided for informational purposes only and is not a substitute for obtaining advice from a qualified legal or accounting professional. Where available, we’ve included primary sources. While we work hard to publish accurate content, we cannot be held responsible for any actions or omissions based on that content. Lightspeed does not undertake to complete further verifications or keep this blog post updated over time.