How new technology is shaping the future of payment in Europe
As innovation gathers momentum, businesses and consumers are benefiting from more choice in ways to pay
The European payments landscape has been transformed in recent years, with a plethora of new digital ways to make transactions and manage payments hitting the market. According to data from Juniper Research, there will be an estimated increase of 83 per cent in digital wallet spending by 2025, reaching $10tn. This shift has been driven largely by the success of Europe-based fintechs, which have responded to consumer demand with radical tech innovations. The sector raised a record-breaking $12.8bn in the first half of last year, nearly 1.5 times more than the total amount raised during the whole of 2020.
“New technologies are responding to customers’ desire for quick and convenient ways to pay. With the global pandemic driving payments online, businesses have had to adapt to changing consumer needs,” explains Mike Woods, CEO at global financial platform Konsentus. “Consumers want to be able to access their financial data in one place but for different purposes – which is where open banking comes in. Banks are still the trusted custodians of funds and financial information, but the ease with which customers can view their data through multiple lenses is where connecting with fintechs has been able to add real value.”
“There was a massive shift in how people transact – and it was seamless. That’s testament to the industry’s resilience”
Jim Wadsworth, Senior VP Open Banking, Mastercard
Europe’s fintechs raised more over the last 12 months than was raised by the region’s entire tech sector in any year up until 2018. “While capabilities and choice in how we pay has been around for a while, we saw a huge switch of activity from face-to-face to ecommerce,” says Jim Wadsworth, Mastercard’s Senior VP Open Banking. “There was a massive shift in how people transact – and it was seamless. That’s testament to the industry’s resilience.”
This is particularly positive news at a time of uncertainty, when both companies and their consumers are prioritising recovery and stability. Payment solutions designed to create control and flexibility will support a globally competitive, resilient and sustainable European payments market of the future.
A collaborative market
An increasingly coalescing market has helped bring about technological evolution, with established companies and disruptors coming together to respond to consumer demand for an efficient, transparent and secure system. The result has been innovation such as open banking. Thanks to the implementation of the transformative Second Payment Services Directive (PSD2), Europe became an early adopter of this system, which uses open APIs to allow third-party developers to build applications and services around the financial ecosystem.
In 2020, Europe counted approximately 12.2mn open banking users, with the figure predicted to reach 63.8mn by 2024. Open banking holds significant benefits for consumers: using a bank account with third-party applications can add value by allowing it to track, save and spend more efficiently. However, adoption has varied throughout the region. It has been widely used for some time in the Baltic and Nordic states – where a collaborative approach is more established – but other countries are just starting to catch up.
This disparity is unsurprising. With so many different countries with varying legislation, data laws, evolving regulation and security concerns, creating cohesion and partnerships between financial companies and their consumers can be challenging. Mastercard has a focus on building collaborative relationships in the sector, as evidenced by the development of its Open Banking Tracker, in collaboration with Konsentus. This tool revealed that the total number of third-party providers at the end of 2021 was 529, a 17.5 per cent year-on-year increase. Meanwhile, in Denmark, Mastercard made open banking more widely accessible by acquiring the open-banking fintech Aiia with the aim of helping businesses and consumers across Europe use their own data simply, securely and quickly.
Improving crypto security
With the growth in disruptive tech bringing new and progressive ways of transacting to the fore, cryptocurrency has been moving from the fringe of the investment community into the mainstream. In 2021 alone the number of crypto owners worldwide increased by 178 per cent, rising to 295mn, according to exchange company Crypto.com. This trend is expected to continue, with a predicted 1bn global crypto owners by the end of this year.
This rate of change is vast, both in speed and scale, and specialist skills, technologies and infrastructure are needed to ensure security and safety. This is where the experience and resources of established names such as Mastercard can underpin evolution in the sector. It is helping prepare for the future of payments by investing in ways to prevent fraud, and is already supporting select cryptocurrencies directly on its network. Recently the company acquired CipherTrace to increase the transparency and assess the risk of crypto transactions. This technology analyses risk profiles across card systems and real-time payments to help detect fraud; by providing more transparency for each crypto payment, it improves security and increases insight on both the consumer and business side.
Adoption of digital technology is only going to increase. For this, efficiency is key, and it must happen as invisibly as possible
The payments industry and its consumers are increasingly embracing a future where leaps in innovation are creating more choice and flexibility than ever. For this to be achieved successfully and sustainably, the sector must work together to create an innovative, reactive and efficient payments ecosystem across European markets. “Adoption of digital technology is only going to increase,” Wadsworth explains. “Efficiency is key, and it must happen as invisibly as possible. It is really important that people can transact however they want to, that it works at scale, is safe and frankly does what it says on the tin.”
