The unstoppable rise of Fintech: non-monetary transactions at historic levels

The unstoppable rise of Fintech: non-monetary transactions at historic levels

Non-monetary transactions will reach historic levels according to the recent 2023 Global Payments Report by the Capegimini Institute. The volume of non-monetary transactions globally is set to reach almost 1.3 trillion by 2023, with an annual growth rate close to 16.6%. This surge is expected to continue rising until 2027, doubling consecutively since 2022.

At both individual and commercial levels, there has been a rise in various virtual payment instruments, including virtual cards and digital wallets. This trend has prompted banks and payment companies to swiftly expand commercial payment capabilities.

Key factors driving the development of these new payment instruments have been the pandemic, the emergence of new technologies like blockchain, and the introduction of new payment methods by various banks, such as Bizum or contactless payments.

Key regulations and initiatives in non-monetary transactions

This innovation and dynamism in the payments industry have been accompanied by regulatory developments that swiftly adapt to challenges and changes, ensuring resilience, transparency, security, fair competition, and the rapid introduction of innovations to the market. Particularly, four key industry initiatives and regulations have played a significant role:

• Tokenization: Crucial in risk reduction, tokenization facilitates secure flow of financial data among multiple parties. It is primarily used in protecting against cyber fraud in sensitive data like credit card tokenization. Tokens replace primary account numbers, simplifying security and compliance. Additionally, it enhances payment processing speed and security, facilitating subscription transactions, recurring payments, and quick e-commerce payments.
• Central Bank Digital Currencies (CBDCs): The development of CBDCs is shaping the future of payments. A substantial number of countries, representing nearly 98% of global GDP, are exploring CBDCs, signaling a significant increase since 2020. Collaborations between entities like SWIFT and regulators seek seamless integration of CBDCs with existing payment infrastructures, enabling successful cross-border transactions.
• ISO20022 Migration: The transition to the ISO20022 messaging standard, allowing more detailed data exchange, is being adopted by banks and payment companies. This standard requires tokenization as an additional security layer. However, although there is strong momentum towards this migration, the survey indicates that only 44% of payment executives have completed or are in the final phase, with about a quarter yet to begin the process.
• SWIFT Global Payments Initiative: SWIFT’s gpi (Global Payments Initiative), launched in 2017, aims to enhance transparency and traceability in the correspondent banking network. While 38% of surveyed executives indicated completion of SWIFT gpi adoption, nearly 29% are in process, and approximately 24% have yet to commence. SWIFT prioritizes globally interoperable value transmission, emphasizing security and instant transactions in banking.

Within the European framework, there is the Payment Services Directive (PSD2), regulating operators offering payment services in the network. PSD2’s primary goal is to foster competition, security, and innovation in the payment services sector, ensuring consumer protection and improving transaction security.

One key feature of PSD2 is banks’ obligation to share customer data, always with explicit consent, with third-party payment service providers, enabling the offering of innovative services and granting users greater control over their financial data. Additionally, the directive establishes stricter security standards, such as reinforced authentication, to reduce the risk of fraud in electronic transactions.

Non-monetary transactions: security and efficiency

As observed, in a constantly evolving financial landscape, the 2023 Global Payments Report by the Capegimini Institute reveals an astounding reality: exponential growth in non-monetary transactions, driven by the adoption of virtual payment tools.

This progress has not occurred in a regulatory vacuum. The payments industry has been accompanied by dynamic regulations that promote competition and security while granting users greater control over their financial data.

The implementation of key initiatives like tokenization, the development of Central Bank Digital Currencies (CBDCs), the migration to ISO20022, and SWIFT’s Global Payments Initiative has set benchmarks in the industry, enhancing security, transparency, and traceability in financial transactions.

These regulations and technological advancements underscore the payments industry’s ability to adapt, innovate, and ensure security and efficiency in a changing financial environment. With these strong foundations, a path to a continuous era of innovation opens, where financial services will continually evolve to meet the needs of users and businesses in an increasingly digital world.

If you are developing a tool that includes or allows online payments, do not hesitate to contact our team of lawyers at Letslaw, with extensive experience in digital law, to advise you on regulated sectors.