Three key trends in payments and commerce in 2024

Mark Jamison, SVP, Head of Global Clients, Visa, highlights three key trends in payments and commerce in 2024 and what they mean for the ecosystem:

1. The push to real-time payments (RTP) and banking.
2. The acceleration of the digital wallets with tokenized payment credentials.
3. The changing competitive dynamics in the industry.

Elena Mesropyan: Mark, how have payments and commerce changed over the past five years and why?

Mark Jamison: There's never been a more exciting time to be in payments because this space is changing so rapidly. And I’m convinced the various hype cycles have peaked and we are moving into an applied adoption phase. For example, there were a number of hype cycles that happened around crypto and the expectation that cryptocurrencies were going to become the world’s global currency free from regulation or governmental interference. There was also buy now, pay later (BNPL) that was going to become the new way of paying for everything, disrupting the legacy lenders. And most recently everything is AI and genAI and how this will be transformational. At the same time, the funding has dried up to a great degree for the technologies that have passed peak hype cycle and there’s a culling of the herd that’s happening. Even for AI I think the hype cycles are now mostly over, and these technologies are starting to mature enough that they're going to be deployed at scale to real benefit. The next 12 to 24 months will be about applying these new technologies and capabilities to make businesses smarter, better, and more successful. It’s not the tech itself, it is what will be done with it to deliver a step change in impact.

Elena Mesropyan: How have consumer behaviors and preferences evolved over the past few years? What are consumers expecting from payments and commerce experiences?

Mark Jamison: Since the pandemic, consumers have changed their mindset. So many more consumers adopted online and mobile commerce and are using new companies and capabilities. Consumer expectations have skyrocketed – they expect everything to be instant, convenient, and secure. They don’t really care about what happens on the backend. They just want payments to happen and happen fast. They also want to know they are protected - there is immense embedded trust in institutions like Visa as stewards of the payments ecosystem in making sure everything just works and everything is secure everywhere in the world.

Elena Mesropyan: Completely agree on the expectation for things to just happen and happen fast. Speaking of things happening fast – it seems that the technology adoption life cycle is getting shorter and shorter. What are some of the biggest trends you are expecting to accelerate in the next 12 to 24 months and how will they impact the payments ecosystem?

Mark Jamison: Yes, I agree. I will highlight 3 particular examples – first, the push to real-time payments (RTP) and banking. Second, the acceleration of the digital wallets with tokenized payment credentials. And finally, the changing competitive dynamics in the industry.

The first one is the push to real-time payments and banking, which means that the financial services tech stack and the operating model have to move to real time. And that's a really big deal – there’s been an explosion of new RTP networks around the world. They’ve been around for a long time in some markets, particularly in Europe, but now they're really taking off everywhere around the world. Visa Direct, debit, credit and commercial cards continue to thrive in markets that have at-scale real-time payment and account-to-account services. For example, we’ve recently seen Pix and its explosive growth in Brazil, bringing more consumers into the world of digital payments and more sellers accepting digital payments. Similarly in the US (which interestingly has been a global laggard in this space) with FedNow and The Clearing House’s RTP Network. There are now 70 countries in the world that have adopted the ISO 20022 standard for RTP, and it's fundamentally different from the way payments messages worked in the past – there’s literally no margin for error. It means that when you send money, it's gone and there's no recourse. So, what does that mean? This is why it's so profound and why these new technologies have to come into play. Because if you're going to win and thrive in a real-time banking world, your entire tech stack, your entire backend, your entire operating model now has to become real-time. Your fraud detection, your risk capabilities, your ability to be accurate with identity, – you have to be proficient in doing all of those things in milliseconds.

At the same time, organized crime has come into this space in a way that we've never seen before; there are nation states that are aggressive in this space. There’s been a huge surge in friendly fraud because commerce and payments are increasingly happening online – it’s no longer a person-to-person experience like in the real world, where I am walking into a store and buying something. As commerce moves online, people and businesses are physically disassociated through an online medium. As a result, there is a segment of people who think they can get away with fraud. The threats had never been higher, and decades of legacy infrastructure built on batch processing has to be reimagined and refactored for real time operations.

The great news is that this issue is perfectly suited for the new capabilities of AI and machine learning. Companies with a global footprint and scale like Visa will be able to deploy AI and machine learning technologies to detect and mitigate fraud through enhanced risk capabilities (Visa already has several hundred AI models in production, powering over 100 products) so that our entire ecosystem is stronger and more fortified against fraud.

The big message here is that the legacy institutions don't have a choice, this leap is not optional for anyone. If you want to exist, you have to make this transformation. All of those decades-old technologies – tech debt – now have to be reimagined. And that might mean that you have to lean on the industry-leading capabilities of expert third parties who are best positioned to help you with this transformation.

Elena Mesropyan: How might merchants balance risk management and rising threat of fraud with the consumer demand for faster and more convenient, but nonetheless secure experiences?

Mark Jamison: This is tied to the second point I was going to make – we are seeing and are going to see more acceleration of digital wallets with tokenized payment credentials, and that's a big part of the solution here. 

There was an explosive growth of digital wallets in China. Alipay and WeChat is the way 1.4 billion people in China now pay for everything, and so other wallets around the world started to emulate that. We saw them all throughout Asia-Pacific, all throughout Latin America and the Caribbean, and here in the US with Venmo and Cash App, which have been wildly successful. What this means is that the winning institutions will truly understand that convenient, multi-credential digital wallets are how consumers want to transact. Consumers want it easy; they want to have a single app that has all their different payment credentials. And in order to thrive, you have to be really fluent in tokenization, which is the most secure technology in our industry. As a consumer, you don't need to know that your payment credentials and sensitive personal information are being encrypted. All you really want to know is that this digital payment credential is really smart, and the bad guys can’t get to it – they can’t steal my number because it’s tied to my device. So, if someone were able to steal it, it’s worthless and they can't do anything with it. When I use a token as my card on file with the online merchants that I like the most, it can’t be stolen because it is tied to that specific merchant and also tied to me.

At the end of the day, the way consumers are buying things, and the way merchants need to accept payments is changing. The same way that contactless has become the predominant way that people pay for things in person all over the world, the next step of contactless is through digital wallets. And companies have to be very proficient at managing wallets - making sure that their payment credentials are interoperable across wallets, that the wallets themselves are interoperable, and that cross-border payments and money movement through wallets are enabled safely and securely.

Elena Mesropyan: I was hoping you’d bring up wallets because it’s one of the most galvanizing topics in the industry. Let’s talk about companies on the other side of the wallet – those whose payments instruments get added to the wallet among all other instruments. How do you compete in this space? How do you achieve top of wallet? Because a wallet essentially abstracts away the complexity of managing all your instruments. And, theoretically, supercharged by an AI-driven intelligent orchestration capability, it just means that I as a consumer care a little less about any particular way to pay in my wallet as much as I care about just being confident that I paid the best way for me to pay in any context.

Mark Jamison: The companies that win in this new environment will understand that they need to provide the most value to their customers and they need to embrace open architecture. So, if you are an issuer who issues payment credentials, you should focus on helping your consumers take your tokenized payment credentials and put them into every merchant profile that they can and in every wallet that they have because of your compelling value proposition, which is likely a combination of rewards, loyalty to your brand, servicing, and safety and security. Companies need to figure out how they position themselves with consumers to make sure that their payment credentials are top of wallet and is in all of these places where commerce happens.

And as we think about this, proof of success of wallets is the fact that Early Warning Systems (EWS) is launching Paze, which says to me that they truly learned something and no longer want to cede this space to fintech and Big Tech. They’ve said, “Okay, we learned from our experience with Zelle that when we create an interoperable standard among institutions and a single way to move money in real time, consumers will adopt it at scale. So, we are now going to do the same thing in the wallet space because we are not going to cede this space to third-party wallet providers and Big Tech and their ambitions in the wallet space.”

Elena Mesropyan: It’s fascinating to see the re-energized competition in the wallet space. What would be your advice to financial institutions on how they might achieve top of wallet preference and have their payment credential added on file across merchants?

Mark Jamison: There are two things they have to nail. Number one, to achieve top of wallet preference, you have to be sophisticated and fluent in how tokenization works in the ecosystem. That’s the baseline entry fee to be in the space. Then, once you have that proficiency, number two is figuring out “What’s my distinct value proposition to my customers to make sure they're choosing my payment credentials and putting them into the wallets that they use or the merchants with card on file that they use?” And there are many ways they could choose to compete on that, but they have to come up with something distinct through all key steps of the customer engagement lifecycle. If you're just like all the others, you're not going to come out on top.

Elena Mesropyan: Speaking of value propositions, how has the way companies build value propositions evolved?

Mark Jamison: The way financial services companies have started to differentiate themselves with their value proposition has radically changed. It used to be that they had branch networks, and they used the power of their distribution and their brand to cross-sell products and payment credentials. What we've seen in the past few years is that consumers no longer value that legacy model very much. What they really care about is convenience, ease of use, reliable safety and security, and whether the credential is where they want it to be. Meaning, when I am out and about, what is the payment credential that is easiest for me to use? Is it embedded already into that experience? At its core, embedded finance is about convenience because the payment experience is already embedded in a way that, frankly, is abstracted away from me so that I can just say, “Yes, I want that thing, make it happen for me,” and there’s effectively no choice involved.

Financial institutions need to think about how they can create a world where they are embedded by default so they are already top of the queue. This means they may have to have partnerships with players that they haven't had partnerships with before, and they will need to collaborate with partners, and perhaps competitors, they've never worked with before.

Elena Mesropyan: Embedded finance has seen so much progress and adoption in consumer experiences. What does embedded finance really mean for various players in the payment and commerce ecosystem?

Mark Jamison: Embedded finance is another one of those things that was super hyped a couple of years ago, although there wasn’t even a very good definition for what is “embedded finance.” It meant lots of different things depending on who you talked to. I think this area is a really good example of the hype cycle that has gradually plateaued and is now becoming applied.

Back to the definition, though – what does embedded finance mean? Embedded finance means that the payment part of the commerce experience will be predetermined as you go through different environments, because you will have set a default for what that means with your various merchants. You will have already set the framework and defaults for how the payment happens.

Let’s say I am playing games in an immersive environment. As part of my profile, I will already have embedded (or the merchants will have embedded it as part of my signup process) a payment credential into my profile. So, when I'm in the immersive experience, and if I want to buy some more coins, I just say, “yes, I need more coins,” and it's done. There is zero friction in doing that. And that's going to happen through all sorts of different use cases. The companies that win, will look through a range of use cases and say, “Where are the biggest opportunities for us to embed our capabilities so that we are the default choice for seamless, invisible transactions and experiences?”

Elena Mesropyan: You used a fabulous example of immersive experiences, and that’s one of the more familiar consumer examples. What are some of the undervalued opportunities that aren’t talked about and explored as much when it comes to payments innovation?

Mark Jamison: A space that we've seen really grow in terms of payments innovation is the commercial payments space. And here's why – most of the technology innovation that's been applied at scale was for consumers, while more corporate commercial transactions were lagging. But now, they are all catching up using the groundwork that was built for consumers. For example, it used to be that you issued a corporate payment card to your fleet drivers that they could use only for fuel. But now, everything is going to virtual cards. And by the way, a virtual card is just a token, which goes back to the point about fluency in tokenization – it’s really important now that you push a payment token into the wallet on the mobile phone of your fleet driver. You can embed powerful controls into that token, so that the driver can use it for maintenance, to buy tires, to get meals, and all the reconciliation is automatically done because it's built into the infrastructure. I think there are huge opportunities for innovation in the commercial payments space with embedded finance and there will be an explosion of different use cases over the next few years.

Elena Mesropyan: That’s a great example – commercial fleet space is less glamorous to talk about than, say, social commerce or immersive experiences, but it’s clearly a fascinating area with a lot of opportunity for innovation. Now, I’d like to switch our attention to a different side of this innovation, and your third point – the competitive dynamics and the who behind all this innovation. What is happening with the competitive landscape? How is it changing?

Mark Jamison: As these technologies and capabilities are being applied, what I see happening in the market now is that the bear has been poked out of hibernation, so to speak. Global financial institutions who were big and strong, but slow, have seen over the years all of these Big Tech and fintech companies coming into finance, changing the consumer experience of finance in many ways, and rapidly gaining market share. The history of Revolut, Wise and other successful fintech companies is a chapter out of The innovator’s dilemma. You had these upstarts who went into the low end of the market, into a place where the legacy players made large margins and didn't have a lot of incentives to change it, and the new entrants just started winning in those segments. They used new tech infrastructure, they operated at a lower cost, and they offered a better value proposition for consumers, and they were really successful. Well, guess what? What you're starting to see now is the big financial institutions have been looking at that and said, “We are no longer going to cede this space to fintechs and Big Tech. This is our space to play in and to win.”

HSBC is a good example of this. They did an incredibly innovative thing recently and launched a digital wallet called Zing in the UK. The created a separate legal entity so they could build and launch it really fast. And it’s not even a bank – it’s operating on an electronic money license. They launched in the UK and are going to launch it in markets throughout the world. To sign up for it and use it, you don’t even have to be an HSBC customer. You simply become a customer of this new entity called Zing, and it has all of the latest capabilities, like multi-currency controls of the exchange rates and much more. They allow consumers to spend, send, and save in whatever currency consumers want, and it's super easy, and offers a really high-value proposition.

So, as fintech companies started taking market share, you're now starting to see these big banks say, “Well, we can build a wallet. And we actually have large installed customer bases, and we have a geographic footprint. We know how to do large-scale marketing.” You're going to see big banks come in to the fintech space and there's going to be much more competition for consumers in the spaces that traditionally had been high-growth for fintech and Big Tech.

Elena Mesropyan: This is a very interesting dynamic that is ultimately very beneficial for consumers, and, in the end, may lead to solving more challenges and empowering people to achieve more. But let’s pause on challenges that persist in the industry because persistent, complex challenges are also an opportunity for innovation. With all innovation that is happening in payments and commerce, what are some challenges that are more amplified today?

Mark Jamison: As an industry we have gotten incredibly good at pushing out fraud in the face-to-face world. The amount of fraud that happens in the real world where you are handing your card or tapping at a real merchant is effectively nonexistent through a combination of things like chip and tokenization. But now, fraud has migrated to where it's easier to commit – the online environment and mobile apps. Organized crime has learned that it's easier, more profitable, and safer for them to be in the online payments fraud than in other spaces where organized crime has traditionally operated and made money. In fact, how organized crime makes most of their money has changed dramatically – they’re investing in commerce fraud because they can do it easier using new technology and tools. This is a terrifying phenomenon for the industry. We've seen that the amount of fraud attempts has increased astronomically in a virtual world. Because how do we really know you are who you say you are, and you haven’t spoofed someone or convinced someone to click on some fraudulent link?

The persistent and amplified problem is in this new world, where nation states and organized crime are incredibly sophisticated and going after the online space. How can we stop them collectively? It takes a consortium of the entire ecosystem working together to stop that, which, unfortunately, is contrary to many things that are currently happening in the world, like legislation around data localization. While there are some understandable reasons why data localization is being mandated by governments, it’s actually quite bad when it comes to fraud. To be effective you really need to look at a global data set because fraudsters move from country to country and don’t have to play by the regulator’s rules. Therefore, we have to use new AI and machine learning capabilities to find new ways to stop them and stay ahead of them.

Elena Mesropyan: This is a good segue to what I wanted to touch on as well – digital identity. What is the role of digital identity in helping solve the challenge you described?

Mark Jamison: Identity has never been more important to the foundation of our business. Companies that win, will get very sophisticated in their ability to confirm and leverage identity.

The good news is there are a lot of data points you can leverage if you get fluent in how to do it. Everything from biometrics, which are not just the usual retinal scan and face recognition, but the way your body moves, the sequence in which and the way you type things on the keyboard, the inflection in your voice – all of those can be used in different environments in different ways. Then there's a whole set of device IDs and IP addresses, and other digital footprints that each send a signal. The more signals you look at, the better. The most sophisticated companies will be able to look at an array of diverse signals in milliseconds; they will be able to tell if you are really you, in real time. Your unique biometrics (and you see this happening with Amazon One, for example), become the way you pay for things, and you will no longer need to carry cards or even a wallet. You, yourself, become the way you pay for things. Your body becomes the payment instrument. So, the companies that will win will need to be really good at all facets of identity.

Elena Mesropyan: Interestingly, two of the key developments we discussed so far – wallets and identity, have now found their intersection and are coming together since you can add your license into a wallet, making a wallet an increasingly powerful application that’s only missing an augmentation with an AI-driven orchestration capability depending on the context of use. And there has been so much progress so fast with AI and its applications, we’d be amiss to not discuss the impact of AI on payments and commerce. What are your expectations for AI development and applications in 2024?

Mark Jamison: If you talk to anyone about the future of payments and commerce, the first thing everyone will say is AI. I think that's a misdirected response because AI is just a capability. The right answer is about how to apply AI. How are we applying AI in our business to be smarter and better by an order of magnitude? Visa recently ran a company-wide hackathon to figure out how we can best apply AI in our jobs to do something fundamentally different and better than the way we did it in the past.

I’ll give you an analogy: Meta has been pushing virtual reality (VR) for a number of years now. They’ve spent billions of dollars trying to build it and their ads and press releases talk about “virtual reality.” But it’s been very challenging with limited consumer adoption. In contrast, look at what Apple is doing with their new launch – they are entering the space, but they never use the words virtual reality. No one cares about virtual reality per se. Apple calls it an “immersive experience” and it’s all about the consumer experience and benefit. Because what do I want as a consumer? I want to immerse myself in different exciting worlds that are with fun things to do.

It's the same thing with AI. No one cares about AI in and of itself. The more important question is, what does AI enable us to do that is interesting and good for us? That’s how we have to think about AI – it’s about how we apply it in ways that matter to our consumers, to our customers. How do we apply it to make our businesses smarter, more productive, and healthier?

Elena Mesropyan: How would you prioritize where to implement AI in the next 12-24 months?

Mark Jamison: The answer to that is the answer to the following question – what is AI uniquely better at doing? It's uniquely better at looking at Massive (with the capital M) datasets, finding patterns, and using statistical analysis to point out the probability of what the best answer for the next thing is. It can definitely help with risk and fraud. But a broader answer to your question would be a whole set of human interactions, like customer service experiences. We’ve all had experiences with bots that are terrible. I think AI will take it to the new level where you may prefer to use an AI-powered experience as opposed to interacting with a real person. There's a reason for the phenomenon in the physical retail world, when people will often go to a self-order kiosk rather than deal with a representative at a big box retailer, for example. It’s because the kiosk actually can tell you what they have in inventory and what the rating for the products are. The human, unfortunately, might not always know and not have the most current and full information. Interactions where you need accurate, real-time insights are a low-hanging fruit.

Elena Mesropyan: So, if you were in the shoes of all Chief Innovation Officers, what would your top bets for AI application be?

Mark Jamison: In the companies that win, this will not be a top-down deployment. What they'll say is, – “Here's a capability we know is incredible and can be used in a million ways. You are in the field, and you know your job best. Take it, try it, and tell us how it might best help you.” And I am confident that really creative smart teams will come up with use cases that will make them more efficient by a factor of 10. So, the initial, no-regrets investment is just getting the AI tools out to your people and letting them figure out the most impactful application.

That being said, I think genAI is particularly well suited anywhere you are building code, images, videos, any multimedia. The idea that you'll go to an agency to do a shoot for an ad campaign is no longer the case. You just say, “I want a picture of two people buying X in an environment Y. Do it in the style Z and make sure they're holding A.” All of a sudden, a high-resolution amazing picture is generated. And that's already happening today.

Elena Mesropyan: I want to go on a tangent here for a moment because the precision of what can be generated by genAI to a specific request is just mind-boggling. It’s another manifestation of hyper-personalized environments and experiences, malleable to whoever is asking or using something. What does this technology-enabled hyper-personalization in what we see, experience, and become highly accustomed to, mean for businesses?

Mark Jamison: That's a really important question. Gen Z, particularly, is all over this. Historically, simple, clean experiences have won over noisy ones. Remember Google’s home page? It was very clean and that's a key reason why they ultimately beat Yahoo with its overwhelming visuals and media model. But now when I use Google products, particularly Gmail, I get endless ads, many with highlighted images and media embedded in them – they take over half of the above the fold space. Meanwhile, what Gen Z wants is authenticity over automation. They want to feel like experiences are tailored to them without it being creepy. They want to feel an authentic connection. They want highly personalized commerce experiences that feel like it's something that is unique to them. They do not want to be slammed with irrelevant information because they are savvy enough to know they are the product.

Elena Mesropyan: And identity can be a mechanism to control personalization from a consumer perspective, it’s a way for me to tell a merchant how I want my experience. Now, I want to move to the question I am excited about the most. Forget about where we are today. Imagine that tomorrow, you have to become an entrepreneur, you have to start your own business. What would your business be doing and why?

Mark Jamison: I would try to build a firm that specializes in large language models (LLMs). And here is what I mean by that: All of these LLMs are only as good as the datasets that they learn and operate on, and building an LLM is incredibly expensive. As a result, there will only be a few generalized horizontal LLMs. But what we're going to see is there will be LLMs that are created by industry or by company. And a company like Visa, which has the largest payment transaction data set in the world, can build a large language model unique to payments that everyone can leverage. It’s like the gold rush – people who made the most money in the gold rush were people who made and sold shovels to the gold miners. The analogy in my case is to help companies leverage their data set to build unique, specialized LLMs.

Elena Mesropyan: That’s an excellent answer – leveraging specialization because a general purpose LLM is likely less apt in understanding nuances inherent to verticals, companies, to behaviors, terminology, and other hallmarks of a specific space.

Mark Jamison: That's right. And that specialization is a source of a competitive advantage.

Elena Mesropyan: Thank you, Mark, for your thoughtful responses. This has been very enriching.

Mark Jamison: Thank you. I love talking about this and welcome readers to reach out, share their perspectives on these topics, and discuss what’s top of mind for them.

Disclaimer

The views and opinions expressed in this interview are those of the authors and do not necessarily reflect the official policy or position of Visa Inc.