As we approach 2025, the cards and payments landscape continues to evolve rapidly, driven by emerging technologies, shifting consumer preferences, and an evolving regulatory landscape.
As outlined in our recent report, Future of Payments: Evolve beyond transactions, financial institutions face mounting pressure to innovate and create value while grappling with rising costs, a complex ecosystem, and persistent legacy systems.
There are high expectations for the new National Payments Vision, which will set out priorities for United Kingdom payments, simplifying the change agenda and driving further competition, innovation, and efficiency. (In Ireland, the new National Payment Strategy was launched in mid-October.)
Based on insights from industry experts and recent developments, Cognizant has identified four key trends likely to shape the cards and payments landscape in the next 12 months.
1. Technological innovation shaping payment landscape
The rapid advancement of technology is fundamentally reshaping the payments landscape, offering unprecedented opportunities for innovation and efficiency.
Distributed ledger technology and central bank digital currencies
Distributed ledger technology (DLT) is regaining traction in the payments sector, with initial interest in 2018 receding. The Bank of England's central bank digital currency (CBDC) initiative is a prime example, as it moves beyond design into building proof of concepts to test with the participant value chain.
CBDCs have the potential to revolutionise monetary policy implementation, enhance financial inclusion, and provide a new tool for combating financial crime. For instance, programmable money features could allow for targeted stimulus payments or enforce spending restrictions on certain types of aid.
Another noteworthy development is the Regulated Liability Network (RLN), a concept that leverages DLT to create a network of tokenised deposits. Recently, a group of top UK banks completed a successful pilot of RLN, exploring use cases in e-commerce and demonstrating the potential of this technology to revolutionise payment systems—for instance, payment-upon-delivery, digital bond settlement, and innovating around the process of buying property. The RLN concept could bridge the gap between traditional banking systems and the world of digital assets, offering a regulated and secure way to transact with tokenised representations of fiat currency.
JP Morgan's Onyx platform is already pushing the boundaries of what's possible with DLT, enabling programmable payments and atomic settlements. This technology allows for the creation of smart contracts that automate complex payment processes, potentially transforming areas such as property transactions and supply chain finance.
Multi-cloud implementations
Financial institutions increasingly adopt multi-cloud strategies to enhance flexibility, resilience, and scalability. This approach allows for the distribution of workloads across multiple cloud providers, reducing dependency on a single vendor and optimising performance.
Multi-cloud strategies give financial institutions increased bargaining power when negotiating with cloud providers and allow them to select best-in-class services from different providers.
The Internet of Things and machine-to-machine payments
The Internet of Things (IoT) is opening up new payment frontiers. Visa's Connected Car payments initiative, which allows drivers to make payments for fuel, parking, and tolls directly from their vehicles, exemplifies this trend.
Similarly, BMW has launched IoT-enabled cars capable of making machine-to-machine payments—for example, allowing customers (in Germany) to purchase fuel and parking without leaving their vehicles—pointing towards a future where devices can autonomously conduct financial transactions.
Machine-to-machine payments
The potential applications of machine-to-machine (M2M) payments are vast. In the energy sector, smart grids could automatically negotiate and execute micropayments based on real-time supply and demand. In manufacturing, IoT-enabled machinery could autonomously order and pay for supplies when inventory runs low. These developments promise to streamline operations and reduce human intervention in routine transactions.
Generative AI and APIs
Generative AI is revolutionising the payments industry, from creating hyper-personalised customer experiences to enhancing fraud detection. For example, Revolut's AI chatbot provides personalised financial advice, while Mastercard uses Gen AI to identify potential threats on the dark web proactively.
APIs are crucial in enabling embedded finance and contextual commerce, blurring lines between social interaction and commerce.
As institutions near ISO20022 compliance, the focus will shift to leveraging enriched data for enhanced analytics, improved fraud detection, and more personalised experiences.
2. Industry collaborations to make payments better
Collaboration is becoming increasingly crucial in the payments industry, as institutions seek to improve cross-border transactions, enhance interoperability, and combat fraud.
Cross-border payment innovations
Alternative providers are driving improvements in cross-border payments. Visa's acquisition of Currencycloud and the growth of firms like Wise and Euronet are challenging traditional payment rails, offering faster, more transparent, and cost-effective international transfers.
These innovations are particularly impactful for remittances, which are a lifeline for many developing economies. By reducing fees and increasing speed, these new solutions can significantly improve the financial well-being of millions of people worldwide.
Bilateral and multilateral partnerships are also reshaping the landscape. The Bank for International Settlements' Project Nexus aims to connect domestic real-time payment systems to enable faster, cheaper cross-border transactions. As it moves into its fourth phase, we anticipate increased global participation from banks and central banks.
CBDC interoperability experiments
SWIFT is conducting experiments to ensure interoperability between CBDCs and existing financial systems.
Meanwhile, a multi-CBDC initiative, Project Dunbar explores how different digital currencies can coexist and interact within a single platform.
This project, involving the central banks of Australia, Malaysia, Singapore, and South Africa, could pave the way for a new era of international settlements, potentially reducing the need for intermediary currencies in cross-border transactions.
Collaborative fraud prevention
The fight against fraud is becoming a collaborative effort. In the US, Adyen, Stripe, and Capital One are sharing fraud data to combat sophisticated financial crimes.
Similarly, Meta has partnered with UK banks to counter social media-originated fraud, which accounts for a significant portion of Authorised Push Payment (APP) scams. This partnership, known as the Fraud Intelligence Reciprocal Exchange (FIRE), has already led to the removal of 20,000 fraudulent accounts in a pilot programme. Cross-industry collaborations will likely become more common as financial institutions recognise the need for a united front against increasingly sophisticated cybercriminals.
3. Payment security
By 2025, global investments in fraud prevention are expected to reach $10 trillion, according to Cybersecurity Ventures, reflecting the growing sophistication of financial crimes and the importance of maintaining trust in digital payment systems.
Enhanced Strong Customer Authentication (SCA)
The upcoming Payment Services Directive 3 (PSD3) is expected to introduce more robust SCA regulations, building on PSD2 with advanced biometric and risk-based authentication approaches.
AI and biometric advancements
AI is crucial in payment security, from detecting fake IDs to investigating suspicious transactions. For instance, HSBC's AI-based system has halved the time needed to investigate potential money laundering cases.
Biometric technologies are evolving rapidly, with Apple's introduction of passkeys representing a significant step towards passwordless authentication.
Payment tokenisation
Payment tokenisation is proving effective in reducing fraud rates. Visa reports that tokenised transactions have seen fraud rates decline by up to 60% compared to non-tokenised transactions.
Quantum-resistant algorithms
As quantum computing threatens to break current encryption methods, the payments industry is exploring quantum-resistant algorithms. Both Visa and Mastercard are conducting trials to ensure their platforms remain secure in a post-quantum world. This proactive approach is crucial, as the development of practical quantum computers could potentially render current encryption methods obsolete overnight.
Decentralised identity management
Decentralised identity solutions are gaining traction. Initiatives like the Sovrin Foundation work on self-sovereign identity systems, where individuals have complete control over their digital identities. These systems can be integrated into payment platforms to enhance security and user privacy.
The potential of decentralised identity goes beyond simple authentication. It could enable new forms of reputation-based financial services, where an individual's financial history and behaviour are securely stored and controlled by the individual but can be selectively shared with financial institutions to access services.
Addressing Account-to-Account fraud
The industry is developing strategies to combat Account-to-Account (A2A) fraud, including machine-learning models and behavioural biometrics that analyse user behaviour patterns to identify potential fraudsters.
4. New payment-related regulations
The regulatory landscape for payments is evolving rapidly, with several new frameworks set to impact the industry.
APP reimbursement
The Authorised Push Payment (APP) fraud reimbursement scheme launched in early October, requiring UK banks to share liability for APP scams between sending and receiving payment service providers. We expect further enhancements to this scheme in the future, likely spurring additional investment in fraud prevention technologies.
DORA
The Digital Operational Resilience Act (DORA) will require financial institutions to enhance operational resilience, including conducting advanced penetration testing on critical infrastructure. Its requirements extend beyond internal systems to encompass third-party providers, potentially leading to reassessment of outsourcing arrangements and increased investment in in-house IT capabilities.
PSD3
The upcoming Payment Services Directive 3 (PSD3) is expected to build on the open banking foundations laid by PSD2, and expand into open finance and introduce new security requirements. It may mandate sharing a broader range of financial data, including savings accounts, investments, and pension information, enabling more comprehensive financial management tools and services.
In line with this trend, the Bank for International Settlements (BIS) recently launched Project Aperta, aiming to enable cross-border data portability through open finance interoperability. This initiative will connect the domestic open finance infrastructure of various countries, further supporting the global movement towards open banking and finance.
EU AI Act
The European Union's AI Act (EU 42001) will significantly impact the use of AI in payments. Financial institutions must ensure their AI systems comply with the risk-based approach outlined in the regulation, particularly for high-risk applications like fraud detection and credit scoring.
The Act classifies AI systems into different risk categories, with stricter requirements for high-risk applications. For payment providers, this could mean increased transparency requirements for AI-driven decision-making processes and mandatory human oversight for certain applications.
The eIDAS regulation
The eIDAS (electronic IDentification, Authentication, and trust Services) regulation facilitates interoperability and secures cross-border transactions by establishing a digital identity and authentication framework across the EU.
This regulation could pave the way for a pan-European digital identity system, potentially revolutionising how customers authenticate themselves for financial services across the EU. Payment providers can greatly benefit by integrating their systems with these new digital identity frameworks.
Key takeaways
As we approach 2025, the cards and payments landscape will continue evolving rapidly. Financial institutions must innovate across multiple fronts, leveraging new technologies, forging strategic partnerships, enhancing security measures, and adapting to evolving regulations.
The convergence of these trends is creating a more interconnected, intelligent, and user-centric payments ecosystem. However, institutions face challenges in navigating complex regulations, managing technology risks, and differentiating themselves in a crowded market.
Success will hinge on balancing innovation with risk management, collaboration with competition, and personalisation with privacy. Institutions that navigate these trade-offs successfully, creating seamless, secure, and value-added payment experiences, will lead the industry into this new era.
The future of payments extends beyond moving money – it's about creating experiences, enabling new business models, and driving global financial inclusion. For forward-thinking institutions, the coming years offer unprecedented opportunities for transformation and growth.
