With the new year comes an opportunity to predict what the coming year will look like, and what we believe will be the major trends in payments and payment security for 2022. Our focus is on Europe, but we’ll also touch on the rest of the world. The beginning of the year is also a good opportunity to look back at the accuracy of our predictions for the previous year, so if you’re interested in our 2021 retrospective it is already posted on our own blog. 

More focus on digital identity
One of the new topics in our discussions with banks in 2021 was integration with eID wallets. What prompted these discussions was a proposal from the EU Commission back in June of 2021, where they defined a “trusted and secure Digital Identity for all Europeans” in the form of a digital identity framework, designed to provide universally recognisable identities throughout Europe. Banks will, of course, be required to integrate both with this framework and the many other national initiatives set to launch this year, such as the new French ID cards. We discussed the EU proposal in a blog post back in October of last year. While there are some clear limitations in the proposed framework we believe eID will continue to be a major topic in the next year – hopefully with more practical and user-friendly implementations coming on the market as well.

Life will continue to be hard for banks
The last year saw an increase in competition in many markets. A good example here is Ireland, where neobanks such as Revolut and N26 have captured a large market share in a remarkably short time. The amount of competition is set to increase in 2022, with new players coming into the payment market and most likely through more consolidation among the existing players. Open Banking will be a part of this, as it will allow for new fintechs to capture market share through more exciting payment solutions. While the big tech players (Google, Apple, Amazon..) so far haven’t offered banking accounts in Europe they’re surely going to try to capture more of the payment market. We can also expect to see big developments in Open Banking outside of Europe, with efforts ongoing in the Middle East, Canada, South America, and Brazil.

3-D Secure 2 to be required for online card payments
Improving payment security has been one of the major tasks for banks and other payment service providers (PSPs) over the last year. We believe this will continue to be an even more important trend over the next year. In addition to the UK finally requiring PSD2 compliance for all types of payments there is also the shift away from 3-D secure 1.x. As an example, VISA will discontinue support for 3-D Secure 1.x on the 15th of October 2022. This shift is interesting, as it will require work by both banks, who’ll mostly move to app-based authentication, and by merchants, which have to make sure their payment gateways and solutions support 3-D Secure 2.x.

For end-users, this probably won’t make much of a difference, except for the few still relying on OTP by SMS.

From touch-to-pay to app-to-pay
Linked to the sunsetting of 3-D Secure 1 is the movement from using card-based payments both online and in stores to using payment apps in both situations. Here in the Nordics, we’re seeing apps becoming more common in both situations: Grocery chains have launched their own payments apps, and online more payments go through payments apps such as Vipps. Payment apps simplify shopping online by letting customers identify with their phone number and date of birth, finalizing the payment in the app, This is a lot smoother than entering a card number and going through 3-D Secure. We’re surely going to see this trend continuing, perhaps with the consolidation of payment apps across Europe, perhaps even linked to the increased use of Open Banking.

While banks will surely continue to increase functionality in their apps to make the payment process smoother we’ll also see more payment apps entering the market. 

Outside of Europe
There are two trends that we would like to briefly touch upon. The first is cryptocurrencies. To us, it is still not clear that there is a commercial case for actually using cryptocurrencies for (legal) payments. Perhaps web3 will make changes, but there need to be some fundamental shifts in the underlying blockchain technology to lower the costs. Writing this in early 2022 mining is estimated to consume at least 91TW yearly, similar to the total electric power usage of Finland. In addition to energy usage, the hardware costs are quite substantial. In our view, it is not unlikely that governments will make using “proof of work” style cryptocurrencies illegal, simply because they require so much power.

Another prediction is that something like the PSD2 will be required also in the USA and across the world. As an example, the amount of identity theft in the USA is staggering and leads to costs that are passed on to every banking customer. Regions such as the EU, where payment security is more strictly regulated have much lower fraud rates. 

For us in Okay the mission will continue to be the same for 2022: We will continue fighting fraud by helping banks secure payments and enhance the end-user experience. 2022 with PSD2 deadlines behind us, it’s all about fine-tuning SCA and the experience is a big part of it.

[If you want to review the predictions Okay made last year to see how accurate they were and what major trends the Okay team missed, you can have a look at the Okay blog]

[The author of this article, Erik Vasaasen, is Chief Technology Officer at Okay]

Helen Child, Founder & CEO, Open Banking Excellence