Payment’s landscape is changing and evolving faster than ever. Based on what we see bubbling under right now, projecting where technology can take us in coming years and how customers' expectations are changing, we see a major shift in traditional roles and how we interact in shopping journeys.
High-level themes impacting and driving innovations in background, like EU-wide sovereignty in payments, cost-efficiency of alternative payment rails and the requirements for real-time payments are setting up the stage for ecosystem transformation. To capture the opportunities, we will see technological leaps re-shaping the customer experience in the front-end, for example through the rise of agentic payments, Embedded Finance, Fast Identity Online (FIDO), and various digital currencies to name a few.
Leena is waiting for her summer vacation and starts planning holiday activities, as well as searching for flights and accommodation. She prompts her wish-list to an AI agent and asks it to search for flights, look for restaurants, and plan some cultural activities for the holiday in Rome. Some seconds later, the agent comes up with a plan, proposed flights, table reservations for restaurants, concert tickets and museum visits. Leena is pleased with suggestions, and with few clicks, agrees with the plan and completes all payment confirmations instantly, securely and transparently without ever leaving the AI agent.
What’s making this possible is an outcome of several key developments:
Agentic Payments: AI agents execute payments autonomously, representing individuals, reducing manual steps and providing frictionless payment experience. Leena’s payment methods have been securely stored and tokenized in Payment Service Providers (PSP) wallet, which is integrated into agentic AI -application. Leena has given permission for the agent to complete payments on behalf of her within pre-defined limits. The agent authenticates itself to PSP and handles low value payments autonomously without friction with Leena’s mandate. High-value payments like flight tickets fall outside Leena’s pre-defined limits, requiring her authentication and manual confirmation before the payment can be completed.
FIDO and Strong Customer Authentication (SCA): Device and user identities are tied and linked together for a secure and seamless authentication experience. Instead of using bank-issued authenticator, Leena has taken FIDO authentication into use through a device binding (registration) process, allowing her to authenticate directly in AI agent user interface (UI) by using her smart device Face ID, without needing to be re-directed to bank-domain for payment confirmation. As part of the authentication process, the device proves to be a trusted FIDO authenticator (device attestation) enabling seamless and secure strong customer authentication.
We see a few fundamental changes compared to the current mainstream payment experience. Consumers permit the AI agent or virtual assistant to act on their behalf, which differs from both customer-initiated and merchant-initiated transactions, which currently dominate the market. The second big transformation is in the bank's role. In the future, a bank’s role can be seen more as a producer or a host, while third parties, partners and merchants will act as main distributors responsible for superior digital customer experience and customer journey.
Emma is shopping for a new bookshelf in an Augmented Reality design app. She selects materials, size, color matching her style and proceeds to payment-phase. Since the product is expensive, Emma chooses a “Buy-Now-Pay-Later” option from her trusted financial service provider. She agrees to terms and proposed payback plans and taps Buy. Credit decision is made instantly in the background and Emma sees a confirmation of the purchase order on screen, following a push-notification of a new flexible financing agreement from mobile bank app. In addition, AI-enhanced fraud monitoring is analyzing if Emma’s behavior matches with her transaction history. This will enable timely, secure, and sufficient lending.
This story reflects a few important changes:
Embedded Finance: Payments and financing are built directly into the shopping experience. With her consent, Emma’s name, address and other relevant information are collected by the merchant and shared with a financial institution in the background. The whole dialogue, regardless of it being only a few screens, is completely facilitated in the merchant app.
Financial Data Access Regulation (FiDA): Emma has given consent to her credit institution (data user) in the mobile bank to collect her financial data from other financial institutions (data holders) as a return for lower credit rates and access to flexible instant credit. For credit institutions, with consumers' consent, FiDA enables better informed risk-based evaluation and automatic, customized credit offers based on financial data.
The outcome: frictionless AI-powered financing experience where financial institutions in the background can make customized and well-informed credit offers in real-time. For Emma, it’s just a few clicks, but for the ecosystem, it’s a sophisticated orchestration process leveraging both Embedded Finance and regulatory framework to provide next generation financial services.
The future of payments is not only a vision; it’s what we are forming right now, through standards, pilots, and regulatory initiatives. Each of the themes above challenges the traditional boundaries and roles of banks, technology providers, and merchants.
At BearingPoint, we believe the next generation of payments will require ecosystem thinking collaboration between banks, fintech's, central banks, and technology providers, not forgetting the merchants. It’s time to shape the future together – because how we pay tomorrow defines how we live, trade, and trust in the digital economy.
Paavo Karhama, Senior Business Consultant, Banking Products & Innovation
Toni Leppänen, Manager, Banking Products & Innovation