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A Primer for Frictionless Payments

August 10, 2023

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A woman using her smart watch for POS transaction featuring frictionless payments

Though challenges and security worries still exist, we are getting closer to completely frictionless payments. Here is an overview of where we are at and what lies ahead.

Payments technology continues to forge ahead at an accelerating pace. Alternative payment options are gaining momentum. In 2022,  mobile wallets alone accounted for approximately 49% of global e-commerce payment transactions. Payments organizations are handling changing consumer expectations around payments by leveraging agile, resilient, and flexible infrastructures, including the cloud, managed integrations, and APIs within internal tech stacks. Along with innovative new payment options come improvements and added sophistication across data, security, and fraud detection. Overall, payment systems are poised for further growth and progress.

The importance of frictionless payments was tested during the pandemic. Droves of consumers shifted shopping to the online and digital realms. Businesses, too, have had to adjust to these new trends and the new digital normal. This trial by digital fire has underscored the importance of providing a seamless, secure, and convenient payment experience that is nonetheless frictionless.

The Evolution of Frictionless Payments

We’ve come a long way on the journey toward frictionless payments. From when credit card authentication involved signing a receipt to entering a pin on a POS terminal to filling out a long line of form fields for online commerce, payments have slowly but surely reduced the inherent friction.

Fast forward to today, where contactless cards and mobile wallets that use biometric authentication are in play, enabling users to have a primarily friction-free experience when paying. But frictionless payments go one step further. To be truly frictionless, payments should be invisible. We’ve begun to see this with companies like Uber, where paying is no longer something the end user is aware of. Instead, it happens automatically behind the scenes. In general, frictionless payments should:

  • Be a natural part of the customer experience
  • Eliminate the steps and time needed to complete a transaction
  • Be fast

While we inch closer to invisible payments, other frictionless transactions like auto-renewing subscriptions, digital wallets, device-initiated payments, contactless card payments, contextual payments, in-app payments, and one-click transactions are also becoming more popular.

Frictionless Payments and Security

In addition to omnichannel payments management and delivering a seamless experience, security is top of mind when it comes to frictionless payments. Balancing the elimination of friction with optimizing security across several new touchpoints and interactions can be a challenge. And a degree of education will be critical in helping consumers get comfortable with secure, frictionless payments and newer authentication methods like biometrics. For instance, J.P. Morgan’s Payments’ Commerce Solutions suite, is planning to roll-out a biometrics-based payments pilot using palm and face identification for secure in-store transactions, empowering merchants to adapt to changing payments. Consumer concerns may arise as frictionless payments gain popularity.

Almost 70% of consumers abandon carts at online checkout. Although there are a plethora of reasons for it, one primary reason has been the lack of a smooth and secure payment process. So roughly 7 out of 10 online shoppers never buy what they came to shop for due to a lack of a frictionless experience. It accounts for significant losses to organizations while presenting great opportunities at the same time.

And although it’s true that consumers expect an easy, fast, seamless, barrier-free payment experience, there are still major concerns related to security and data protection. A report notes that nearly 90% of online consumers are proactive about data protection, as privacy is crucial. Around 52% of consumers believe biometric authentication increases payment security and choose it over other methods, with only 25% feeling the same way about password protection.

War of Data

While security remains a major concern for online shoppers, their constant demand for a personalized experience has thrown organizations into a tizzy. 57% of consumers believe that their data is being sold without any context about how marketers are using it. It makes them reluctant to share their data; however, they still desire a personalized experience. And organizations are challenged to do the impossible, create a personalized experience without personal data. One sure-shot way of breaking the loop is by educating customers about how marketers use data while entrusting them with privacy and data security.

The Future of Frictionless Payments

Amazon launched Amazon Go stores based on “Just Walk Out” technology. Payment happens automatically in the background and sends a receipt to the user’s phone after they leave the store. The technology utilizes cameras, shelf sensors, and special package codes. Amazon now offers this technology to other merchants and retailers, increasing accessibility to frictionless payments. And now Six Flags is reportedly the first amusement park to offer Amazon’s “Just Walk Out” technology.

We’ll likely continue to see the proliferation of mobile wallets, a trend greatly accelerated by the pandemic. Using mobile wallets to order ahead and pick up in-store or for food delivery services is becoming a regular occurrence, thanks in large part to younger, tech-savvy consumers who use smartphones for everything. While older consumers are more resistant to change, they are also getting in on the action.

Revolutionizing Payments with Frictionless Transactions

Customer preferences are evolving dramatically in these technologically advanced times to align their choices with their lifestyles. The need for instant payments is, therefore, an essential requirement today for reasons ranging from quick e-commerce deliveries to accessing services like medical facilities in real-time. While the 24/7/365 nature of real-time payments can seem challenging for FIs, the time is now to adopt a suitable strategy and go through a smooth transition.

Opus is helping big and small organizations in adopting real-time payments to allow their customers to do more. If you’re looking to provide your customers with a seamless real-time payment experience, get in touch with us.

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