Payments innovation has proliferated in the last couple of years, with the pandemic providing a catalyst for companies to digitise and seek pain-free solutions as an alternative to previously-clunky processes. Now payments are entering a new era. Welcome to Payments 4.X.

This year’s Sibos – the annual gathering of the SWIFT community that has become the go-to forum for all things payments and fintech – was virtual, which meant industry participants had to forgo their usual in-person meet-and-greets and coffee catch-ups.

What was the same, however, was the scheduled issuing of the payments reports, a chance to reflect on how the payments industry has developed over the previous 12 months. And developed it has. In fact, payments are now “on steroids” (according to Capgemini) with an explosion of innovations in the payments space.

According to the recently-released Capgemini’s World Payments Report 2021, the already-dynamic payments industry has got even more dynamic and now we’re in a new era: Payments 4.X.

Payments 4.X hasn’t come out of nowhere, however. The eras have gone through their sequential stages, from 1.0 to 4.0, before hitting the 4.X. The first era, Payments 1.0, according to Capgemini is about payments as a commodity, where they were not a standout product and were typically rolled into core banking solutions. Payments 2.0 was payments as a differentiator, when about 15 years ago banks started to outsource their processing so they could concentrate more on the front end, where the customer experienced the payment. Then comes Payments 3.0 – payments as information – when banks started to make use of artificial intelligence, machine learning and big data analytics so that data was harnessed to help with credit assessment, risk analysis and so on. The fourth phase – Payments 4.0 – is payments as an ecosystem, where banks, or other payment providers, white-label their solutions so that other companies can offer payments with their own offerings.

Now payments are on steroids in the 4.X era. This is the era of embedded payments, where transactions are invisible and support a sophisticated customer experience. Now, in this new era, customers – both individual and commercial – can expect to have value-added experiences. This new phase is being enabled by data, shared infrastructure, robust platforms and embedded finance, the report states.

Consumers, and businesses, had been clamouring for better experiences – the kind of experiences they were having elsewhere in their digital lives. And the pandemic provided the impetus for the innovation needed to bring that into existence. Capgemini notes, this era has also been driven by business customers requirements for instant confirmation, smooth reconciliations and seamless cross-border transactions.

The Capgemini report also notes that the pandemic has spurred on business-to-business payments, which are now expected to reach around 200 billion transactions by 2025. And next-generation payment methods are also expected to drive further growth in the industry, with new technologies such as biometric payments, and cryptocurrencies, featuring at the forefront of payments innovation.

This comes at a time when the payments industry is on the cusp of many types of disruption. On the demand side, there are the various products and payments methods, such as QR codes and buy now pay later – which are being adopted to varying degrees. On the supply side there is pressure for digital transformation; existing infrastructure is complex and is creaking at the seams. There has also been a recent growth in the platform model where banks, and other companies, are part of a marketplace.

There has been a rise in the -as a Service business models, including Payments as a Service (PaaS), which corporates are now getting in on. For example, Australian retailer Woolworths offers its payments infrastructure as a PaaS platform to other retailers – and those in the hospitality sector – in Australia and New Zealand. In this new era, anyone can take on the banks when it comes to offering payments – even payments on steroids.