How 5G Will Impact Payment Processing in 2021 and Beyond
If you keep up with current events, you’ve likely heard talk of 5G and how it will transform life as we know it. Indeed, 5G is becoming more widely adopted and quickly revealing its impacts and potential.
For payment processing, 5G will affect its latency, scalability, and efficiency. Through innovation, 5G can significantly optimize payment processing to meet changing consumer demands.
As businesses continue to embrace digital and mobile services, understanding the effects of 5G is pertinent. This article will cover how 5G relates to payment processing and discuss four of the major impacts we expect to see.
What is 5G?
These days, the term “5G” is thrown around a lot — but how many of us actually know what 5G is?
Beginning in 2019, cellular companies started releasing the fifth generation of cellular technology. This generation is what is known as 5G.
Put simply, 5G is the network and technology that enables mobile devices to interact with one another and transmit data. As a result, experts in 5G expect the generation to significantly improve the usefulness and efficiency of cellular networks.
Benefits of 5G include:
- Enhanced Speed: 5G offers a significant boost in speed — anywhere between 10 to 100 times faster than its predecessor, 4G. This means downloads and streaming will run much quicker and smoother.
- Increased Bandwidth: 5G networks transmit much larger amounts of data than previous generations. This allows a seamless connection despite the volume of internet use.
- Greater Capacity: A significant advantage of 5G is its ability to handle up to 1000 times more capacity compared to 4G. This enables more devices to communicate and supports larger-scale operations.
How Does 5G Relate to Payment Processing?
5G has the potential to reshape payment processing as we know it.
Traditional financial transactions involve the physical exchange of money or the use of a payment card.
This way of doing business has naturally evolved as eCommerce and FinTech have paved the way for virtual services. Now, most transactions can occur digitally.
As it stands now, consumers can access many other payments through their mobile devices. With the widespread adoption of 5G, we will see great shifts in what is possible for payment processing. Customers will have more choices and personalized information than ever before.
4 Key Impacts of 5G on Payment Processing
Understanding how 5G will affect payment processing is crucial, whether you are a merchant, business owner, or consumer.
Below, we have identified four major impacts 5G will have on payments in the coming years.
1. Reduced Latency
Latency refers to the amount of time it takes for a signal to travel from a source to a receiver and then back to the original.
With each new generation of cellular networks, a primary objective has been to reduce the latency more each time. As a result, 5G has the most optimal latency of all of its predecessors. The main component that will limit latency reduction will be human reaction speed rather than machine reaction speed.
Many transactional errors can be avoided by reducing the time it takes for a signal to reach its destination and illicit a reply. Additionally, we can significantly diminish the time it takes to receive a confirmation of payment.
Further benefits of reduced latency can include:
- Greater Customer Satisfaction: The less time customers have to wait for payments to go through, the better. If customers have to endure high latency, they may end up canceling the transaction altogether.
- Improved Accuracy: Heightened latency enables easier and more accurate identity verification. This is thanks to lower latency, allowing faster transmission of critical data.
- Streamlined Transactions: Payment transactions will be faster and simpler than ever with 5G. With 5G, companies can also streamline processes that come with more significant purchases. These include applications or credit checks.
2. Improved Security
The security of your financial data will be prioritized as cellular and internet networks adopt 5G.
Aside from passwords, 5G will place a much greater emphasis on the biometric authorization. This includes such things as facial and fingerprint recognition. Experts believe these 5G biometric technologies will be much more efficient and accurate.
We are also likely to see an expansion of biometric security measures using 5G spreads. A potential example is the ability to authorize purchases through facial recognition alone.
Here are three more critical benefits of 5G for payment security:
- Greater Data Encryption: 5G ensures that a minimal amount of data is left floating around to be intercepted by tracking or spoofing. This makes it harder for hackers and malware to manipulate network devices and connections. Ultimately, this makes fraud much more preventable.
- Cloud-Based: 5G relies on cloud computing more than previous generations. By utilizing a cloud-based system, 5G can monitor potential threats with more ease.
- Network Slicing: 5G enables network slicing. This is a practice that segments a system into smaller and more manageable networks. This allows the deployment of more specific protective and security measures.
3. Increased Use of Internet of Things
It has been widely predicted that the adoption of 5G will also help popularize Internet of Things (IoT) applications.
IoT is a term used to refer to the entirety of physical devices connected to the internet worldwide. Therefore, any device that can connect to the internet can also be used as an IoT device. This includes any physical object that can be controlled via an internet connection, such as lights that can be turned off and on remotely.
This means that payments can come from various IoT devices, so long as they belong to the same network.
According to a recently published NewNet whitepaper:
“ IoT Payments from the fast-emerging connected devices, wearables, and smart equipment will generate payment volumes that could soon replicate or exceed the volumes from the current payment types on mobile, web, or in-store purchases.”
Furthermore, we will see an increase in blockchain systems being used in tandem with IoT. Blockchain IoT enables much more secure payments and transactional transparency.
Benefits of blockchain IoT for payment processing include:
- Accelerated Transactions: 5G IoT systems on their own may struggle to reduce latency. When paired with blockchain systems, authorization of transactions can happen in seconds.
- Reduced Risks: Blockchain is known to be highly secure. With blockchain IoT, payments are at a much lower risk of tampering, tracking, and other digital dangers.
- Lowered Costs: IoT systems cut back overhead and operational costs. This is especially true if that system is blockchain-based. This cost reduction is then reflected in reduced digital payment and transaction fees.
4. Boosted E-Wallet Popularity
While e-wallets existed before 5G, their popularity is sure to swell as 5G becomes more widely accepted.
An e-wallet is an application that allows you to make payments via mobile devices. A highly popularized example of an e-wallet is Apple Pay. This payment service securely stores your debit or credit card information. As a result, you can make on-demand purchases.
5G inherently enables mobile payments and m-commerce. For users of e-wallets, this means that the speed and security of transactions can be massively boosted when paired with a 5G network. In turn, we will see more individuals willing to embrace digital payment systems and open their own e-wallet accounts.
Here are three key ways 5G will positively affect e-wallets:
- Enhanced Biometric Security: With 5G, e-wallets will benefit from faster verification and multi-authentication. Enhanced biometric security measures enable more devices to handle digital payments.
- Increased Online Shopping: 5G enables e-wallets to provide seamless shopping experiences. From shopping to checking out, 5G helps streamline the entire process. This will likely result in a sharp increase in the use of e-wallets for online purchases.
- Enabled Wearable Devices: Wearable devices, such as smartwatches, will be even more helpful with the help of 5G. Your sensitive financial data will be securely stored all while being easily shared between all of your enabled devices.
Conclusion: When to Expect Widespread Adoption of 5G for Payments
As 5G becomes more widely adopted, the payment processing industry will undergo an equally significant evolution.
Experts in 5G promise that payments will be more transparent and efficient. This is possible thanks to the reduced latency of 5G. Additionally, 5G enables biometric authorization that boosts transactional security.
As for when we can expect to begin seeing these changes — the answer is now.
Rollouts of 5G by major cellular network providers have already begun. The shift from 4G to 5G cannot happen overnight. However, we are already seeing the benefits of this next-generation arising.
For payment technology, 5G will be an excellent enabler for mobile payments. 5G will provide consumers with the ability to make secure and on-demand purchases in seconds.
Finding success in the coming years will depend on each business’s willingness to adapt. Businesses and merchants that acclimate quickly will be the first to reap the many rewards 5G has to offer for payment processing.
How 5G Will Impact Payment Processing in 2021 and Beyond was originally published on ReadWrite on November 23, 2021 by Deborah Boyland.