How 5G will affect payment processing in 2021 and beyond

If you keep up with current events, you’ve likely heard about 5G and how it will transform life as we know it. In fact, 5G is becoming more and more adopted and is quickly revealing its impacts and potential.

For payment processing, 5G will affect your 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, it is pertinent to understand the effects of 5G. This article will cover how 5G relates to payment processing and discuss four of the main impacts that we expect to see.

What is 5G?

These days the term “5G” is used a lot, but how many of us really know what 5G is?

Starting in 2019, mobile phone companies began to launch the fifth generation of cellular technology. This generation is what is known as 5G.

Simply put, 5G is the network and technology that enables mobile devices to interact with each other and transmit data. As a result, 5G experts expect the generation to significantly improve the utility and efficiency of cellular networks.

The benefits of 5G include:

  • Improved speed: 5G offers a significant increase in speed, between 10 and 100 times faster than its predecessor, 4G. This means that downloads and streaming will run much faster and smoother.
  • Higher bandwidth: 5G networks transmit much greater amounts of data than previous generations. This allows a seamless connection despite the volume of Internet usage.
  • Greater capacity: A significant advantage of 5G is its ability to handle up to 1000 times more capacity compared to 4G. This allows more devices to communicate and supports larger scale operations.

How is 5G related 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 evolved naturally as e-commerce and financial technology have paved the way for virtual services. Now most transactions can be done digitally.

As it is now, consumers can access many other payments through their mobile devices. With the widespread adoption of 5G, we will see big changes in what is possible for payment processing. Customers will have more options and personalized information than ever.

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.

Here we identify four main impacts that 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 goal has been to further reduce latency. As a result, 5G has the most optimal latency of all 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 obtain an illicit response. In addition, we can significantly reduce the time it takes to receive a payment confirmation.

Other benefits of reduced latency can include:

  • Higher customer satisfaction: The less time customers have to wait for payments, the better. If clients have to endure high latency, they may end up canceling the transaction entirely.
  • Improved accuracy: Increased latency allows easier and more accurate identity verification. This is due to lower latency, allowing for faster transmission of critical data.
  • Optimized transactions: Payment transactions will be faster and easier than ever with 5G. With 5G, companies can also streamline processes that lead to larger purchases. These include credit applications or checks.

2. Enhanced security

The security of your financial data will be prioritized as cellular networks and the Internet adopt 5G.

Aside from passwords, 5G will put a much greater emphasis on biometric authorization. This includes things like facial and fingerprint recognition. Experts believe that 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. One potential example is the ability to authorize purchases using facial recognition only.

Here are three more critical benefits of 5G for payment security:

  • Higher data encryption: 5G ensures that a minimal amount of data is left floating to be intercepted through tracking or spoofing. This makes it difficult for hackers and malware to tamper with devices and network connections. Ultimately, this makes fraud much more preventable.
  • Cloud-based: 5G relies on cloud computing more than previous generations. By using a cloud-based system, 5G can more easily monitor potential threats.
  • Network slicing: 5G allows the division of networks. This is a practice that segments a system into smaller, more manageable networks. This allows the deployment of more specific protection and security measures.

3. Increased use of the 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 all physical devices connected to the Internet around the world. 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 multiple IoT devices, as long as they belong to the same network.

According to a recent post NewNet White Paper:

IoT payments from fast-emerging connected devices, wearable devices, and smart equipment will generate payment volumes that could soon replicate or exceed volumes for current payment types in mobile, web, or in-store purchases.. “

Additionally, we will see an increase in the use of blockchain systems in conjunction with IoT. Blockchain IoT allows much more secure payments and transactional transparency.

Blockchain IoT benefits for payment processing include:

  • Expedited transactions: 5G IoT systems alone can struggle to reduce latency. When combined with blockchain systems, transaction authorization can occur in seconds.
  • Reduced risks: Blockchain is known to be highly secure. With blockchain IoT, payments have a much lower risk of manipulation, tracking, and other digital dangers.
  • Reduced costs: IoT systems reduce overhead and operational expenses. This is especially true if that system is blockchain-based. This cost reduction is reflected in a reduction in digital payment and transaction fees.

4. Increase in popularity of the electronic wallet

While e-wallets existed before 5G, their popularity is sure to increase as 5G becomes more accepted.

An electronic wallet is an application that allows you to make payments through mobile devices. A very popular example of an electronic wallet is Apple Pay. This payment service securely stores your credit or debit card information. As a result, you can make purchases on demand.

5G inherently enables mobile payments and mobile commerce. For e-wallet users, this means that the speed and security of transactions can be greatly increased when combined with a 5G network. In turn, we will see more people willing to adopt digital payment systems and open their own e-wallet accounts.

Here are three key ways that 5G will positively affect e-wallets:

  • Enhanced biometric security: With 5G, e-wallets will benefit from faster multiple verification and authentication. Enhanced biometric security measures allow more devices to handle digital payments.
  • Increase in online shopping: 5G enables e-wallets to provide seamless shopping experiences. From purchase to payment, 5G helps streamline the entire process. This will likely result in a sharp increase in the use of e-wallets for online purchases.
  • Enabled Portable Devices: Wearable devices such as smart watches will be even more useful with the help of 5G. Your sensitive financial data will be safely stored and at the same time easily shared among all 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.

5G experts promise that payments will be more transparent and efficient. This is made possible by the reduced latency of 5G. Additionally, 5G enables biometric authorization that increases transactional security.

As for when we can expect to start seeing these changes, the answer is now.

5G launches by major cellular network providers have already begun. The switch from 4G to 5G cannot happen overnight. However, we are already seeing the benefits of the emergence of this next generation.

For payment technology, 5G will be an excellent facilitator of mobile payments. 5G will give consumers the ability to make secure, on-demand purchases in seconds.

Finding success in the coming years will depend on the willingness of each company to adapt. Fast acclimatizing businesses and merchants will be the first to reap the many rewards 5G offers for payment processing.

Deborah Boyland

Deborah Boyland

Deborah has provided content marketing to FinTechs for over 5 years and has a great passion for ensuring that business leaders are equipped with the information they need to market effectively.

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