Implications of Payments Convergence

While payment preferences may change, payment types are rarely completely replaced. Payment types have proliferated exponentially in recent years, driven by a rise in mobile and contactless capabilities and a demand for convenience. Finding themselves challenged to support ongoing changes to existing payment methods and further to effectively support an increase in the demand and usage of cryptocurrency for global transactional purposes fintech providers have increasingly looked to a payment’s convergence strategy as the answer.

Payment’s convergence has often been framed as a rapid and seamless integration to a network ecosystem that can support card payments, non-card payments, and digital currency transactional fulfillment in a timely, efficient manner. The reality is that all these payment categories are likely to dominate now for the foreseeable future and all participants in any GameFi , Web 3.0 or Metaverse business application or implementation need to seriously consider deployment of such an architecture that allows for all forms of legal, regulated, and compliant payments to operate alongside each other while providing a holistic customer view and delivering a consistent experience.

As stated by Ali Popa in his The Paypers‘ article, “these assets could be traded, sold, and marketed through the metaverse marketplace tied to an individual’s blockchain based payment wallet or equivalent, meaning a secure, instant, scalable way of accepting a payment for commerce".

According to the Digital Journal’s – ˜A Guide to Payments in the Metaverse ˜, purchases in the metaverse can be enabled by crypto wallets or the use of an exchange. This way, flat currencies can be converted into cryptocurrencies and users can make transactions in the digital world. Remember, however, that each metaverse platform has its own financial economic system, with its own set of digital currencies and payment methods accepted.

Along with cryptocurrencies and aligned to the blockchain key role for the metaverse, there are non-fungible tokens (NFTs). They are tokens that represents the ownership of unique items and are not interchangeable. Furthermore, since they are created on blockchain platforms, they can be transferred to other people and accepted as payments in the metaverse just like cryptocurrencies.

As explained in Visa’s 2022 metaverse report:

“… why digital wallets are so important for financial institutions or any company transacting in the metaverse? Well, mainly because they are a great digital payment option that can facilitate trading digital assets, like NFTs and cryptocurrencies. With digital wallets becoming a focal point of digital asset trading and having the potential to become a form of digital identity, financial institutions should consider building a strong position in digital wallets and pursuing the associated opportunities.”

The proliferation of payment methods has been driven by a combination of factors. One factor is regulation, implemented with the intention to drive innovation and competition in the payments space. Technology has also played a part, with mobile devices and new POS technology driving innovation and expansion in payment initiation.

At the same time, consumer behavior has been changing, partly due to willingness to adopt new types of payment technology, and also due to changing perspectives on the use of traditional physical payment products and their need for interoperability with the new age payment technology sets.

This development has increased the pressure for convergence at the back end to facilitate processing and data management. Financial institutions want to provide a consistent customer experience, regardless of payment method. This requires creating a holistic view of customers’ data. Adjacent services, such as fraud prevention, also need to be consistent and connected across the customer’s payment channels if they are to be truly effective. Convergence is not just about the payment rails used, it is about the complete user experience - which includes recourse and the charges made - for users, GameFi and Web 3.0 business and operators.

This decentralized model, also called Web 3.0, enables people to be compensated for creating value and transacting with these digital assets. Such a payments foundation is provided by PEGFi; one that is essential for digital commerce in this new world, offering a seamless framework, based on blockchain technology capable of interoperability usage of fiat, stablecoins, cryptocurrencies or central bank digital currencies (CBDCs).

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