Web3 and payments: What does the future hold?

In our recent whitepaper, The Future of Payments: Trends Report, we dive into how payments are changing, and what the development of digital assets, Web3 and AI means for businesses, consumers, and regulators.  
 
Here are some of the key talking points around how innovation can be encouraged rather than stifled.

A smoother experience for Web3 and payments 

Over the past 12 months, we have witnessed another explosive bull run in the crypto industry. However, despite the enduring enthusiasm, buying and selling digital assets remains a painful experience for retail users and business clients alike.

The process of on- and off-ramping between crypto and fiat can be complex, expensive and risky, with a user experience full of unnecessary friction points. Regardless of how a consumer pays – whether using cash, card, digital wallet or eCash – a seamless experience and reliable transaction acceptance rates are increasingly emerging as points of differentiation central to businesses’ user acquisition strategy.

This is not a new phenomenon. Just like in the early days of the internet, when users posted their cash to Amazon hidden in floppy disks, a transitional period of friction is expected whilst the regulatory landscape, user capability, and ecosystem governance mature. In this context, we believe that established payment companies, like Paysafe, have a pivotal role to play in bridging the gap between users and crypto native service providers.

In the long term, digital assets and crypto will undoubtedly change the face of payments. To make this happen, crypto native providers need a partner that understands what it takes to operate in a regulated environment, knows how to process high-risk payments efficiently, and maintains a network of relationships with the wider payment ecosystem, from wallets and gateways to acquirers and banking partners.

In a partnership like this, businesses in the crypto and Web3 space can transform the user experience and bring crypto into the mainstream.  

Regulation and Web3 in payments

Regulation plays a crucial role in shaping the evolution of Web3 and how it interacts with the world of Web2 payments. Over the past 18 months, we have seen significant progress on several regulatory fronts, including taxonomy and classification, financial crime prevention, consumer protection, and measures to ensure the integrity and stability of financial markets.

The introduction of the Markets in Crypto Assets (MiCA) regulation by the European Union creates a significant advantage for Web3 builders servicing providers on the continent. By fostering innovation whilst ensuring risks are mitigated and/or effectively managed, MiCA strikes a fine balance, providing regulatory clarity and boosting the confidence of major institutional investors.

On the flip side, the implementation of MiCA on 30th December 2024 poses a significant challenge for Web3 native players who operate in the intersection between Web3 and payments, such as stablecoins. While the regulation will ensure further standardisation and consistency for firms operating across the 27 member states, they will need to cater for an uplift in regulatory requirements. For example, the need to have a registered office in the European Economic Area (EEA) and possess either an e-money or credit institution licence – a tall order for many providers.

Here, payment service providers (PSPs) also have an important role to play in the ecosystem, as they partner with Web3 companies to provide their services to the masses.

Outside of Europe, fragmented regulations and differing regulatory approaches between nations remain a challenge for Web3 businesses, who often operate globally. With those jurisdictions that have an open and collaborative approach to regulating the Web3 industry attracting innovative companies and talent.  

How will AI impact payments? 

It’s difficult to talk about the mass adoption of crypto without considering the influence of AI.

As crypto re-invents the payments space with innovations like atomic settlement, money-like instruments for Web3 applications, and tokenised real-world assets, so AI is playing an important role in deployment. For example, AI can help process vast volumes of on-chain data to prevent crime, manage risks, and maintain compliance.

From an institutional perspective, AI can support payment innovation in the Web3 space in three key ways:

• Bespoke needs mapping – AI helps map existing payment product’s features to client needs, increasing the efficiency of implementation and delivering better customer outcomes.  

• Transaction conversion optimisation – AI supports fast and effective analysis of payments routing to achieve improved acceptance rates at lower cost. 

• On-chain compliance – real-time monitoring of on-chain data to detect a variety of risks, as well as non-complaint behaviours such as fraud or market manipulation, is possible with AI.

From a consumer perspective, we’re already seeing significant growth in AI-enabled payment technologies. Despite this, just 14% of consumers globally say they are using AI-enabled payments according to our Lost in Transaction 2023 research, so there’s plenty of room for growth.

While a lack of suitable data sets to train AI combined with the high cost of training models (especially those tailored to specific use cases or industries) remains a challenge, the benefits of the technology are clear. When it comes to making online payments, users are seeking quick, safe, and cost-effective payment methods: the powerful blend of AI and digital assets is poised to deliver.

To find out more about the trends defining payments, download: The Future of Payments: Trends Report.