Richard Smith, Chief Executive Officer & Co-Founder, Payen 

By 2026 the global payments industryis expected to be valued at $3 trillion, representing a growth trajectory of almost 50% based on current figures.

Online payments play a vital role in the growth of the world economy and developing regions. The importance of electronic payments infrastructure has only been amplified for regional and national governments during the current geopolitical disruptions, and now we’ve seen the end of low inflation and interest rates.

Facilitating competition and enabling merchants and businesses to harness online trade means they can contribute to economic growth. As such, the payments industry is intrinsic to the development of digital economies and advancing inclusion.

Today we find the payments landscape is shifting in unforeseen ways, primarily stemming from five factors –geopolitical influences, the macroeconomic environment, commerce expectations, technological advances, and social responsibility.

Success in this new ecosystem relies on better understanding of the core factors influencing it and determining regional dynamics.

Geopolitical forces

Regional, local and domestic networks are increasingly becoming the gatekeepers to central infrastructure. With instability in the global geopolitical environment resulting in a need for more regional and local payment solutions, more countries are investing in modern instant-payment systems. 

Solutions across geographies used to be standardised, but in light of the growing number of enterprises and consumers championing domestic schemes and payments services, it’s only a matter of time before local requirements and regulations become closely monitored and more complicated. Payments providers that can streamline cross-border payments for customers and provide ready-to-go solutions for services such as Know Your Customer (KYC) and digital ID will reap the rewards.

The development of freshly established local networks that support local agend as means dependency on international providers is waning. Countries are deploying online applications of local payment solutions and point of sale (POS) systems using economic models and access rules that deviate from international solutions. This in turn is nurturing local e-commerce, helping people and enterprises access affordable financial products and services and boosting financial inclusion.

Global events and resulting sanctions are also influencing international treasury and trade payments, altering geographical zones and further cementing regional relationships. What hasn’t changed is the trend for reshoring – the process of bringing manufacturing and the supply chain from a foreign country back to home soil – and near shoring, a similar process but in locations closer to home.

Global supply chain issues also remain, with sectors like healthcare, automotive and electronics still feeling the disruption. This is encouraging supplier diversification as enterprises look to overcome production delays, logistical interruptions, higher transportation costs and dependence on a limited pool of third parties. It will be over the next few years that we see the repercussions of the transition in trade corridors.

The macroeconomic environment

Payment providers and financial services are re-examining their business models following the highest levels of inflation seen on a global scale for decades. For parties that hold deposits, such as banks, this has presented opportunities from this side of the payments equation.

Many central banks have amended their policies in response to inflation, resulting in rising interest rates and greater net interest margins. This combination affects consumer and enterprise cash management strategies and is expected to stimulate the migration of balances from transaction to deposit accounts providing higher rates.

At the same time, uncertainties around economic growth, like the unforeseen rise in global energy prices, are increasing the prospect of recession. This will differ by region, and impact enterprise and household spending and investment, changing the dynamic of payments economics on both the demand and supply sides of the equation.

Most payments providers are still adjusting to a high interest rate, high inflation environment, and the emergence of new but untested payment products like buy now, pay later (BNPL).Considering that liquidity usually goes to account-holding institutions, the likes of card issuers and traditional banks are well-positioned for this environment – despite the likely economic downturn and challenges that come with navigating credit.

Commerce expectations

The high valuations of startups and fintechs have been driven by revenue growth expectations stemming from nurturing customer relationships. As such, payment providers have transitioned from disparate financial or money movement transaction payments to being fused into the commerce journey, improving the experience.

Ecommerce has given enterprises and merchants the chance to target new customers by entering emerging economies and new markets– reducing dependency on markets in decline. By enabling small and medium-sized businesses to conduct cross-border trade through digital payment providers they can partake in global trade and contribute to the economy. This helps enterprises to weather the storm during times of economic downtown, protects jobs and helps generate local taxes to have apositive impact domestically.

There are other ways the economy impacts online payments. This includes increased competition, greater adoption of information and communications technology and higher productivity courtesy of improved supply chain management.

Integration of finance products into non finance ecosystems is the most promising up-and-coming area. Data is now currency, meaning the enterprises that can monetise data into services will gain a larger market share.

Technology advances

Technological innovation continues to accelerate post-pandemic. With the frequency of upgrades to networks and business and financial payment systems increasing, organisations are reacting by making structural improvements to their infrastructure. Previously, changes would have been incremental.

This can be seen through banks’ aggressive systems modernisation and payments infrastructure updates – due to demand for instant payments, cloud technology and open-banking requirements –as they endeavour to better gain insight from real-time data.

With banks rethinking their models, the next S-curve for model risk management (MRM) includes strategies to tackle shifting business needs and new regulations. Global events mean multiple countries are approaching the next curve on instant-payment transaction growth. Here, volumes are anticipated to increase by up to 60%worldwide.

As embedded finance continues to flourish, expectations for API-based access to payments information and the delivery of personalised service from digital natives put pressure on providers to rejuvenate their payment infrastructure in line with evolving consumer and enterprise requirements.

In combination, these factors are altering the dynamic between payments and traditional providers as payments increasingly take advantage of software as a service (SaaS) models and outsourcing.

Social responsibility

There are heightened expectations from governments, regulators, consumers and investors to tackle sustainability issues and climate risks, as identified in McKinsey’s Global Banking Annual Review. We also see COP27 concentrated on connecting cities, businesses and investors with national governments to expedite sustainable climate innovation. Given its role in financial inclusion and data privacy, it’s hard to ignore the influence of corporate social responsibility in the payments landscape.

Also influencing domestic payment services are environmental, social, and governance (ESG) policies. Whereas once the emphasis was on international providers, now payments companies are playing a vital role in governance as they become more relevant towards the compliance, security, stability and resilience of economic systems. Governance also sees banks acting as protectors against fraud, anti-money laundering and KYC – core drivers of investment into the operational shift being observed across the industry.

Then there’s inclusion and customer protection. Increasingly key to the mission of payments providers in emerging markets as digital payments and wallets have become fundamental in catering for the underserved in cash-based countries. As consumer demand rises in developed markets, the role of payments in emerging verticals – such as gaming and cannab idiol (CBD) –will be closely inspected.

Global opportunities in the payments landscape

With a current valuation of $2.1 trillion, the global payments industry is burgeoning, surpassing pre-pandemic expectations – and is the beating heart of the digital economy and global commerce.

As the industry undergoes significant changes and the landscape becomes increasingly complicated – to give customers a fluid experience, providers must account for the five factors with a spotlight on deploying global and local operating models, both cross-border and domestically. The players that can achieve this while being socially responsible, and displaying an authentic commitment to ESG, will be best positioned to reap the rewards of the new payments landscape.