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What does 2023 hold? Predictions in payments for the year ahead 

by Jessica Weisman-Pitts
iStock 1411047331

Jane Loginova, CCO, BPC Banking Technologies 

2023 is going to be a tough year, with the main themes being austerity and ‘being equipped to last’. The year to come is set to be challenging for consumers and businesses alike, with cost-cutting being a persistent theme. As the payments world continues to adapt and evolve throughout such challenges, here are the trends we believe will capture the most attention in 2023:

Consolidation

With more restricted access to funding, the rising cost of funding, and major cost-cutting in the tech industry, the focus will be on what actually works and generates profit. There will be less focus on innovation (especially for the sake of innovation), and instead, we will see the consolidation of the best solutions among players in the market and the strengthening of the developed products and solutions that actually work.

Payments as a bridge will thrive as an enabler of the digital economy (which is not going away and only strengthening). Again, the focus will be on the tools that actually work and are necessary. Many players with weaker propositions for the tough times are likely to be taken out or acquired. The crypto industry has shown a vivid example of this over the past year.

BaaS, PaaS to… CaaS

The rising cost of living is driving a significant increase in credit card reliance in the UK. With a 12.9% annual growth rate in spending, the UK credit card market is experiencing its highest level since 2005, according to Bank of England data. This growth has not gone unnoticed by fintechs and non-financial players.

The advent of open banking, SaaS-first platforms and the openness of financial institutions to sponsor fintechs and retail organisations will see newcomers bringing a better credit card experience to both consumers and businesses. This will require existing players to deliver new credit card launches as a service: fast, secure and with plenty of value-add and loyalty offerings.

Embedded Finance

Now that about a third of global card spending currently takes place online, many businesses rely on software solutions for payment fulfillment. Open-bank innovation, supported by European Union mandates, has also allowed third-party fintech leaders to access consumers’ banking data and carry out transactions on their behalf.

Embedded finance, where businesses create financial services for their customers integrated into their product ecosystem, will only increase. This new form of offering financial services in the channel where the customer is will redefine how consumers and businesses interact with financial services, and its transaction value is set to double to $7 trillion by 2026.

Ecosystems and marketplace

At the same time, consumers also return to physical shopping experiences post-pandemic, yet the way they purchase goods and services has evolved, with a strong and increasing preference for frictionless payment methods. These include mobile and digital wallets, one-click payments, and in-app payments – with online and offline payment methods through ecosystems and marketplaces becoming more merged than ever. Businesses are predicted to process $8 trillion in frictionless payments by 2024, over double the $3.9 trillion processed in 2020.

Consequently, composability (a system design principle referring to inter-relationships of components) is expected to become a core business strategy pillar. The data required for seamless digital experiences are often stored across multiple systems, with the average organisation now using 976 different applications – many of which are not properly inter-connected. Gartner has estimated 60 per cent of firms will consider composability a top strategic objective.

E-Commerce experience

Through thick and thin, eCommerce grows, with the market estimated to reach $8.1 trillion by 2026. Next year, forward-thinking businesses will continue evolving innovative solutions for consumers, such as a variety of shipping and pickup options, a broad range of payment and checkout options, and self-service options, such as chatbots, to deal with order-related queries.

There may also be more financial institutions recognising cryptocurrency as a legitimate form of payment. Mastercard recently shared its intentions to make crypto an ‘everyday way to pay’ while Google has announced a partnership with Coinbase, allowing customers to purchase selected cloud services using cryptocurrency in early 2023.

Payment Orchestration 

Although Payments represents the most invested segment of fintech and has led to the boom of the most highly-valued companies in fintech like Paypal, Stripe and Payout, funding for Payment Orchestration startups has still not taken off – although next year might be when this could shift. We will likely see increased interest from merchants in investigating their Payment Orchestration options as they strive to make sense of the increasingly complex array of available options.

Payment Orchestration refers to an integration layer between a merchant’s front end and the

payment companies, representing a centralised hub for all of a merchant’s payment methods and payment providers. These days, the ability to offer multiple payment methods is crucial for merchants and adding alternative payment methods such as BNPL, wallets, and Open Banking has become necessary. Payment Orchestration focuses on smart routing to enhance transaction succession and sales conversion instead of fixating on processing or collecting.

While all of this takes off, there are also warning signs. Consumer protection and regulation will move in on services like BNPL, which previously were viewed kindly as ‘lending options’. Increasing interest rates and inflation put nearly everyone in the spotlight regarding aligning spending and income.

As a result, planning (rather than plainly encouraging spending) and offering true support around debt management will move into the payments value chain. With the data residing in the transaction flow, payment service providers are well-positioned to take responsibility in this field and invest in compliance, fraud, financial planning, refinancing and more.

While the year ahead will undoubtedly see many of these challenges, those willing to embrace agile thinking and adaptability will likely have the most resilience and see the most significant rewards.

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