Four Payment Industry Trends for 2023

The payments industry was once dominated by a few big players, but now has an almost constant influx of fintechs entering the market, each bringing disruptive thinking and new tech to the sector.

This means that an innovation mindset must become the norm for any brand wanting to have impact in payments. As we’ve seen in retail, communications and banking, user expectations are evolving fast, so our sector has to move just as quickly (faster, in fact). The following four trends are going to be key in defining how the industry changes in the coming twelve months:

1. Mobile Payments

The world is increasingly moving towards a cashless future. As with many other digital aspects of society, this transition was accelerated throughout the pandemic. Across the world, businesses decided to stop accepting cash to protect staff and try to stymy the spread of the virus.

But now, with the world opening back up, many businesses are continuing to remain cashless as part of the new normal. UK Finance – a trade association for the UK banking and financial services sector, – has predicted that within a decade, notes and coins will only be used for 6% of payments. But it’s more than just hygiene fuelling this; consumers are, in general, switching toward digital channels for the convenience it offers. For example, mobile payments using fingerprint authorisation that mean you can still make purchases if you left your card or cash at home. 

The proliferation of online payments, which are simply impossible with cash, has made rapidly expanded the number of digital transactions that occur each day. But also, having all your money securely stored in your digital wallet rather than counting out change is far easier – and less cumbersome to carry about. It’s also better for money management as apps can show every transaction so no more having to add up receipts. Before recently, there would have been arguments about inclusivity. But with 91% of the world expected to own a smartphone by 2026, there does not seem to be a strong argument for returning to a cash-majority payment system.

The next move is to find ways to ensure digital payments are more widely accepted as a part of B2B transactions, as currently 50% of B2B payments are made with cheques. There has been some accelerated movement towards this, with some B2B payment processors reporting massive growth over the last few years. But this is mostly just a migration away from using cheques and towards cards, aided in part by card networks lowering rates. The next hill to conquer is moving them to digital wallets.

2. Trust

Repeatedly, when asked their main reasons for dropping out of an online sale, customers cite security. Or rather, the lack of perceived security throughout the payment process. Unfortunately, the fear of fraud is growing. Research has found that 62% of people now accept fraud as an inevitable risk of online shopping, and 59% are more concerned about fraud than they were in 2021. These fears are not unfounded – over the last few years, fraud has boomed, with 2021’s year-on-year figures 30% higher than in 2020.

Trust is a key element of any financial services provider. When people’s livelihoods are on the line, being confident their funds are available both where they’re stored and in transit is critical. Here, processors have the added responsibility of reassuring customers that their payments are secure, despite the lack of physical handover.

According to a study by the European Commission, misuse of personal payment details is the second most cited reason people don’t buy products online. Adding visible security elements, such as two-factor authentication, and having the trust and credentials to back it up are crucial for any payment processor. If they can achieve this, they not only reduce the risk of fraud, but statistics show they are also rewarded with notable increases in sales.

Research has found that 62% of people now accept fraud as an inevitable risk of online shopping, and 59% are more concerned about fraud than they were in 2021.

3. Differentiation

Fuelled by new technologies and evolving regulations, the payments sector has grown significantly over the last few years. If anything, things are beginning to get a little crowded. New start-ups are nipping at the heels of bigger players, but to be successful, they need to make sure they are differentiating themselves.

The easiest way to do this is to reduce rates – which is where advances in cloud computing and hardware slashing the cost of transactions for both customers and merchants have helped. Although there is only so low they can go before further reductions become unfeasible.

One way payments providers can set themselves apart from the competition is by finding ways to make their services increasingly convenient to use – thereby improving the customer experience. PayPal, for example, has become known for snapping up smaller businesses that were producing innovative technology. But convenience can also come through integration with existing software. Since P2D2 – a European regulation to make electronic payments more secure – made space for open banking, payment processors have a lot more leeway with how they can help customers spend money from different accounts.

4. New Technology

Artificial Intelligence (AI) is a key way that payment processors can improve their security and the customer experience while helping to deal with the increased volume of digital payments the sector is dealing with.

AI can automatically and accurately flag transactions it deems unusual – such as particularly large transactions, or those initiated by someone unexpected. It can also use machine learning (ML) to refine its practices, understanding customers individually so they are not stopped from making crucial, but uncharacteristic purchases. With millions of purchases made every single day, there is no way each one could be manually checked. But AI and ML ensure payments are legitimate far quicker than any human would be able to – contributing to better customer service.

AI can also enhance the customer experience by improving customer service interactions. For instance, it is already being used to power chatbots that can answer simple queries, allowing payment processors to provide round-the-clock customer service. It can also create or cancel standing orders or Direct Debits, cutting down on human intervention and streamlining the process.

Using today’s trends to shape tomorrow’s success

Growth in the payments sector and the surge in the fintech industry, along with advances in technology and rising customer demand for flexible payment methods, present challenges and opportunities for payment processors in the year ahead. Those that can serve customer needs by harnessing technology to develop standout products and services, provide global security and earn user trust will be what determines the laggards from the leaders.