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It’s a new year folks, and our new year’s resolution has been to sharpen our products and continue to keep you in the loop regarding all things fintech. Tearsheet’s new Briefings for Outlier members do just that.
With this Payments Briefing, you’ll get a bird’s eye view of all that’s happening in the world of payments, every week.
8 trends that will define payments in 2022
In preparation for the new year, I was curious to hear from payments experts about what they believed would be the most important trends in the industry this year. I asked 22 experts from across the payments spectrum to share insights and predict what trends we can expect from the industry in 2022.
Based on those predictions, I’ve identified 8 key trends that are likely to shape the payments landscape this year.
- The increasing role of embedded finance
One of the major trends expected for this year and beyond is the emergence of more embedded finance solutions onto the market – in consumer payments, and increasingly, in the B2B payments space as well.
Derek White, CEO of Galileo, believes that the growth of embedded finance is being driven by the increasing demand for customer convenience in payments.
“It’s about ease, really. Those wanting to buy something – whether outright or via point of sale financing – want a seamless experience using the technology they are most comfortable with and that they use in their day-to-day or professional lives,” said White. “That equates to a huge potential market for any brand wanting to offer payment solutions directly, and with minimum friction, to their customers – whether that’s through a streaming provider, retail shopping app, or enterprise software solution.”
- Easier cross-border payments
In a recent study, Wise found that over one in three (34%) small business decision makers in the US operates internationally. A growing number of individuals and businesses are working across borders, emphasizing the need to make international money transfers as quick and easy as possible.
Historically, banks were seen as custodians of cross-border payments, but that’s not the case anymore.
“We’re now seeing an increase in comfort with cross-border payments conducted outside the bank,” said Karim Ben-Jaafar, president & COO at Beanworks. “There has been a surge in companies paying vendors through third-party platforms, which offer much faster and more cost-effective payment solutions. The need for instant, low-cost payments channels will further accelerate this transition in 2022.”
- The end of “payday” as we know it
As opposed to the traditional monthly or fortnightly pay cycle, on-demand pay is rapidly gaining traction as it allows workers to get faster access to the money they’ve already earned – approximately $1 trillion that’s locked up in payroll systems across the US and several other leading economies on any given day.
“Get ready to say goodbye to the traditional bi-weekly pay cycle,” said Seth Ross, gm, Dayforce Wallet & consumer services at Ceridian. “Soon, every day (and even every hour) could be payday, as you will have the ability to automatically “stream” your earnings to pay for the things most important to you.”
- Digitization of B2B payments
Making it as easy as possible for businesses to send and receive payments digitally will be key to small business success in 2022. A recent report by Wave found that over one in five (21.5%) invoices sent by US microbusiness owners were overdue. However, invoices sent with embedded digital payment options were paid on time 15% more frequently.
“The US B2B payments sector is a must watch in 2022, totaling over $25 trillion annually,” said Rob Anderson, partner at FTV Capital. “Yet, with approximately 50% of transactions still involving paper checks, it is one of the last untapped markets in electronic payments with a high degree of fragmentation and manual processes for payment and reconciliation. The key to unlocking value across this landscape is digitizing data and using automation to improve the payment experience.”
- The growth of stablecoins and blockchain-based payments
The use of blockchain technology in payments is expected to accelerate in the coming year, with new blockchain-based platforms offering quicker, safer, and cheaper transactions through decentralized ledgers.
Sushil Prabhu, CEO of Dropp, is bullish about the large-scale use of stablecoins as a means of payment. “Stablecoins will reduce friction while removing price volatility for a wide variety of use cases,” he said. “Think of them like a Disney pass – you have a little bit of friction at the onramp and offramp, but anywhere inside the park, payments are fast, efficient, and seamless. And we think both the real world and the metaverse are moving towards the park model.”
- The virtual card boom
Virtual cards will likely experience a boom as a means of payment in 2022 and beyond.
Gunita Bindra, vp product management & partnerships at Bottomline Technologies, says that in the next 5 years, the global value of virtual card transactions is expected to increase by 370%, rising from $1.9 trillion in 2021 to $6.8 trillion in 2026. This growth will largely be driven by B2B payments, which will make up around 70% of the total value of virtual card transactions by 2026.
- Digital wallets and P2P payments will keep growing
Digital wallets and P2P payment platforms will further gain popularity as younger consumers spur the development of new payment methods through their desire for simple, on-demand options.
Brian Dammeir, president – North America at Adyen, points out that over one-third of teens today don’t have a traditional bank account, instead relying on P2P apps and wallets to hold their funds. He anticipates that number will increase further as new payment methods become available.
“These methods will continue to shape the online shopping experience, and will ultimately change the in-store shopping experience as we know it,” he said.
- Cybersecurity will become central; passwords will become secondary
Cybercrime has shot up since the start of the pandemic. With an increasing number of users performing online transactions, cybercriminals have plenty of possible targets, particularly when it comes to payment services like BNPL. Protecting users from cybercrime has become more complex than before, causing many companies to consider ways to eliminate the need for passwords.
Jeff Kump, head of payments at CSG Forte, says multi-factor authentication will prevail in 2022 and will continue to be pushed by merchants. Consumers will soon have the ability to set up multiple layers of security when performing transactions in real time.
“Just like opening your smartphone with your finger or facial recognition, consumers will be able to make everyday purchases with biometric capabilities as well,” he said. “By offering multiple layers of security, these enhanced measures drastically reduce the risk of fraud, stolen pins and fraudulent purchases.”
This week’s takeaway article
Real-time payments are expected to double this year
Real-time disbursements accounted for 17% of all disbursements made last year, up from 5.7% the previous year.
Companies are also increasingly opting to pay their employees in real time, partly reflecting a shift toward the gig economy and project-based work. Real-time payments made to employees in tight labor markets – especially retail and food services – could make a big difference in employee retention. PYMNTS research also found that roughly one-third of respondents would be willing to pay additional fees in order to get instant access to their funds.
Whisler says consumers have been conditioned by their experiences with streaming services, where they don’t need to visit the theater anymore to gain instant access to movies, day or night. They now expect the same from financial services.
Real-time payments are in their early stages, where dozens of domestic real-time schemes are taking shape around the world, and where interoperability still needs to be established.
Whisler predicts that RTP network volumes will at least double over the next year, driven by growth in the account-to-account space and corporate disbursements.
Quote of the week
“My biggest business losers for 2022 are Visa and Mastercard, and traditional payment rails and the entire ecosystem around them.” — Chamath Palihapitiya, founder and CEO of Social Capital
Billionaire venture capitalist and former senior executive at Facebook, Chamath Palihapitiya, made some pretty bold claims about the future of Visa and Mastercard. He refers to the two payments behemoths as a “completely contrived duopoly that doesn't need to exist”, and believes both companies will be overthrown by emerging blockchain and DeFi projects in 2022. Yikes.
Palihapitiya cited Amazon’s recent decision to refuse Visa credit cards in the UK due to high transaction fees as one reason for his view. “The canary in the coal mine here is pretty significant,” he said. “Amazon is not going to do something like that, in my opinion, unless it's a test of what they can do all around the world.”
While these remarks might sound far-fetched to some, Palihapitiya may not be too far off in his estimation. Visa and Mastercard have monopolized global payments for decades, but growing fintech competition and the proliferation of alternative payment options threatens to weaken their influence.
Outside of DeFi, one of the biggest threats is posed by BNPL, which has been a big hit with young consumers through the pandemic. The share of credit cards in North American ecommerce spending declined 7% last year, while BNPL’s share grew by 78%, making it the fastest-growing form of payment.
Highlights from our recent coverage
Behind Green Dot’s embedded finance business with Amit Parikh
Green Dot has its hands in a few different businesses, including an embedded finance platform. The firm's Amit Parikh, who heads up the banking as a service group, joins us to talk shop. He has an extensive payments background, most recently at Apple. Amit joins Tearsheet editor Zack Miller on the podcast to chat about Green Dot’s platform strategy and the role it plays in brands’ financial ecosystems.
‘My days are jam-packed, but I wouldn’t have it any other way’: A day in the life of Clarisa Lindenmeyer, chief of staff and chief brand officer at Gig Wage
Clarisa Lindenmeyer is the chief of staff and chief brand officer at Gig Wage, a payroll and payments firm that serves as a financial safety net for gig workers and contractors. As a mother of three, her days involve juggling family time with back to back meetings, Slack, midday workouts, and the occasional skinny margarita. Read more about how she ended up in her current role and how she spends her days here.
Tearsheet’s top stories in 2021
Over the last 12 months, the pandemic has acted as a catalyst for the digitization of financial services. Here's a roundup of our biggest stories over the past year.
‘People don’t care about privacy’: How payment app Mezu pivoted to become embedded finance platform Alviere
Mezu, a privacy-focused payments app, didn't manage to catch on, so the management team decided to turn it into an embedded finance platform – Alviere, which focuses on big brand companies with an existing customer base that want to add banking services to their toolkit.
What we’re reading
- Adyen introduces Android POS terminals in the US, UK and EU (Finextra)
- DailyPay launches digital wallet solution for real-time pay (PYMNTS)
- Politicization of payments? Journalist says he has been banned by PayPal for conservative beliefs (Crowdfund Insider)
- Payments firms raised record sums in 2021 (Payments Dive)
- Deep dive: The explosive growth of mobile payments for cross-border transactions (PYMNTS)
- Rev enters US payments market with the launch of the X World Wallet (Business Wire)