Power of Payments Ep. 21: 10 predictions for the payments industry in 2023

Welcome to the first Power of Payments podcast episode of 2023. For our first episode of the year, we’re doing something a little different. Instead of doing a round-up of recent news in the world of payments, this week we’re going to talk about what the near future looks like for the payments industry.

To kick off my payments coverage for 2023, I wanted to hear from people in the industry about what they believed would be the most important trends in payments this year. I asked a number of experts from across the payments spectrum to share their thoughts with me and predict what trends we can expect from the industry in the next 12 months.

Based on those predictions, I’ve compiled 10 trends that are likely to shape the payments landscape this year. Important themes for 2023 – in no particular order – involve B2B payments, M&A activity, real-time payments, digital wallets, fraud, sustainability, and more.

Let’s get started.

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The following excerpts were edited for clarity.

1. The digitization of B2B payments

Darren Parslow, Global Head of Visa Business Solutions, refers to this as B2B 3.0. He says this new version of global B2B commerce will be digital, secure, fast, and flexible. Darren says we’re going to see a rise in B2B mobile payments as the preference for businesses to pay and be paid by phone increases, and B2B payments digitization will fuel increases in B2B ecommerce purchases.

More businesses than ever are now providing online payments, and 80% of B2B transactions are expected to be digital by 2025. The digitization of business processes will continue to accelerate B2B transactions and integrated payment offerings beyond paper checks and invoices.

Accounts receivable teams are already seeing the benefits of sending electronic invoices and receiving digital payments. A growing number of governments are also making progress in digitizing payments, whether in the form of disbursements to citizens or to and from agencies as clients.

Banks, processors, and networks continue to make progress against potential use cases for virtual cards. Darren says innovation along this path will continue as the ecosystem provides more features and functionality to streamline business payments and operations.

2. More investment in payment choice to meet consumer needs

Casey Klyszeiko, SVP, Head of Global Ecommerce and Carat at Fiserv, says that consumers today expect to be able to pay in a variety of ways, ranging from tapping their digital wallets to paying with government benefits.

From enabling payment options like BNPL, PayPal, and pay-by-bank across channels, to allowing consumers to receive payouts instantly into the account of their choice, businesses are increasingly seeing payments as an opportunity to maximize customer choice and create more loyal experiences.

Casey gives the example of a gig economy worker who wants to be paid on a daily basis, a mother of four who wants to use her EBT card to order grocery online, and an insurance claimant who needs funds quickly to remediate damage from a flooded basement. Each of these consumers has a unique payment preference, driven by a real-life need.

Brands will increasingly invest in payment choice in 2023 to create experiences that drive loyalty and make it easier for people to navigate their financial lives.

Sukanya Madhavan, Head of Product Management and Engineering at CSG, adds that as people become increasingly comfortable with doing all their business online – from groceries to gas bills – and as the economy evolves to become more global, developers will seek to have a payment option for every niche need that arises.

This will appear with the further integration of payment tools in apps and websites. For example, Instagram now links to your bank so that when you’re scrolling through your feed and see an ad, you can purchase that product with a single auto-filled swipe.

3. More use cases for real-time payments

Charles Rosenblatt, President of PayQuicker, believes that the growing global gig economy will drive the use cases for real-time payments.

S&P Intelligence reports that the success of RTP hinges on whether FIs and fintechs can leverage practical applications. Instant payroll for workers at gig economy companies is one example of that. During the second quarter of 2022, instant payroll accounted for 15% of the total volume on The Clearing House’s RTP network.

4. Fraud becoming more sophisticated and adapting to digital transactions

Paul Fabara, Chief Risk Officer at Visa, says that as more countries around the world adopt a “hybrid” work lifestyle, fraudsters are keeping pace, adapting their tactics and finding new ways to scam consumers.

With travel resuming after the pandemic, we will likely continue to see an increase in cross-border fraud. And with more travelers now paying for flights, hotels, food, and making all sorts of purchases along the way, fraudsters have more opportunities to gain access to sensitive data.

Paul expects small businesses to especially be at risk, because they often don’t have the resources or the expertise to prioritize security tools and other safeguards.

All of this means that security and trust will remain critical this year. Authentication breakthroughs in user protection, like EMV 3D Secure, are helping to make global ecommerce secure in real time.

Paul adds that digital payment methods like virtual cards will continue to make it easier and more secure to do everything from purchasing plane tickets to splitting the check at dinner. Businesses will also become more aware of the importance of investing in security tools to prevent fraud and insurance policies that could help mitigate the impact of a breach.

5. Increased M&A activity

PayQuicker’s Charles Rosenblatt says that as fintech valuations take a dive, this could be an opportunity for banks to buy up payments companies. The current market has a large number of specialized, niche paytech firms, some of which may converge this year to combine their services.

Additionally, Charles says we’re likely to see partner consolidation in the payments space this year. Companies have more limited resources than before, and they will want to work with partners and vendors that can help them solve multiple problems, instead of using 5 to 10 different partners and vendors with multiple integrations.

6. The transition from POS hardware to online, smartphone-powered terminals

Ralph Dangelmaier, CEO of BlueSnap, says businesses will amend their current payment strategies and adopt Software Point of Sale for specific use cases, pushing legacy POS companies to develop SoftPOS in-house.

SoftPOS allows NFC-enabled smartphones and tablets to function as payment terminals without any additional hardware. Currently, an estimated 3 billion smartphones have NFC globally, giving about 20% of the world’s population access to this payment technology.

Ralph doesn’t see smartphones replacing POS terminals in 2023, but he says we will begin to see SoftPOS creeping in to augment existing payment technology and hardware to reduce bottlenecks, and in some cases, even cross-border fees.

Brian Dammeir, President of North America at Adyen, adds thatthe pandemic sped up the transition to unified commerce, blending the in-store and online experience. Customers welcomed these changes, and now want companies to keep, improve, and expand their digital channels. For retail, this will show up most clearly in evolving in-store hardware, i.e. the transition from POS hardware to online, phone-powered terminals. He predicts that in the next 10 years, hardware terminals as we know them will cease to exist.

7. The increasing demand for sustainable payments by consumers

Jeni Mundy, Global Head of Merchant Sales & Acquiring at Visa, says that consumers are increasingly incorporating concerns about sustainability and climate change into their behaviors and consumption patterns.

According to a recent study from Skift and McKinsey, 40% of travelers globally were willing to pay at least 2% more on carbon-neutral flight tickets. So far, that same data shows that only 14% of travelers have actually done so. In 2023, Jeni expects to see more consumers walk the talk as more options like the Visa Eco Benefits bundle become available.

Recommerce — another term for circular commerce, where rental, refill, repair, resale, returning and redistributing goods make for more sustainable choices — is also gaining popularity, with 69% of participants in a recent Visa survey saying they would choose retailers based on recommerce activities. In 2023, Jeni expects more card rewards for consumers who make sustainable choices and tools that help consumers visualize their environmental impact when making plans.

8. More reliance on digital wallets

Jeff Kump, President at CSG Forte, says the digital wallet is quickly becoming the preferred way for younger generations to interact with payments, and businesses are following suit. Facing physical coin shortages and the growing need to streamline and digitize processes, Jeff says we will see businesses largely prefer digital wallets to using cash, and increasingly, to dealing with physical cards as well.

Jeff adds that with the potential rise of the metaverse, cash and physical cards will be useless in that environment, so customers will likely have no option but to switch to digital wallets.

9. Businesses moving their payments data to the cloud

Fiserv’s Casey Klyszeikosays that in order to unlock new value from their payments data, businesses will tap cloud solutions to achieve new levels of access, analysis, and efficiency. Enabling secure data transfer via the cloud will modernize how payment data flows to decision-makers, and will guide business decisions.

Casey adds that by leveraging data in real time across business functions, companies will be able to innovate at the speeds expected in today’s rapidly changing commerce landscape. With ready-to-query payments data, businesses will also enhance consumer experiences by integrating real-time payment data into the checkout process, strengthening loyalty and rewards programs, improving decisions for embedded financial services, and solidifying fraud mitigation.

Companies will be looking to take advantage of enhanced access to real-time data and use it to identify customer trends that can lead to a competitive advantage.

10. The growing focus of payments tech on the automotive industry

Adyen’s Brian Dammeir says that states like California are leading the charge in making electric cars the primary type of vehicle. As a result, a lot of digital transformation is on its way to the automotive industry, and fintech will latch onto this in 2023 to bring payments more seamlessly into car tech.

Brian says car companies will need to create a universal experience across their brand – from dealership to website to app to car dashboard (including one-click accessory, subscription, and charging payments). Without this kind of integrated experience, companies will risk falling behind competitors and missing out on key revenue generators.