The payments landscape has evolved rapidly in recent years, with the COVID-19 pandemic spurring the rise of digital and mobile payments. But as the global economic climate deteriorates, competition intensifies and regulatory scrutiny increases, the payments industry faces new challenges.
Recent reports from leading accounting and consulting firms Ernst & Young, Forrester Research, and McKinsey & Company have examined the forces at play in the payments industry and offered projections of what’s to come. Here are some of the highlights from those reports, all of which were released last month.
Payments revenue growth eclipses pre-pandemic levels
In its annual payments report, McKinsey estimated that global payments industry revenues are now exceeding pre-pandemic expectations. He also offered a new forecast, predicting that revenue will reach $3 trillion by 2026. This compares to an 11% increase in revenue last year to $2.1 trillion, compared to 2020. , according to the Oct. 7 report.
The Asia-Pacific region accounted for more than half of global payments revenue last year, generating $1.1 trillion, with North America generating just $500 billion.
Growth in the Asia-Pacific region was driven by an increase in account-to-account payment transactions, while card transactions, which predominate mainly in North and South America, grew at about the same pace as ‘previously.
The firm also noted the growth of online payments. “Up to 33% of global card spending – 50% in the US – now takes place online,” the McKinsey report says.
The threat posed by payment disruptors is set to grow
A recent EY report, titled “How the rise of Paytech is reshaping the global payments landscape” sets the stage by emphasizing that there is a battle ahead. In a veiled warning, the report says: Banks and traditional payment providers “still have a chance to keep pace with disruptors by investing in key areas.”
The report estimates that around a quarter of the fintech industry is made up of “paytech” companies that are part of the payments value chain, whether they act as enablers or services, payment providers, networks or equipment suppliers.
The accounting firm estimates the payments market to be around $240 trillion and estimates that the paid tech portion has “exploded” to a $2.17 trillion portion. “As the digital economy grows and customer appetite for transparent payments grows, PayTechs are offering integrated solutions to consumers and merchants to meet this demand,” the report states.
Paytechs are also creating a new sphere in which data passing through payments is monetized. Specifically, they are developing new ways to store, manage and leverage data to benefit merchants and consumers, the report says.
Open banking and cross-border payments are shaping the industry
Open banking trends giving consumers more control over their financial tools and real-time payments increasing the speed of money transfer will combine to provide consumers with more account-to-account capabilities and give payments players more convenience. opportunities for trading, EY said.
The report also noted significant changes on the cross-border payments front, as regulators lay the groundwork for modernizing these payments and pay-tech companies step in with improved business models to deliver services.
“Demand for omnichannel payment methods, integrated funding, instant cross-border payments, and payments using digital currencies will require payment providers to build agility and flexibility into operating models,” the report concludes.
Economic headwinds could lead some payment companies to fold
As venture capital becomes harder to find and transaction volumes are expected to fall, Forrester predicts that a quarter of payments companies will close in 2023. In a report released Monday, “Predictions 2023: Payments”, the company noted that growth-focused CFOs are being replaced by those with profitability in mind.
This is leading many payment companies to take a closer look at spending and cut where they can, whether on staff or marketing. Forrester notes that this is “not an easy task in a low-margin, high-volume business.” This more agile approach is also likely to stifle innovation, according to the report.
Businesses “without strong defenses” risk being taken over by large payment companies, Forrester predicted. Other companies will grapple with wage inflation “as delayed IPO paydays dampen the appeal of stock options.”
Frustration over ‘swipe’ fees could prompt merchants to promote bank payments
Card network interchange fees – also known as “swipe” fees – have been a necessary expense for merchants. But as these fees rise and lawmakers aim to rein them in, Forrester predicted that at least one global retailer will aim to circumvent these fees in 2023 by incentivizing customers and launching a global campaign to push the use of payment methods. bank payment.
Forrester pointed to some brands promoting the acceptance of ACH payments on US websites. Additionally, bank-based merchant payment processors like GoCardless, Catch and Trustly have gained traction and Volt has a “transformer” product that turns debit card transactions into account-to-account payments.
Push payment fraud set to grow
Wider adoption of multi-factor authentication protocols, along with advances in tokenization, mean card payment fraud will decline in 2023, Forrester predicted. Additionally, mobile devices are integrating biometrics into the payment picture.
But these developments are likely to cause fraudsters to step up their attacks on consumers themselves, targeting them with social engineering schemes in the area of push payments, Forrester said. Fraud on peer-to-peer networks like Zelle caught the attention of lawmakers like Sen. Elizabeth Warren (D-MA).
“Many banks and payment service providers are not sufficiently prepared for push payment fraud: they lack advanced authentication approaches such as behavioral biometrics and have not educated customers on self-protection” , notes the Forrester report.
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