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Navigating the 2023 Payments Landscape

May 25, 2023

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A hand holding credit card to represent BNPL Payment trends

It has been a somewhat tumultuous year for payments, and businesses and banks have pivoted to meet customers’ needs in the wake of the lurking recession. However, the coming half of the year promises to accelerate progress in two key areas that should enable fast, efficient, and innovative payments.

The economy has been in turmoil for some time, beginning with the slow recovery from the aftermath of COVID-19 and continuing with the lukewarm strikes of the global recession. The global core inflation rate is currently above 5% in 2023. Interestingly, the payment sector, which, on the one hand, witnessed astonishing growth, has been struggling and crumbling despite the increased growth rate. It is primarily due to the sector’s heavy investment in the technology industry, both for digitalization and otherwise. The presence of digital options did ensure the sector a higher engagement rate, but with a sharp increase in the number of users and transactions per user, the sector’s high investment in Fin-techs and other tech organizations became a liability as soon as the recession hit the tech industry. Today, at least 73% of financial institutions must curb their digital debts to survive.

Where Does the Future Lie?

The major causes of the ruckus in the tech industry are actually not recession-related. The big tech companies are not dilapidating under the weight of the unstable economy; rather, they are undergoing a big-time correction. Silicon Valley witnessed over 45,000 layoffs in 2022. The objectives of big tech companies are undergoing a realignment with their workforces following the rapid hiring that took place during the lockdown period. But what exactly does it mean for the payment industry? Should the sector stop investing in technology? Will the speed of digitalization slow down? Is it time to go back to brick-and-mortar forms?

Absolutely not. The digitization rate in the payment industry is at an all-time high and will remain so for the foreseeable future. The industry is expected to grow at a CAGR of 20.8% from 2023 to 2030. Especially with the increased consumer demand for a more personalized payment experience. What changes have occurred in the way the two industries interact, as well as the direction of digitalization within the payment services industry? It is time for banks and financial institutions to invest in digital assets rather than the digital organizations themselves. Also, now that nearly the entire payment sector has undergone basic digitalization, they should be looking into additional opportunities for digitalization.

Buy now, pay later (BNPL), especially in B2B commerce and omnichannel retail, are two initiatives that have slowly but surely gained traction over the past several years. We anticipate that the second half of 2023 will usher in a renewed gusto in these areas, affording FIs, businesses, and consumers more seamless ways to manage payments.

A More Proactive Approach to Buy Now Pay Later (BNPL)

Buy Now, Pay Later (BNPL), as a payment method, has gained much popularity in recent years, especially in the digital payment scenario. It enables customers to make purchases and defer payments until later. The option is particularly attractive for B2B traders who may not have the necessary funds to make a large purchase at once, or who prefer to spread the cost of the purchase over several months. Particularly for small and medium-sized enterprises (SMEs) that may face cash flow issues or need to manage their expenses more efficiently.

The global “buy now, pay later” market was valued at USD 6.13 billion in 2022 and is estimated to grow at an expected CAGR of 26.1% from 2023 to 2030. One main reason for its growth is the solid ground the digital payment scenario has provided for BNPL to flourish. There has also been a spike in the BNPL adoption rate by businesses, making it easier to access and use.  And as companies and customers seek more flexible and convenient payment options, the trend of BNPL in B2B commerce in the digital payment scenario will likely continue growing in the coming years.

Progress with Omnichannel Retail

With the upward spiral of e-commerce and mobile payments, customers now prefer purchasing online and using digital payment methods. Another thing they demand is a seamless yet integrated shopping experience across channels. It has led to the rise of omnichannel retail, enabling retailers to provide a consistent and personalized experience across all touchpoints, whether online, in-store, or on mobile devices.

Retailers who successfully implement an omnichannel strategy can cater to the changing needs of their customers, enhance their shopping experience, and increase brand loyalty. In fact, companies have witnessed a better retention rate, around 89%, when provided with an elevated omnichannel shopping experience. On the flip side, 76% of consumers who demand a personalized experience get frustrated when not offered the same.

Unsurprisingly, this year has thrown many financial institutions (FIs) and businesses into a loop as consumers become more dependent on digital payments. At the same time, economic realities forced many entities to cut back on technology and innovation spending. As we move further into 2023, there are a couple of areas where progress is likely to pick up—and even accelerate—to make more efficient payment processing a reality. The two major trends to look out for are the emergence of “Buy Now, Pay Later” (BNPL) in B2B commerce and omnichannel retail. So while banks and financial institutions redefine their relationship with the tech industry and taper their digital liabilities, exploring the deeper parts of digitalization is crucial.

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