The Future of Online Shopping: commerce trends every merchant must know
Top payment industry trends to expect in 2023
Starting 2023 one thing is clear, digital payments are more important than ever as a tool for businesses to thrive in a dynamic economic environment. Beyond that, this year brings with it a lot of uncertainty for merchants across all sectors. As merchants grapple with the global economic downturn, new innovations will take center stage, and finding partners that can offer them will be key.
Top payment industry trends to expect in 2023
Drawing on multiple industry resources and our own in-house experts, below, we outline the key trends set to shape the payments landscape throughout 2023 and beyond, including mobile wallets, embedded finance, stablecoins, and super apps.
Mobile wallets have already proved to be the big winners of the digital payments revolution, finding favor with consumers and businesses alike by offering enhanced convenience and security. So much so that, In 2022, 49% of global ecommerce transactions were made using mobile wallets. And by 2028, Juniper Research predicts average spend per user via this alternative payment method will hit $8,566 in North America, compared to $5,646 in the Far East & China.
However, digital wallets are also expected to see strong growth in developing countries in the Asia Pacific region, and could be adopted by 75% of the populations of the Philippines, Thailand and Vietnam by 2026. While currently considered, ‘cash heavy’ economies, the increasing penetration of online and mobile services, and the emergence of super apps (more on these below) are expected to be major growth drivers in these countries.
Cross border payments
When it comes to cross-border payments, many countries, market players, and global regulators are united on one thing: in order to unleash their true potential, a lot of work still needs to be done.
Fortunately, that work is being done. The G20 Roadmap for Enhancing Cross-Border Payments - which aims to make international payments cheaper, faster, and more transparent - is already making great progress on a number of key initiatives ahead of its 2027 target date. Those initiatives are: payment system interoperability and extension; legal, regulatory and supervisory frameworks; and cross-border data exchange and message standards.
At a national level, the US Federal Reserve hopes to launch the FedNow Service, which will allow near instantaneous payments between businesses and consumers at any time of day, any day of the year. While it will launch domestically, the Fed said it could roll out the service to non-US-based financial institutions in the future. Similar efforts are taking place in the EU, where the Commission has proposed making instant payments services available to everyone who has an EU bank account. This legislation is set to be approved by the end of 2023, making it likely that banks and payment providers could offer instant payments to their customers at the tail-end of 2024.
Embedded finance allows retailers to improve their customer experience by offering alternative payment and finance options at checkout. Buy now, pay later (BNPL) is the most prominent model, where consumers spread the cost of a purchase over several installments. Save now, buy later (SNBL), which enables customers to create short-term savings accounts for big-ticket items, is also emerging as a major force in embedded finance. Key to this technology is the leveraging of consumer data to offer customers the right product at the right time.
However, regulators are increasingly scrutinizing such services, concerned by their potential to tempt consumers into debt or unstable financial situations. In the UK, HM Treasury has published a consultation on draft legislation that could see BNPL brought under the scope of its domestic regulations, and the EU is already finalizing a revised version of the consumer credit directive that would do the same.
Nevertheless, the growth of embedded finance - which relies on Banking-as-a-service (BaaS) and API platforms - shows no sign of slowing down. According to Platformable, 1,578 global banking APIs were available in Q2 2022, which led to the development of 5,564 open banking API consumer products. And Bain & Company estimates that embedded finance transactions will surpass a value of $7 trillion in the US by 2026.
More than 100 countries are currently exploring Central Bank Digital Currencies (CBDC), but what exactly are they?
CBDCs are government-backed digital currencies that are issued by central banks. Their value is fixed and pegged to the country’s fiat currency. Essentially, instead of being issued in the form of banknotes or coins, CBDCs operate under a credit-based model, with balances and transactions recorded digitally. As with cryptocurrencies, CBDCs can be based on the blockchain, though many countries are exploring alternative technologies.
The European Central Bank (ECB) is currently working with other national central banks on an investigation into the possibility of a digital euro, which is due to conclude in October this year. The Bank of England has recently wrapped up its consultation on a CBDC, and is now in the process of setting up an advisory group of academics and researchers to spearhead the design of a digital pound. The US has yet to implement authorizing legislation for a CBDC, and many policymakers are skeptical about its necessity, and are concerned that it could impact commercial bank liquidity. However, the country remains nominally supportive of introducing a CBDC at some point.
CBDCs seem certain to become transformational for businesses and consumers alike.
Following the collapse of FTX, as well as several other coins and crypto institutions, the reputation of cryptocurrency has taken a bit of a beating. In response, global regulators
have started to pay more attention to the stablecoin market, drafting legislation that could see these lower-risk digital units used widely by businesses and consumers.
Stablecoins are a form of cryptocurrency that have been specially created to be less vulnerable to market volatility. This is most commonly achieved by pegging the digital asset to a reserve of a more stable asset, such as a fiat currency or commodity (e.g. precious metals). Stablecoins can also be collateralized against a reserve of other cryptocurrencies or can be uncollateralized, instead maintaining a fixed price by controlling supply in line with market conditions.
The EU’s Markets in Crypto-Assets Regulation (MiCA) - which governs the issuing and provision of services related to crypto assets and stablecoins - was adopted in April, and should enter into force by early 2025 at the latest. The UK Financial Services and Markets Bill should also be passed this year, while Japan and the US also have crypto-related regulatory proposals at various stages of development.
Super apps, which unite multiple services on one platform, have been the dominant force in the Asian digital market for over a decade, while Westerners have tended to prefer more specialized mobile applications.
However, as more businesses and consumers discover the benefits of the super apps model - including a more streamlined user experience, rich consumer data, and enhanced user retention - Deloitte predicts the emergence of Western super apps by 2025, with payments, social, and rideshare companies set to be the market leaders. Western super apps will also benefit from greater transparency around their use of consumer data and could see cryptocurrency play a major role in driving growth.
Customer journey and preferences
As we’ve seen, there are plenty of exciting innovations happening in the payments space, but what do consumers actually want? And do these technologies meet those needs?
For merchants, the important thing is to remain attuned to customer preferences at every stage of their shopping journey. This will be especially true if fears of an economic downturn materialize, when consumers are likely to restrict their spending to experiences that bring them real value. One way to achieve this is by meeting the growing consumer demand for frictionless payment journeys. That means offering real-time and faster payments, flexibility via multiple payment methods, and enhanced convenience with BNPL, QR codes, and social commerce.
Anything you can do to streamline the customer journey could make all the difference when it comes to a purchasing decision.
Open Banking is at the foundations of many of the developments happening in the global payments ecosystem. Essentially, it's the practice of giving third-party financial service providers (TTPs) access to consumer banking and transaction data through APIs. The idea behind this is that these providers can use this shared data to initiate payments on behalf of their customers or even to recommend the best products and services for their needs.
Regulators are currently in the process of developing legislative frameworks to ensure customer trust through security, consent, data use, privacy and ethics. In the EU, this may be achieved through the expansion of the EU Payment Services Directive, which already underpins Strong Customer Authentication and Open Banking. In the US, the Consumer Financial Protection Bureau (CFPB) is working on an Open Banking proposal that should be completed in October. And in the UK, the Digital Markets, Competition and Consumer Bill is set to give the UK’s competition authority more power over big tech.
The hope is that these regulatory changes will lay the foundation for a more competitive financial market, giving consumers more choice and unleashing the potential of smaller, more innovative fintech businesses.
The European perspective:
Shaun Puckrin, VP Product Management, Checkout.com
In times of tough economic conditions, businesses always focus on where they can achieve efficiencies. 2023 will see merchants turn to payments to find those. Improving acceptance rates and taking a localized approach to payment preference will continue to be important. The best merchants will take an even more forensic approach, understanding that there are places of hidden treasures at every step of the payment journey.
Using 3DS and exemptions appropriately will be one area where merchants can find improvements. The technology is now mature enough that compliance doesn’t need to be a box ticking obligatory exercise, but instead can deliver superior customer journeys. New capabilities such as delegating authority gives merchants more control to hone payment experiences to suit individual channels and customers. This is a big step change from the default measures that merchants have been used to, and expect them to take advantage.
Many legacy payment providers will struggle to fully support merchants in navigating and enabling these opportunities, so I think we’ll see a move to PSPs that can offer depth and breadth of capabilities in a single platform, alongside ‘human’ expertise. In the UK especially, more merchants will be looking to jump on board the open banking train, so will need their PSP to support them with adoption.
2023 will also be the year where embedded finance will go mainstream. Again, it’ll be accelerated by merchants reacting to a tougher economy. Payments will evolve into money management, because merchants have more to gain by operating more at the intersection of money coming in and going out.
The US perspective:
Zack Levine, VP North America, Checkout.com
Last year saw a lot of talk about the rise of new payment methods, but I think we’ll see established methods continuing to lead the way. Right up there will be digital wallets, notably Apple Pay and Google Pay, as customers increasingly reach for those first. They’ll become ‘must-haves’ in the list of payment options that merchants offer. While we’ll continue to see PayPal maintain its 10-15% market share.
I think the big shift for 2023 will be more attitudinal. The tougher trading conditions we expect will see merchants think differently about payments. They are far more literate these days and understand there are big gains to be had from optimizing their payment operation. With pressure on sales and profits, there’ll be more focus to activate those gains. Part of that narrative will be about unlocking new revenue streams, such as through improving approval rates and exploring embedded payments. But I think more merchants will be looking at cost efficiencies. You can expect to see big merchants with large volumes insert themselves into their flow of funds to negotiate fee reductions and optimize interchange fees. Others will be looking at payment methods such as pinless debit, where they can save up to 80 basis points per transaction. Network tokens will also be on merchants’ radars.
More broadly, I think the drive to save on costs and unlock new revenue streams will lead to merchants simplifying their payments stacks and moving away from API layering. So we’ll see more adoption of solutions where gateway, processor and fraud prevention products are native. The customer will be the ultimate winner in this, with merchants able to build better payment experiences. It will also bring much needed transparency to a payments industry that has been too complex and opaque. In turn, we’ll see even more merchants engage with the full range of benefits that payments can bring.
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To find out more about what trends we can expect to see this year, read our full trends report. We speak to leading payments experts across the globe to hear what they are expecting in the year ahead.
Whatever the future holds, ensure that you’re best placed to take advantage of every opportunity and retain your customers’ loyalty in a constantly evolving landscape by optimizing your payment processing.
With Checkout.com, optimization is a breeze. Our single payments API and developer-friendly tools give you the flexibility to tailor your solution to your needs, meeting customer preferences with frictionless payment experiences that boost acceptance rates in every major market.
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