The pandemic has brought payments into the spotlight over the past three years. Venture capital flowed in; digital payments adoption and usage ticked up; and investments in digital payments meant the difference for merchants and payments players between swiftly adapting to new realities or scrambling to stay afloat. In 2023, payments will once again be top of mind for fintechs, merchants, and consumers alike, but for different reasons. The payments market won’t focus on acceleration in the coming year but rather on battening down the hatches.
Here’s a sneak peek at what we predict the payments market will see in 2023:
- The downturn of the economy will lead to a shift in consumer payment habits. As consumers begin to really feel the effect of the looming state of the economy, we will see a shift in payment habits, including the comeback of cash. As liquid money is exhausted, consumers will stampede to “buy now, pay later” options and back to credit cards. This move will create a rise in outstandings (and the cost of chasing them). To survive, payment pros will need split personalities and split budgets: They must avoid being disintermediated by cash while continuing to invest in low-cost digital solutions.
- Bank-based payment methods will have their first “big” debut. A big beneficiary of the increase in customers who prefer using cashlike payment methods will be open-finance-based, account-to-account payments. 2023 will be the year when at least one major global retailer begins accepting ACH-based payments on their site, as some challenger brands already have. Additionally, these types of bank-based payment methods allow retailers to combat the costly fee for card network transactions (interchange fees), a growing issue that was brought to the US Congress by US retailers in 2022.
- Innovation will take a back seat to baseline payments investments. 2023 budgets will be tight, and payments will not be an exception. Dollars destined for envelope-pushing payments experiences, such as those in the metaverse or other blockchain and CBDC projects, will be repurposed to baseline payments infrastructure and modernization projects. Additionally, innovative payment fintechs will struggle to survive, with a likely drop in transaction volumes as VC money dries up across the globe. As a result, we anticipate that one in four payment fintechs will fold.
- Some areas of payments fraud prevention will improve, while others will worsen. Card-based payments fraud will be lower this year because of the growing adoption of 3DS2 protocols and advances in card tokenization. Higher consumer adoption of mobile payments will also keep many fraudsters at bay, as mobile devices can support one of the smoothest and strongest customer authentication processes: biometrics. As a result, we will see fraud with push-based (consumer-initiated) payments double in the next year. Why? Many banks and payment service providers are not prepared for push-based payment fraud: They lack advanced authentication approaches such as behavioral biometrics and haven’t educated customers on self-protection.
Eager to learn more about what 2023 holds for the payments world and how you can get a jump on the competition? Read our full set of 2023 payments predictions here.
If you aren’t yet a client, you can download our complimentary Predictions guide, which covers our top predictions for 2023. Get additional complimentary resources, including webinars, on the Predictions 2023 hub.