Updated: 02/9/2023
The payments industry is constantly evolving and 2023 is shaping up to be a year of significant innovation and change. We predict that this year the biggest players in the fintech industry will focus on making payments more convenient, secure, and personalized for consumers.
The payment landscape is continuously changing due to the rapid development of technology and consumer preferences, making it more essential than ever for businesses to stay ahead of the curve.
In this article, we will cover the most crucial payment industry trends influencing how transactions will develop, and give you the knowledge to make wise choices and keep your competitive advantage.
Taking advantage of the latest advancements in technology and security, customers can expect a seamless payment experience when paying online or at the store. As consumers continue to demand easier and more secure payment methods, we can expect to see the following nine emerging payment trends take center stage, fasten your seatbelt and join us on this thrilling adventure through the world of payment processing trends and the opportunities they bring!
The landscape of financial transactions has seen a remarkable evolution, with "trends in payments" becoming a buzzword among industry analysts and enthusiasts. Traditional cash and cheque payments are giving way to more digital and contactless methods, spurred by technological advancements and changing consumer preferences. Mobile wallets, cryptocurrency transactions, and peer-to-peer payment systems are gaining traction, offering convenience and real-time transaction capabilities. Additionally, biometric verification and AI-driven payment solutions are pushing the boundaries of security and personalization. As we delve deeper into the digital age, these trends in payments highlight a trajectory towards more seamless, secure, and rapid financial exchanges.
We will discuss all the latest trends in the payments industry and the key topics influencing change in business and payment practices, ranging from the increasing popularity of cryptocurrencies and the emergence of digital wallets to the growing significance of data security and the developing role of artificial intelligence.
1. Innovative P2P Payment Apps Will Prove to be Major Profit-Drivers
Convenience is key in today’s fast-paced, technology-oriented world. Peer-to-peer (P2P) payment apps allow users to transfer money to other users or pay for services. These apps can be standalone services, bank-centric services, social media-centric services, or mobile OS-centric systems.
P2P service apps like PayPal and Venmo offer simple ways to make digital transactions, and it’s not much of a surprise that they’ve grown in popularity. Today, 84% of consumers say they’ve used a P2P service.
P2P payment apps offer a convenient payment method with unique features to help users better manage personal finances. P2P payment apps may allow users to withdraw money to their personal bank accounts, pay for services, split bills among multiple people, or send money internationally. Some P2P payment apps also support the transfer of cryptocurrencies.
The demand for P2P payment services is growing, and the revenue of the industry has increased by more than 200% over the past 10 years.1 There are various spheres in which P2P payment app development that we believe will be profitable ventures companies will be sure to pursue in 2023:
- Retail and B2C services
- Financial establishments
- Telecommunication, logistics, and tech companies
- Private payments
- Apps for non-commercial fundraising and anonymous transferring
- P2P loans
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There are several monetization models for mobile payment apps, including charging for premium features, transaction fees, and affiliate marketing. Micro-payments, in-app purchases, membership fees, and selling source codes and APIs can also be effective monetization strategies. The best approach will depend on the specific app and target audience.
To successfully develop a payment application, you must ensure that the system supports a variety of payment methods, such as peer-to-peer within the network, e-commerce, and on-the-spot transactions at retailers. It should also be versatile, scalable, and able to handle high loads without crashing.
Consider geographical regulations and dispute resolution processes, as well as real-time currency conversion for peer-to-peer systems. Native apps may also be beneficial for e-commerce sites to enable faster payment processing.
When building a money transfer app, it is important to consider the financial regulations in the target market. This includes PCI-DSS compliance and the laws set by individual states or countries the app caters to.
2. Automated Software Will be Used to Secure & Optimize Transactions
According to Fintech Futures, the real-time payment market growth is expected to reach an impressive USD 86.89 billion by 2028, representing an estimated CAGR of 32% from 2022 to 2028.
New payment rails enable faster, more efficient real-time payments for B2B transactions, which will continue to have a transformative effect on businesses. Plus, the global implementation of the ISO 20022 messaging standard will have a positive effect on real-time cross-border payments and will enhance security and compliance around the world.
The US government will be adding the US FedNow payment service launching in Q2 of 2023, which aims to provide customers with more next-generation, innovative, instant payment offerings. Banks will likely start to take strategic steps towards infrastructure changes to ensure enough flexibility to cope with next-generation, real-time payment types.
In 2023, we believe companies will be using a combination of efficient but expensive real-time payments, and cheap but slow ACH transfers. We recommend using algorithms that can calculate the best and cheapest systems and providers to use, depending on your transaction needs.
Other software, like payment gateways, will also be widely utilized and sought after in 2023. A payment gateway is a software application that allows merchants to securely process, verify, and accept or decline payment transactions on their websites or mobile apps. It acts as an intermediary between the merchant's website or app and the payment processing network of the merchant's acquiring bank, enabling customers to make online payments using their credit or debit cards.
Building a payment gateway can be beneficial for businesses because it allows them to offer their customers a convenient and secure way to make online payments. It also simplifies the payment process by automating the handling of transaction approvals and declines and can help businesses reduce their fraud risk and grow their revenue.
Having a payment gateway can make it easier for businesses to integrate with other payment services and systems, such as payment processors and payment orchestrators. Payment services can automate the optimization of transaction approvals, which can help increase revenue and improve customer relations.
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To build a payment gateway, you will need to partner with a payment processor and acquiring bank. The payment processor will provide technical specifications for integrating your gateway with their system, and the acquiring bank will provide a merchant account to accept digital payments.
It can cost between $200,000 and $250,000 to build a minimum viable product (MVP) for a payment gateway, and it may take several months to years to develop the gateway from scratch.
Alternatively, you can license a white-label product, which can be up and running in a few months, or you can use an open-source solution, which may take less time but requires more development and technical expertise.
3. New e-Wallet Features Will Attract Unbanked Populations
Digital wallet options, such as Apple Pay and Google Pay, are becoming increasingly popular at checkout counters. Most people have at least one digital wallet on their phone, and as mobile payments become more common, more people are using them on a daily basis.
The increasing preference for frictionless payment methods, such as mobile and digital wallets, one-click payments, and in-app payments, has led to a rise in the number of businesses offering these options. By offering these payment methods, businesses make it easier for customers to make purchases and can potentially increase their revenue.
We predict that not only will digital wallets increase in use and popularity, but that companies will continue adding innovative features to incentivize and persuade consumers to select their e-wallets, while ‘super apps’, like Paypal, will continue expanding their offerings.
David Barrett, the CEO of Expensify, spoke to Softjourn about the connection he sees between payments and the integration of communication features:
“Payments and chat are fundamentally the same things; every payment is a structured chat to resolve some kind of debt tension between two people. There is a spectrum of functionality between freeform chat and expense management, and every form of payment is somewhere on that spectrum.”
Barrett believes that it’s time for expense and other platforms to step up their game by adding communication features - like Slack, SMS, or WhatsApp - but optimized for financial conversations at work and between friends.
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When we advise clients on building a digital wallet, we suggest they do the following:
- Research the market to understand the needs and preferences of potential users.
- Choose the technologies that will be used to transfer payment information and complete transactions. These may include NFC, Bluetooth, and QR codes.
- Implement security measures such as point-to-point encryption, tokenization, and password protection to ensure the safety of users' payment information.
- Design the user interface and user experience (UI/UX) to be simple and intuitive. This will make it easy for users to navigate the app and use its features.
- Develop additional features that will make the app more useful and appealing to users, such as loyalty rewards, bill splitting, and push notifications.
- Test the app to ensure that it functions correctly and all security measures are in place.
- Launch the app and promote it to potential users.
- Continuously improve the app based on user feedback and market trends. This may involve adding new features, improving existing ones, and addressing any technical issues.
To build a successful digital wallet, we recommend collaborating with a reliable software development partner with expertise in the payments industry. This will help ensure that the app meets the needs of users and stands out in a competitive market.
4. The Emergence of Web 3.0 in Payments
Web 3.0 is the third generation of web technology, which focuses on the integration of structured data and intelligent services to enable the web to understand and fulfill user intentions. In the context of payments, Web 3.0 can be used to enable more intelligent and personalized payment experiences for users.
For example, Web 3.0 technologies can be used to enable users to make payments using natural language processing (NLP) and voice commands, allowing them to simply tell their device what they want to pay for and how much they want to pay. Web 3.0 technologies can also be used to enable more personalized payment recommendations and offers based on a user's past payment history and preferences.
Additionally, Web 3.0 technologies can be used to enable more transparent and secure payment processes, using technologies such as blockchain and smart contracts. These technologies can be used to create immutable, decentralized payment networks that allow for secure and transparent tracking of payment transactions.
The current cross-border payment system has issues with intermediaries, long transaction routes, and lengthy screening processes, causing delayed payments. Web 3.0 technology will improve this by connecting global banks and making the system more efficient, affordable, and interoperable, resulting in simpler liquidity management and treasury operations.
The adoption of Web 3.0 has been limited in the past by API connectivity between Web 3.0 and Web2, but recent innovations in API connectivity will create new opportunities for open banking in the Web 3.0 ecosystem.
Web 3.0 technologies have the potential to enable more intelligent, personalized, and secure payment experiences for users. While these technologies are still in the early stages of development and adoption, we predict that they will be more widely used in the coming years, and are a payment trend that might be worth considering for early adopters.
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If your fintech business is looking to implement blockchain and Web 3.0 technology, look no further than Softjourn. Our team of experts has extensive experience in implementing innovative technologies for fintech businesses, helping them to drive innovation and deliver enhanced payment experiences for their customers.
5. Up-and-Coming Fraud Management Tools
Consumers are increasingly making purchases online, and fraudsters are using new schemes to exploit the growing e-commerce industry. As a result, cybersecurity is a top priority in the payments industry. Faster non-cash payments also pose a challenge for anti-fraud tactics. Cryptocurrency is also growing in popularity, bringing its own set of scams and digital crime.
The banking and finance industry is proactively securing online and contactless transactions. As the digital economy plays an increasing part in our lives, it is vital that electronic payments are secure, convenient, and accessible to all.
In the world of online payments, security is particularly important because there is a higher risk that sensitive information, such as credit card numbers and bank account details, could be accessed by unauthorized parties. Fraud is expected to cost the card industry over $400 billion in the next decade.
By implementing strong security measures, businesses can help to protect their customers' financial information and reduce the risk of fraud.
For example, in the past years, Revolut set itself apart with its award-winning fraud prevention. They use a combination of facial recognition and other biometrics, PIN codes, and SMS for login, as well as utilizing payment security such as single-use virtual disposable cards, temporary card freezes, and an automated security system.3
The Ireland-based Encryption-as-a-service company, Vaultree, recently raised $12.8 million in funding to create the first fully functional data-in-use encryption.4 Vaultree's end-to-end encryption allows users to work with fully encrypted data without needing to decrypt the information or surrender security keys. Unlike traditional data-at-rest or data-in-transit security controls, Vaultree's technology protects data all the time, whether in use, at rest, or in transit.
In 2023, we will see more companies in the fintech industry implementing Machine learning (ML) and Artificial Intelligence (AI) to prevent payment fraud. By analyzing past data and developing a mathematical model to determine normal user behavior, ML helps financial institutions monitor customer spending habits and detect any unusual activity, without inconveniencing the customer with additional verification steps.
With the recent news that OpenAI's ChatGPT can be customized via an API, we expect the spend industry to start developing specialized AI models that transform processes like expense and spend management. For example, Or an AI model might build better insights around the ROI of spend based on contextual evidence.
Head of Corporate Strategy at Emburse, Omar Qari, expects that in the spend industry, specialized AI models will transform expense management. He provided Softjourn with an example, “One type of AI model might provide the full rationale of any transaction based on emails, calendar, sales call notes, and CRMs so the finance department doesn't have to ask individual employees to justify expenses.”
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There are a number of ways that businesses can prevent digital payment fraud. Some of the key measures that businesses can take include implementing strong security measures, such as:
- Encryption
- Two-factor authentication
- Tokenization
- Regularly monitoring for suspicious activity
- Responding quickly to any potential threats
- The use of digital IDs
- Utilization of ML for fraud detection
Additionally, businesses can work with payment service providers and other partners who have experience in preventing and detecting payment fraud to help identify and mitigate potential risks.
6. APIs to Drive Banking-as-a-Service Growth in 2023
Banking as a service (BaaS) is a model in which traditional banks partner with fintech companies to provide banking services through APIs. This will allow fintech companies to offer their customers access to a wide range of banking services, such as account opening, money transfer, and credit card issuance, without having to build and maintain their own banking infrastructure.
Mobile banking is now used by 78% of the U.S. population, with over 80 percent of millennials using digital banking in 2022.6 The overall number of digital banking users worldwide is expected to reach 3.6 billion by 2024. As Gen-Z and millennials take over the banking market in the coming years, it will be essential for banks to integrate mobile services if they plan to stay competitive.
BaaS can help fintech companies quickly and easily expand their services, and can also benefit banks by providing them with a new source of revenue and a way to reach new customers. We expect BaaS to become increasingly popular as more fintech companies look for ways to offer their customers a wider range of financial services.
Some of the benefits of banking as a service (BaaS) include:
- It allows fintech companies to quickly and easily offer their customers access to a range of banking services, such as account opening, money transfer, and credit card issuance, without having to build and maintain their own banking infrastructure.
- It can help fintech companies to expand their services and reach new customers more quickly and easily.
- It can provide traditional banks with a new source of revenue and a way to reach new customers.
- It can enable fintech companies to offer their customers a more comprehensive suite of financial services, which can increase customer loyalty and retention.
- It can provide a more seamless and convenient experience for customers, who can access all of their financial services from a single platform.
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To offer banking as a service (BaaS), a fintech company will typically need to partner with a traditional bank that has the necessary infrastructure and regulatory licenses to provide banking services. The fintech company can then use the bank's APIs to access and offer these services to its own customers.
The fintech company may also need to integrate its own systems with those of the bank in order to enable smooth and secure transactions. Additionally, the fintech company will need to comply with relevant regulations and ensure that it has the necessary security measures in place to protect customer data and transactions. Softjourn has helped multiple clients remove the burden of complicated integrations - reach out to us for a stress-free integration solution.
7. Companies Will Optimize Business Expenses
2022 was anything but calm. We’ve seen a tenuous economic situation, fraught with the after-effects of a global pandemic, Russia’s war in Ukraine, an unstable political climate, and layoffs at FAANG, Twitter, and other large-scale companies.
During uncertain times, business leaders are often tempted to make short-term decisions that negatively impact their long-term strategy. This includes broad reductions in investments in technology, innovation, talent, office modernization, and customer experience.
While it is smart to conserve your cash flow by limiting spending, it is also important to strategically hire and invest in technology that provides your fintech with the greatest long-term value. Overall, we suggest fintechs react carefully to economic developments, and not cut costs rashly.
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Many of the top companies in the world – from big tech companies like Google and Apple to massive players in the Fintech Industry like Visa and Mastercard – rely on a software development partner to secure global technical talent, improve the quality of services, and reduce costs.
If you want to save time and money, focus on your core competencies, access a global pool of talent, and gain payments-focused consulting services, consider hiring Softjourn’s skilled R&D teams. We have the expertise and resources to handle a wide range of tech tasks and give you efficient and high-quality results efficiency and high-quality results. Contact us today to learn more and to see how we can help your business succeed.
8. Continued Growth of BNPL and Embedded Services
Companies are embracing embedded lending as one of the newest fintech strategies for business growth.
In the US alone, the embedded lending industry is predicted to grow at a CAGR of 27.5% in the coming years, and to top nearly $200 million by 2029. Buy Now, Pay Later (BNPL) platforms are at the forefront of embedded lending for B2C businesses and are expected to outperform all other forms of unsecured lending soon.
The major market players are highly investing in research and development to improve the technical features of BNPL systems. Industry players have attempted several strategic initiatives, including supplying varied product ranges, joint ventures, mergers, acquisitions, and collaborations. These tactics help firms and market players to gain a stronger presence in the global BNPL market.
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As payments become digitized, old payment methods are reappearing. Consumer financing goes beyond loans with high-interest rates and credit cards. Fintech platforms, FI, and payment gateways offer flexible payments as consumers shift from traditional to online shopping..
There are several perks to having for your business:
- Higher conversion rates
- Greater Average Order Value (AOV)
- More customer insights
- Fewer abandoned carts
- More repeat business
Staying at the forefront of the financial industry is only possible through regular innovation. Softjourn has developed BNPL solutions for our clients, enabling them to offer BNPL to their brick-and-mortar, m-commerce, and e-commerce merchants.
During our collaboration with our client, UPC, we created an attractive BNPL solution for their existing and new clients, providing their customers with less risk of a chargeback, more choices of installment payment plans at checkout, and payment methods that would suit the budget of their customers.
9. New Standards, Regulations, and Payment Systems
As we move into 2023, the payments industry continues to evolve with new payment regulations and requirements coming into effect, as well as an introduction to a new payment system in the US. These changes are aimed at improving security, increasing competition, and enhancing the overall user experience.
One soon-to-be major development for US payments is FedNow, the Federal Reserve's new payment system that facilitates real-time transactions for financial institutions of any size, 24/7. It allows banks to exchange the necessary information to credit or debit their customers' accounts instantly and offer better payment notifications.
FedNow is not intended to replace the ACH system but will complement it by providing a faster and more efficient alternative with real-time payments. The ACH system, which has been used in the US for over four decades, can take 1-3 business days to complete a transaction, while FedNow will enable instant settlements.
With over 10,000 financial institutions serviced through the FedLine network, FedNow will be operational from July and offers benefits such as greater efficiency, lower costs, and improved customer experience, encouraging payment innovation.
Yuriy Kropelytsky, Softjourn’s Payment Expert, compares the direct access to customers' accounts provided by the FedNow Service to a "smart contract on the blockchain," as it will enable smoother and quicker transactions between participants. “However,” he said, “the increased control and centralization of the system may result in higher costs for users.”
Conclusion
With the quickly expanding market for digital wallets, P2P apps, and payment gateways, we predict 2023 will be all about making payments exceedingly frictionless for consumers, both online and in-person.
In the ever-evolving landscape of digital transactions, payment processing trends significantly shape how businesses operate, and consumers interact with them.
As we continue navigating the digital age, blockchain technology, mobile payments, cashless payments, and AI-driven fraud detection are among the top trends revolutionizing the future of the payment processing industry.
Blockchain promises enhanced security and transparency, making it a potential game-changer. Meanwhile, the surge in smartphone usage has seen a corresponding rise in mobile payments, making it necessary for businesses to provide seamless mobile payment solutions. Additionally, AI and machine learning algorithms are playing a crucial role in fraud detection, helping to ensure the safety of online transactions. These trends aren't just fads; they're shaping the future of commerce, requiring businesses to adapt or risk falling behind.
Plus, with the emergence of Web 3.0 and new cybersecurity practices, payments will also be more secure and personalized for patrons. As payments develop to become more convenient and consumer-centric, we are certain there will be exciting innovation and competition in the year ahead.
