Unveiling the Top Payment Trends of 2023

Welcome to the first edition of Currency Chronicles, your guide to the latest in banking and fintech. This newsletter is tailored to bring you key insights on deals, product launches, and significant industry trends that deserve your attention.

As the year concludes, several companies have gathered data into detailed reports, highlighting crucial payment trends of 2023. These reports not only reflect on this year’s developments but also project future directions based on the current industry landscape.

In this issue, you will read about:

• Payments and Fintech in 2023?
• Digital Payment Trends in 2023 and Beyond
• Throwback to Payments Trends in 2022
• The Future of Payments - Top Trends in 2023 and 2024

Payments and Fintech in 2023 - Overview

• Total payment revenues grew at an annual rate of 8.3% from 2017 to 2022, taking the revenue pool to $1.6 trillion at the end of 2022.
• Revenue growth will likely slow to 6.2% annually through 2027, with the revenue pool reaching $2.2 trillion by then. Of this amount, transaction revenue from card and account-to-account payments rails is on track to grow by 7.1%. But nontransaction revenue from interest- and fee-based sources is likely to expand by just 5.7%.
• Slowing revenue growth comes from an expected shift in the retail payments mix from cards to account-to-account transactions, along with compressed card margins in some markets. Contributing macroeconomic factors include cooling inflation and normalization in interest rates.
• Payments-focused fintechs now number more than 5,000 globally and account for about $100 billion of total industry revenues. By 2030, they could command a revenue pool worth $520 billion, intensifying competitive pressure on incumbents.

The current state of the global economy is posing challenges for global payments, leading to substantial transformations within the industry. Factors such as disrupted supply chains, economic downturn, stock market fluctuations, and the lasting effects of the COVID-19 pandemic are compelling companies across various sectors to adapt their approaches, particularly in the realm of global payments.

In 2023, significant changes are expected in global payments. While this period may present difficulties for some, it also presents substantial opportunities. Several key elements are influencing these shifts, including ongoing changes within the industry.

Global Trade Transformation (2022 and 2023):

• Macroeconomic conditions in 2022, especially Russia’s invasion of Ukraine, reshaped global supply chains, impacting global trade significantly.
• Early indicators suggest changes in trade patterns, with a decline in merchandise trade in Q3 2022 and a flattening trend in services trade exports while G20 imports rose.

Shifting Flows and Supply Chains:

• Countries are witnessing changes in trade partners, leading to shifts in supply chains and sourcing goods from unconventional markets to address ongoing challenges.
• These shifts are impacting global payments, notably in B2B transactions, as trade occurs in more unusual currencies categorized as 'exotic' by B2B payment providers.

Challenges in B2B Payments:

• B2B payment providers are facing new challenges in handling payments in unfamiliar currency pairs, prompting recommendations for using multiple partners to address FX trading solutions.
• The high level of fragmentation in the B2B payments space (no dominant player exceeding 1% of global B2B cross-border payment flows) is driving consolidation.

Consolidation in B2B Payments:

• Current stock market volatility is leading to attractively priced companies in the B2B payments sector.
• Changing customer needs and the evolving trade landscape are likely to drive further consolidation as businesses aim to expand capabilities to adapt to the changing trade environment.

Tech industry challenges and new payment entrants

The growth in global payments is encouraging players in the industry to diversify their product offerings to capitalize on emerging opportunities.

Influx of New Companies in Payments (Expected in 2023):

• Companies from outside the traditional payments sector are increasingly eyeing the payments space, a trend expected to accelerate in 2023.

Tech Industry Challenges and Payments:

• The tech industry has faced difficulties recently, leading to layoffs due to escalating costs and weakening forecasts.
• To seek new revenue sources, some tech companies are turning to payments as an attractive option.

Big Tech's Involvement in Payments:

• Big tech firms have previously ventured into payments, experiencing varying levels of success. Examples include Apple Pay's success and Meta's discontinued Diem stablecoin remittance service.

Anticipated expansion: Twitter has hinted at the importance of payments in its future strategies, indicating a potential trend of tech companies further integrating payments into their offerings.

Crypto Market Outlook (2023):

• Crypto experienced a significant downturn by the end of 2022, and its resurgence as a trustworthy investment isn't expected in 2023.
• However, the regulated and transparent sector of the market, exemplified by companies like StellarXLM and Circle, holds promise for meaningful utility in cross-border payments.

Shift in Industry Focus:

• Fads like the metaverse have faded from discussions within the payments industry.
• Attention is shifting towards the potential of artificial intelligence, notably exploring tools like ChatGPT and their applicability in the industry.

Emphasis on Practical Utility:

• In 2023, interest in innovation within global payments is persisting but is now more centered on practical applications and real-world benefits.
• The industry expects innovations to demonstrate meaningful and actionable advantages to be embraced fully.

Full Report

https://www.bcg.com/publications/2023/bcg-global-payments-report-2023

Digital Payment Trends in 2023 and Beyond

Account-to-account (A2A) payments are taking off, driven by real-time payment systems

• A2A is disrupting payment value chains by winning over merchants with lower costs and immediate availability of funds

Consumer use of credit cards remains strong

• Credit card transaction values continue to increase, largely due to the resurgence of discretionary spending and global travel post-pandemic

Digital wallet growth accelerates

• Fintechs, banks, neobanks, super apps, Big Tech, and device manufacturers are vigorously competing for this fast-growing payment segment

Cash’s decline continues, though “cashless societies” aren’t imminent

• Digital payment methods continue to displace cash, yet the essential role of cash in most economies establishes a firm floor

Buy now, pay later (BNPL) enters the next phase of its evolution

• The BNPL space is maturing across a more diverse range of providers, verticals, repayment plans and regulatory schemes

Cryptocurrencies are still in their infancy for person-to-business (P2B) payments

• However, more merchants are discovering the benefits of accepting cryptocurrencies as payment for goods and services

E-commerce growth remains robust in every global region

• The forecast remains bullish, despite more modest growth rates versus the early pandemic

Full Reports

https://wGlobal Payments Report 2023

ww.fisglobal.com/en/global-payments-report

Throwback to Payments Trends in 2022

On a global scale, payment revenues demonstrated impressive resilience, surmounting several regional challenges to expand at rates surpassing the established long-term average. In 2022, payment revenues surged by 11%, marking the second consecutive year of double-digit growth, and soared to a record-breaking high of over $2.2 trillion.

Revenue Composition by Customer Segment:

• The commercial segment has been gradually gaining prominence across all regions over time, constituting 53% of overall revenues, while consumers contribute 47%.
• Regional variations exist, with commercial revenues dominating in Asia-Pacific and EMEA, while North America (63%) and Latin America (54%) are predominantly driven by consumer markets, especially card-based transactions.

Cross-Border Payment Dynamics:

• Cross-border payment flows surged to approximately $150 trillion in 2022, resulting in a 13% increase within a year.
• Cross-border revenues rose by 17% to $240 billion, mainly propelled by double-digit growth in cross-border consumer payments (C2B and C2C).

C2C Remittances and Regional Significance:

• The US-Latin America corridor remains the largest for C2C remittances, representing 11% of the total value of such flows.
• Central America has emerged as an increasingly significant destination for remittances and humanitarian aid from the United States.

Projection for Cross-Border Revenue:

• B2B transactions continue to drive the majority (69%) of cross-border revenue but with lower margins compared to consumer categories.
• Consumer categories, especially C2B payments, are anticipated to grow rapidly in the next five years, driven by increased travel and e-commerce spending.

Full Report

https://www.mckinsey.com/industries/financial-services/our-insights/the-2023-mckinsey-global-payments-report

The Future of Payments - Top Trends in 2023 and 2024

• Digital payments market transaction value in 2023: $9.46 trillion
• Estimated 11% CAGR in transaction value over the next five years, reaching $14.78 trillion by 2027
• China's estimated transaction value in 2023: $3,639 billion
• 42% increase in cashless payment volumes
• Payment information contributes 90% of valuable customer data for banks
• Anticipation of a 42% acceleration in cross-border payment technology usage due to growing interconnectedness.

Mobile-first Fintech: Mobile payments, accounting for over 50% of transactions, highlight a consumer shift towards convenient, user-friendly, and fast payment methods.

Data Privacy and Security: Emphasizing data privacy and cybersecurity is essential as nearly half of the respondents note rising cybercrime concerns in digital transactions.

Digital ID Authentication: Increasing demand for secure financial software with easy onboarding highlights the importance of ID verification and biometric technologies.

E-commerce: E-commerce payments are thriving, with integrated fintech solutions bridging physical and online stores, essential for adapting to market needs.

Changing Regulatory Landscape: The evolving regulatory framework for payments, including cryptocurrency and international platforms, underscores the need for adaptable technology.

Embedded Finance: Omnipresent finance across platforms necessitates tailored embedded finance tools for diverse industries, fostering strategic partnerships and innovation.

Digital Currencies: Central bank digital currencies spotlight crypto's growing legitimacy and raise concerns about government oversight, requiring constant industry updates.

Full Report

https://hesfintech.com/blog/digital-payments-trends/

Wrapping Up

In this edition, we've explored key payment trends of 2023, from digital transaction growth to global trade challenges. We looked into mobile-first fintech, data security importance, and e-commerce's rising influence.?

Looking ahead, payment systems will evolve with regulatory changes, embedded finance, and digital currencies.?

Stay informed and ready for the ever-changing financial landscape.

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