In 2023, digital payment is the main focus. According to a recent McKinsey & Company analysis, the proportion of customers adopting digital payments increased dramatically from 51% in 2021 to 62% in 2022. P2P (peer-to-peer) payments and in-app purchases have seen the most increase in these.
Digital payments have now become more deeply integrated into the international financial services sector as worldwide regulators continue to place a greater emphasis on digital finance. In this post, we examine five of the most important trends in the market for digital payments in 2023 and beyond. These developments are bringing revolutionary change to the digital payments scene, from well-known methods of payment like BNPL (Buy Now, Pay Later) catching the payment sector off guard to the advent of cross-border instant payments to some others.
For more information about the 2023 digital payment tendencies, you should be aware of, keep reading.
Top 5 Trends in the Digital Payment Sector for 2023
1. Virtual Cards and Wallets for Contactless Payments
Kantar Public published its research on modern digital payment methods in March 2022. The primary goal of this study was to give the European Central Bank a deeper knowledge of the favored payment methods and spending patterns of people in the Euro area.
The study notes a surge in the use of contactless forms of cards ever since the start of the Covid-19 outbreak, which is one of the study’s primary findings. The most popular payment methods found also included mobile payment options like apps and digital wallets. The top factors stated by respondents as grounds why they valued mobile payments included rapidity, convenience, and simplicity of use.
According to the study, both the general population and tech-savvy respondents agreed that a “one-stop-shop“ solution for the digital wallet would be beneficial. They would like a new way that either completely replaces or unifies the majority of the existing methods rather than just adding another payment option.
2. Instant Cross-Border Payments
Global business opportunities are growing as the payments sector becomes more and more global. International payment methods that are quicker and more secure are now required as a result. By quickly integrating into financial systems and institutions in two or more countries, cross-border instant payments give both businesses and consumers the chance to experience real-time payments.
In 2022, instantaneous payments, in which money is sent in less than 10 seconds, are anticipated to represent 9.3% over all B2B transaction volume, according to a Juniper Research analysis from 2020. The paper also points out that because blockchain technology may provide improved efficiency and transparency, it’s anticipated to play a more significant role in the international market. The industry for cross-border fast payments still needs a lot of innovation and development, though.
The IMF (International Monetary Fund) stated in a study from November 2022 that cross-border payment links between two countries must be tailored, which requires significant efforts, in addition to time, to complete. The IMF emphasizes the potential for multipartite cross-border platforms of payment to have a transformative effect on the cross-border instant payment sector. The EU has also taken note of this development and will be introducing a new initiative in October 2022 to update the rules governing cross-border instant payments.
3. Recurring Variable Payments
It has never been more crucial to start utilizing Open Banking services, with 71% of small-to-midsize firms predicted to have utilized them as of 2022. Numerous new digital payment mechanisms have emerged as a result of the growth of Open Banking payments. Variable recurring payments, often known as VRP, is one such technique that will undoubtedly take the world of payments by storm in 2023.
In accordance with the terms of the agreements, VRPs make use of the permissions provided by Open Banking arrangements to permit approved payment providers to process payments on behalf of clients. As a comparison to other regular payment alternatives like direct debits, this is thought to be a preferable choice. For instance, a software business could provide a B2B corporation with a scalable solution with variable pricing based on use. In order to automatically execute these payments within the parameters of the arrangement, a VRP could be utilized when constructing a payment agreement for such a solution.
Near-instantaneous payments, which are much desired by both consumers and enterprises, are made possible by VRPs, which is one of their main advantages. Today, this is only accessible throughout the UK, but experts anticipate that it will soon be made available throughout the remainder of Europe.
P2P (peer-to-peer) transactions have been around for a while, but as the market for digital payments expands, they are swiftly becoming more common and well-liked. Worldwide, the P2P marketplace is growing more quickly due to rising smartphone adoption in the payments ecosystem and the industry’s advancing digitalization. An industry estimate from September 2022 predicts that by 2030, the worldwide P2P market will be worth $9,135 billion (USD).
As already established, the rise of P2P payments is being driven by smartphone usage. According to Insider Intelligence, the number of mobile P2P payment users in the UK is predicted to increase from 17.1M in 2021 to 18.1M in 2022. All P2P websites running in the EU must have CSP licenses as of November 2022, which may be a challenge for P2P networks. This is a good thing, though, as P2P transactions become more regulated, which can further lessen payment friction and increase payment speed.
5. BNPL for B2B
The term “Buy Now, Pay Later“ (abbreviated “BNPL“) refers to a sort of installment loan whereby a financial supplier lets consumers pay for a good or service over the course of multiple small, interest-free installments. While the customer has more financial freedom, the company providing the item or service doesn’t really lose out on sales. BNPL providers frequently handle the installment loan payments straight with the consumer in person, paying the company the full cost of the purchase.
More widespread regulation of BNPLs also creates new business options outside of the typical B2C (business-to-consumer) use case. For example, for B2B (business-to-business) enterprises by giving more trustworthy and safe services. The flexibility to propose or make large acquisitions without needing to make the full payment upfront makes using BNPLs as investment-like tools one of the main benefits of BNPLs for B2B enterprises.
Among the most rapidly developing electronic payment trends is BNPL, which is seeing a boom inside the B2B sector in addition to its attractiveness in the B2C sector.
In fact, it’s anticipated that the global BNPL market would expand at a rate of 26% per year between 2022 and 2030, hitting a worth of $39.41 billion (USD) by that time.
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The trends described in the articles are awesome but a large part of the world is yet to catch up with them. Cash still reigns supreme in some markets despite the proliferation of digital retail payments. According to McKinsey, 95% of transactions in Africa were made using it in 2021. A vast network of retail agents, for instance, distributes cash. MTN alone has far over 970,000 agents in total. In Southeast Asian economies like Thailand (where it accounts for 63% of POS transaction value), Indonesia and Vietnam (over 50% each), and the Philippines (48%), cash is still the most popular in-person PoS (point-of-sale) payment option. Cash makes up 36% of the value of POS transactions in South America, where debit and credit cards are more widely used.
The main competition for offering digital payments in the majority of emerging markets is between banks and third-party mobile wallets held by e-commerce portals, telecom companies, and other ecosystem partners. Banks compete with their own mobile banking apps and wallets.
Wallets are providing a variety of services for extended payments, such as merchant services including universal payment acceptance, company digitizing, rewards programs, inventory control, and reconciliation. For instance, online financial services in some less-developed countries, such as MoMo, give businesses a variety of tools to use a marketplace for vouchers (undying payment method replacing online transactions, such as Neosurf, which is among other things, used for placing sports bets with operators at bookmaker-expert.com/paymentmethod/neosurf/), incorporate loyalty schemes, and increase discoverability.
However, the frequency of noncash retail financial transactions expanded at an annualized rate of growth of 13% between 2018 and 2021 globally, and at a pace of 25% in emerging nations. Emerging economies in Africa (South Africa, Morocco, and Nigeria) and Asia experienced some of the quickest growth. Several emerging markets are anticipated to experience sustained growth over the coming few years, with CAGRs of 15% anticipated between 2021 and 2026.
It’s clear: as innovations multiply, digital payment operations are soaring in emerging nations. To compete for market share, fintech, banks, and telecom businesses must immediately create their strategies.