Ready or not, 2023 is here. And so is the future of the payments industry.
Spiking inflation, climbing interest rates, supply chain issues, the volatility of cryptocurrency, digital payments developments, new online shopping methods … Throw a rock these days and you’ll hit a disruption.
Suffice it to say, from technological to economic, there are a lot of factors in flux impacting the future of consumer spending. But not all of them are negative — there’s a big wave of innovation coming our way too, and we want to help you stay ahead of the curve.
That’s why Global Payments leaders spoke with leading industry experts and over 200 businesses to create the Global Payments 2023 Commerce and Payments Trends Report, covering the top five trends ISVs should put on their radar this year. Read on to get the scoop so you can hit the ground running:
Physical, digital and virtual converge: 5 trends to watch
1. Social and live commerce charge ahead
First up: consumers’ new favorite place to shop. While scrolling social media and watching live-stream events are nothing new in terms of consumer behavior, the widespread rise of users making purchases while on these platforms is.
In other words, the preferred shopping venue of today’s consumers is now wherever they happen to be, physically and digitally.
The fall of the mall might actually be good news for your small business clients too. Thanks to the all-in-one combo of entertainment, shopping and social interaction, social and live-commerce selling allow merchants to more effectively meet shoppers where they are, get their products or services in front of more eyes and convert casual browsers into genuine buyers.
With social commerce, consumers can buy a product or service directly from social networks they’re already using without having to leave the platform to do it — think Facebook Shops, Instagram Shopping, Pinterest Shopping and TikTok Shop.
How? It’s all about embedding payment links directly into posts and ads right there on social media. Businesses can also integrate pay-by-links into other channels that didn’t previously enable commerce.
Similarly, live commerce allows customers to buy products they see on screen during live-stream events. And it couldn’t be easier. Users can make purchases with one click via “buy” links or by scanning QR codes shown on screen. This provides a quick path to purchase that makes it easier to capitalize on those in-the-moment shopping impulses.
- According to research, social commerce sales reached $492 billion globally in 2021 and are expected to nearly triple by 2025 to $1.2 trillion.
- Looking at the year ahead, 52% of businesses plan to sell through social networks in 2023.
- As for sales driven by live commerce, the channel is projected to account for 10-20% of all ecommerce by 2026 and reach $55 billion in sales in the US alone.
2. Tech innovation: Blockchain, real-time payments and open banking take center stage
In 2020, the merge of physical and digital into a consistent omnichannel experience was the name of the game. This was largely due to the pandemic, as in-store transactions decreased and the demand for online payments and contactless payment options increased. Now, with the surge of AR tech, VR tech and more, we’re seeing the rise of virtual take over the payments landscape.
Here are the top three new technologies paving the way:
As consumers shop, they jump between physical, digital and virtual worlds. And they expect a near invisible payment experience to keep up. Enter blockchain technology.
Blockchain is a public, decentralized, distributed ledger or database where no one person or business owns the system of record. So anyone within a blockchain network can verify transactions or the ownership of an asset for themselves.
Among other benefits, blockchain solves record-keeping problems, provides a public audit trail for all types of transactions and increases the pace of payment processing with real-time verification of transactions that cuts out middlemen. It also rapidly and affordably facilitates transactions made with digital currencies, peer-to-peer payments and payments across borders.
In short, it has the potential to make commerce more profitable for your small business clients and easier for their customers.
While blockchain presents exciting possibilities, we’re still at the start of a trend that has a lot of maturing to do. Right now, its most eager adopters include the real estate, banking, financial, legal and payments industries.
Slow and steady doesn’t always win the race.
Instead of the traditional payments process where transactions are batched, sent to a merchant’s bank and processed at scheduled intervals, real-time payments process and settle those transactions instantly. And they’re gaining popularity thanks to a blend of new technology, regulatory pressure and customer demand.
While not all transactions are a good fit for real-time payments (like big purchases such as cars or homes that take time to ensure legitimacy), it’s an attractive option for most average ticket transactions. Why? Real-time payments put money in small business owners’ pockets faster, which makes a big difference when they’re working with shallow cash reserves.
If you’re not familiar with open banking, this technology enables third-party payment and financial services providers to access consumer banking info and financial data, including transactions and payment history, upon the consumer’s consent. For example, a company using open banking can aggregate a customer’s bank account balances from all their banks onto one screen and let the customer transfer money between them.
This functionality eliminates the hassle of manually transferring money between different banks. Plus, it provides better visibility into a consumer’s whole financial picture, while increasing transparency between businesses and financial institutions.
- Analysts expect the global blockchain market to grow at a compound annual growth rate (CAGR) of more than 85% between 2022 and 2030.
- In regard to real-time payments, Ruben Salazar Global Head of Visa Direct said, “The largest and most important macro trend that we are experiencing in the industry is real-time payments.”
- Last but not least, experts anticipate the open banking market to exceed $116 billion by 2026.
3. Digital currency sees new use cases emerge
Now for a somewhat controversial trend, but a trend nonetheless: the acceleration of digital currency. With central bank digital currencies (CBDCs) and stablecoin in the mix, digital currency is more than just crypto. Need a quick rundown? Let's back up.
There are three main types of digital currency:
- Cryptocurrency: digital form of payment created without a central issuing or regulating authority that uses an encryption algorithm to secure transactions
- Stablecoin: cryptocurrency where the value is pegged to another asset class like gold to stabilize its price
- CBDCs: digital currency issued and overseen by a country’s central bank rather than a commercial bank
From bad actors to public scrutiny and shaken trust in the system, digital currencies have experienced their fair share of falls from favor. But despite the volatility, their popularity continues to grow. While we don’t expect crypto to be accepted at the point of sale anytime soon, it’s still worth keeping an eye on.
Here are three use cases driving the growing appetite for digital currencies:
Cross-border payments and remittances
Unlike conventional currencies, digital currencies’ decentralized nature allows for fast, cost-effective and frictionless cross-border transactions. And the demand for it is bigger than you might realize.
An estimated 800 million people receive remittances — money sent from laborers working in developed economies to family and friends in the developing world — to pay for food, utilities and education. In 2021, global remittance inflows reached a new record of $773 billion. Needless to say, the cross-border market is no small change, and digital currencies could play a major role.
Loyalty and rewards
Do you have small business clients who offer loyalty programs? Digital currencies could come into play here too. This use case enables the exchange of cashback reward points for various cryptocurrencies — a practice that especially appeals to younger consumers.
While a digital currency rewards system offers potentially big benefits to businesses, the fluctuating prices of cryptocurrencies make some consumers wonder about the credibility of the reward points. If they get points today, what will their value be in a month? The jury is still out.
Cryptocurrencies in wallets
Our last use case is the crypto wallet — a digital file that allows consumers or businesses to store and manage their cryptocurrencies, as well as make cryptocurrency transfers by converting their crypto back into the user’s local currency.
The key benefit? Access to finances and payment methods all in one place, which makes checking credit card accounts, stocks and cryptocurrencies as easy as one click.
- Global cross-border business-to-business or B2B payment remittances are currently worth around $150 trillion. On top of that, CBDCs are already facilitating cross-border remittances and can cut costs by 50%, as well as make funds available in seconds instead of days.
- As for crypto-rewards programs, 42% of respondents cited the redemption value of crypto points vs. more familiar points systems as their top concern.
- Bottom line? Digital currency still has a ways to go before it rivals well-established payment methods. 93.5% of merchants report that customers prefer to pay for goods or services using digital wallets or mobile wallets such as PayPal, Google Wallet™ and Apple Pay®, while just 6.5% favor crypto-specific digital wallets.
4. Biometrics unlock new possibilities in payments
You already use this technology to unlock your smartphone. Now you could be using it to verify a payment.
If you need a refresher, biometrics uses physical markers to grant access to devices or information. With the simple, fast, secure and contactless experience biometrics provides, public acceptance is already strong. And its next big frontier is likely payments. In fact, biometric authentication pilots in brick-and-mortars are already in progress.
Here are the four main biometrics models that could enter the payments ecosystem:
When asked in the Global Payments survey, “Which type of biometric authentication are you likely to accept from your customers?” nearly 70% of businesses cited fingerprint as their number one choice.
However, fingerprint isn’t the only front runner. When asked the same question as above, nearly 70% of businesses also reported face as their top choice, tying fingerprint recognition for first place.
As a newer form of biometrics, the public is less familiar with this one. And the numbers reflect that. In the survey, only 32.6% of businesses said they’re likely to accept iris authentication from their customers.
What’s next for biometrics? Beyond fingerprint, face and iris, the next wave seeks to use other aspects of human behavior as biometric markers to facilitate payments and seamlessly authenticate a customer’s transaction at checkout. For example, how fast a person types, the way they walk, how they hold their phone or move their mouse could all serve as behavioral markers.
- 86% of businesses are interested in extending the use of biometrics to verify identity or make payments. And nearly a fifth (19.8%) reported they will invest in enabling biometric authentication in the year ahead.
- Consumers are giving their stamp of approval too, with 74% reporting a positive attitude toward biometric technology. 70% of consumers believe biometrics are easy, and 46% think they are more secure than passwords or PINs.
- While the numbers are strong, consumers still have concerns about data privacy, like where the data gathered from biometrics is stored and what it’s used for. As for businesses, one of their top anticipated challenges is staying compliant with biometrics’ ever-developing regulatory environment.
5. The metaverse dawns
Coming in as our fifth and final trend to watch, the dawn of the metaverse is here. But what is it?
Well, the short answer is that it’s still being defined. However, most agree it’s the blending of digital and physical realities to create immersive experiences that give users a real-life “feel” while in virtual spaces. The best part? Extending payments functionality between physical and virtual worlds can give businesses the opportunity to monetize the metaverse.
Here are the two main metaverse commerce models to watch:
If you need proof that we’re living in a digital world, look no further. The direct-to-avatar business model consists of selling virtual products directly to consumers’ avatars — no physical products involved. An example would be shoppers buying digital clothing and accessories to enhance their avatar’s appearance.
On the other hand, this model involves making a purchase in a virtual space then exchanging the virtual item for a physical product or experience.
Non-fungible tokens (NFTs) are a great example. NFTs run on the blockchain like cryptocurrencies, but every NFT is unique and can be used to prove ownership or authenticity of a virtual object, which can be exchanged for a physical one. Although an abstract concept, the numbers are concrete: The global NFT market is growing at a CAGR of 33.7% and will be worth over $230 billion by 2030.
- While it’s still early days, there are currently almost 400 million metaverse users globally. And one in six businesses are planning to set up a metaverse presence for their business in 2023.
- But there's a downside. The metaverse will generate significantly more data for each user than the internet has to date. Using virtual reality for just 20 minutes can generate over 2 million unique data elements.
- It’s no wonder the top two reported metaverse risks are data privacy and cybersecurity (86% and 85%).
That’s a wrap. Ready to embrace the future of payments?
If your head is spinning after all that information, don’t worry. We’re here to help you figure out your next steps.
Reach out anytime to chat with our team of experts about how these trends could apply to your business. We’ll help you develop a strategy to integrate new fintech capabilities with your software offering, identify payment technology to put on your roadmap for the coming years and unlock new revenue streams along the way.
Don’t forget to bookmark and check back into our blog for updates as we continue to monitor how these trends unfold throughout the year — and so much more.
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