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Payment sector in 2023: Things to watch out for

APMs are payment methods outside the ambit of international credit card brands

Innovation in the payments field has maintained a steady track in the last few years and it will continue in 2023 as well.

COVID pandemic and global lockdown, supply chain disruption due to the Ukraine war, economic slowdown, name any crisis, and the world has witnessed it in the last three years. Adaption is crucial here to excel in businesses amid such uncertain environments.

Now, we will discuss some potential trends which the global business fraternity may experience in 2023.

More Regulation & Compliance-Related Complexities
While regulatory authorities across the world are stepping up payment regulation requirements, understanding them and ensuring adequate compliance will be a crucial challenge for the merchants in coming months, especially for those who want to expand their operations beyond their home countries, as knowing the laws of the lands, where they want to operate, will be helping them to avoid legal hassles.

These regulatory authorities are now going for localization. For example, the Bank of India is now asking for all domestic payments to be made locally by merchants and these payments-related data must be stored on Indian servers. If the data is processed overseas, it must be deleted from the servers of those countries and brought back to India within 24 hours. This ensures that merchants must have access to local infrastructure in place in order to process payments in India. These Payment Service Providers (PSPs) are becoming important partners for merchants operating in India to facilitate their payments. These PSPs also need to inform these businesses about changes in regulations, so that the merchants can get make the necessary changes.

Alternative Payment Methods
Keep an eye out for it in 2023, as its popularity and adoption are both expected to rise further.

APMs are payment methods outside the ambit of international credit card brands. Domestic cards, cash-based vouchers, mobile payments, digital wallets, or local bank transfers, all belong to this category.

Only 20% of eCommerce shoppers in emerging markets have credit cards due to a lack of accessibility and consumer confidence. Smartphone penetration is also higher in this region way higher, (70% to 80% in Argentina/Mexico). So a total of 2 billion users from these markets, if 2021 data is to be believed, is a customer base that is too enticing for the companies providing APMs.

After COVID, customers prefer less risky and more accessible solutions. Mobile money is witnessing rapid growth in Africa due to people’s preference for contactless payment methods, along with difficulties in accessing banks. In 2020, registered mobile money accounts grew to over 1.2 billion globally. Mobile money transactions across Africa alone amounted to USD 495 billion, making the continent the leading market in this sector.

In November 2020, Brazil, Latin America’s largest online market, launched instant payment solutions Pix. In May 2021, the platform had 83 million users, along with over 5.5 million companies registered under it. This number is still growing.

Southeast Asia too saw eCommerce grow by 63% in 2020, amid pandemic-related lockdowns and travel restrictions.

With APMs growing rapidly in emerging markets, it’s important for merchants operating there to adopt those payment methods to maximize their consumer base.

Keep An Eye Out For Frauds As Well
Fraud incidents grew during COVID times and with the global economy going into a recession, these crimes will remain a worry in 2023 as well. The need for anti-fraud solutions will be growing as well.

The payment service providers need to stay ahead, in terms of identifying cyber threats and figuring out the solutions needed to combat the crisis. They must have right tools, insight, software and solutions being put in place. A good solution will be the implementation of 3DS2 which reduces fraud by enforcing an additional layer of security at the checkout for shoppers using payment cards.

For example, in March 2022, Strong Customer Authentication (SCA) rules became mandatory in the United Kingdom. It will have a 3DS2-aided two-factor authentication. Card schemes have also phased out support for 3DS2’s predecessor, 3DS1, and this will continue in 2023 as well.

BNPL Will Remain Prevalent
Despite Buy Now Pay Later (BNPL) hitting negative headlines; this has been the preferred payment mode for years. And yes, it is still a must for PSPs to add in their portfolios. Things like instalment plans under BNPL programmes will help in boosting customer demands.

However, in the United States., the Consumer Financial Protection Bureau is going to regulate BNPL in the future. However, as per analysts, the sector anticipated such moves and will now undergo compliance functions.

As per a report from Insider Intelligence, the industry will move from “BNPL 1.0 to BNPL 2.0.” BNPL dollar volume growth won’t slow down because of such regulatory reforms, thanks to the rising spend from consumers.

“BNPL payment volume is expected to increase 25.5% year over year in 2023 compared with 77.3% year over year in 2022,” said the report.

McKinsey’s 2022 Digital Payments Consumer Survey has said that the BNPL users (who participated in the survey) used credit cards solely as “Transactors” against those “Revolvers” who carried a balance. Some three-quarters of Transactors favor interest-free “pay in four” plans.

“This implies that Transactors, who are accustomed to avoiding interest charges on their credit card balances, also prefer interest-free BNPL products,” the survey stated.

“Further, Revolvers more often indicate that they intend to increase their use of BNPL.”

So, evidence show that despite regulatory actions from US authorities, BNPL sector will have a healthy balance sheet in 2023.

Off Beat solutions like ‘Pay with Venmo’
During October 2022, Amazon announced about accepting Venmo for purchases from its app and website. The deal, pending since late 2021, would be a major boost to Venmo usage. The ecommerce company saw its rival, Walmart, accepting both PayPal and Venmo “P2P” services on its portals.

Venmo caters younger consumers, as these individuals use the former’s social media channel to talk about their product purchases. This gives merchants free publicity.

In 2023, ‘Pay with Venmo’ will be one of the trending topics, in the field of digital payments.

No, Debit Card Is Still Popular
Studies are indicating that more Americans are shifting to debit cards, as against using credit cards. As per a report from 451 Research, which is a part of S&P Global Market Intelligence, 56.2% of the participants under the Q2 2022 study sample preferred using debit, while 39.5% individuals gave thumbs up to credit. In 2021, the study had 40.2% favoring debit and 54.6% backing credit. Also, the 2022 report shows that households with annual income of $75,000 or more use credit cards frequently, whereas, those below $75,000, prefer debit cards.

The study says that the shift towards debit card is being led by the younger Americans, so that they can avoid getting into debts (happens due to credit card usage). Also, debit cards, which come with PIN numbers, provide an additional protection layer, in comparison to the credit cards.

“We expected consumers to have a much higher preference for credit when travel resumed and stores reopened,” states 451.

“However, we’ve found that consumers prefer debit more today than they did at the height of the pandemic.”

Among younger generations, debit use increased in double digits in 2022 over 2021.

Under the BNPL mechanism, the first instalment, for any purchase, must be paid on the same day, and debit card comes handy there. The 451 report also found that the following instalment payments are made with the same card.

As per the study, debit card issuers are now mulling to add features aiding instalment payments, which will help younger consumers.

Also, recession-related worries are also playing into lower-income consumers’ minds as they lean towards debit cards, going into 2023.

“76% of respondents with a lower annual household income agree or completely agree they are concerned about their personal finances as a result of the economy,” according to a PSCU study.

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