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By many standards, I think we can easily say global finance has had an exciting year. Case in point: global payments revenue grew by double digits for the second consecutive year, well on track to hit a projected $3.2 trillion in revenue by 2027.
2023 might just be the year many will say we rewrote the rules—where businesses, not just consumers, stole the show with embedded finance, real-time payments, and other fintech trends turning into digital gold.
What 6 trends have shaped the payments landscape? Have they met expectations? And can they be improved?
Trend 2: Software Platforms Embed Financial Services
Trend 3: The Value In Real-time Payments
Trend 4: Bank Account Payment Technology
Trend 5: Advancements in KYC and Data Security
Trend 6: Digital Wallets and Virtual Accounts
Let’s dive in…
The landscape has evolved at a pace that is both exhilarating – and, at times, dizzying – as businesses grapple with emerging technologies, shifting paradigms, and an insatiable appetite for fast and efficient financial transactions.
"Ten years from now, we will look back at the incredible payments innovations that happened in 2023 and say, "Wow." Many of them may not register high on the hype meter, but they will significantly shape an ever-more connected and accessible digital economy."
Karen Webster
Could we be on the cusp of a new payment era?
All signs point to yes. McKinsey’s 2023 Global Payments Report explores four distinct eras of business models the payment industry has experienced.
Cash, cheques, and wire transfers were all the rage. The telegram was the latest “paytech.” And we were all lining up at the bank behind those dark red velvet ropes.
Shag carpet was on the rise, and coincidently, so was plastic. Alongside cash, cheques, and wire transfers, physical card usage began to take a firm hold.
American payment technology hit its stride in 1972 when the first association of check processing companies in California was formed to handle electronic payments. Other regional ACH networks soon followed suit, and in 1974, Nacha was created to administer the ACH Network. A network that today has transferred $76.7 trillion since 2013.
Account-to-account payments took center stage as instant transfers and virtual cards made a subdued debut up until around the mid-2000s when consumer adoption slowly took hold. Payment technology updates - While the U.K.’s faster payment system has been active since 2008, America’s FedNow just launched in July 2023, and Canada’s real-time rail is yet to be official.
Before this decade, payment methods and technology have moved in 30-year increments. Moving forward, this is inconceivable. Open banking technology, APIs, generative AI, convenience and security are at the forefront of the next payment era, and there is no going back. Expect the evolution of the financial technology trends discussed below to happen fast and furious.
In 2023, companies increasingly leveraged application programming interfaces (APIs) to enhance their payment processes. This shift enables the integration of what was previously often isolated payment systems, faster data transfer and improved security.
Payment APIs are software tools that allow organizations to integrate payment processing functionality into their applications, websites, and other digital platforms. The APIs act as intermediaries between the business and the payment processors that handle transactions, facilitating the secure transmission of payment information between the two.
The growing importance of payment APIs in the digital-first era is evident. A projected increase in open banking API calls, from $102 billion in 2023 to $580 billion in 2027, highlights this trend.
As businesses increasingly adopt online payments, safeguarding financial data has become crucial. Payment APIs address this need by offering advanced security features and reducing the risk of data breaches. Moreover, payment APIs provide a versatile platform that allows businesses to support a variety of payment methods. If there is one thing many organizations learned this year, it is that adaptability is critical in managing complex payment scenarios and that payment security is second to none.
Amid global instability and economic uncertainties, software service providers are looking for more ways to increase revenue and retain customers. Many are turning to financial products as a means to achieve these goals.
Embedded finance has given rise to a notable shift in the business landscape. There are reasons why airlines are partnering up with the latest payment technology solutions and why car financing companies are providing life insurance. Embedded payments, embedded insurance, embedded investing, and embedded lending all work together to create this new ecosystem of embedded financial services.
By bringing new services into their offerings, enterprises harness a market share they already have—and keep them coming back for more.
Facilitated by payment APIs such as VoPay, non-financial enterprises can embed a myriad of financial services within their platform. For the software solution, embedded payment technology can mean additional revenue streams and increased customer stickiness.
The growth has been steady, and the embedded finance payments market is projected to reach $1.91 trillion by 2029.
In the race against time, real-time payments won the day in 2023. As of 2023, 79 countries have adopted real-time payments, with 195 billion transactions recorded in 2022—a YoY growth of 63.2%
With the launch of FedNow in July of this year and Canada’s real-time rails imminent, watch this market grow to the forecasted $376 Billion by 2030. That is an expected 289% growth in transactions processed using real-time payment technology.
"Real-time payments are the largest and most important macro trend that we are experiencing in the industry." —Ruben Salazar, Global Head of Visa Direct
All of the above leads to overall better financial performance.
While not a new digital payment method, Account-to-Account (A2A) payments continued to steal the spotlight in 2023. Account-to-account transactions allow direct money transfers between bank accounts, eliminating intermediaries and resulting in faster processing times and lower transaction costs.
Advances in payment technology, such as open banking technology, have propelled this payment solution to become a business favourite.
With faster settlements and lower transaction costs, Account-to-Account payments have clear advantages over other forms of payment. These advantages are particularly evident when considering the wealth of data-driven insights businesses gain access to when using A2A payments. This data-driven approach is an advantage and a strategic necessity in today's competitive landscape.
As the world shifts away from cash, credit card payments, once thought to be the most convenient, have become the most costly. In 2023, merchants faced a new challenge with a reduced credit card surcharge cap, adding to the strain caused by increased interchange fees. On April 15, 2023, the Visa credit card surcharge cap went from 4% to 3% (for Mastercard customers, the surcharge cap remains 4%).
These changes may impact business cash flow, especially for credit card transactions. The reality is that accepting credit cards over bank account payments can cost a platform 15x more than a bank account transaction.
Understanding and navigating the fee landscape is crucial for businesses to maintain financial health.
In 2023, the financial sector experienced a marked increase in focus on payment security, compliance, and Know Your Customer (KYC) processes, propelled by emerging challenges in risk management and digital onboarding.
Evolving regulatory requirements, technological advances, and the increasing complexity of financial crimes largely influenced this shift. The pandemic's push towards digital onboarding underscored the need for robust data security and effective KYC protocols, vital tools for ensuring compliance and preventing fraud.
Data breaches reached an all-time high in 2023, costing U.S. companies $4.45 million on average (IBM's 2023 Cost of a Data Breach Report). Many companies know that data breaches affect the financial bottom line and erode customer trust; therefore, many have prioritized risk management and cybersecurity investments.
Digitization and greater transparency can help reduce financial fraud. Tracking and tracing payment activity and monitoring transaction patterns can facilitate early detection of fraudulent activities. Enhanced transparency not only aids in compliance with regulatory standards but also fosters trust among clients and stakeholders. By integrating open banking technology, advanced analytics, and AI-driven tools into their operations, enterprises are better equipped to monitor real-time transactions and identify suspicious activity more effectively.
Fraudsters have increasingly taken advantage of the industry's reliance on document-based processes, using techniques such as fake invoices and bills of lading to get the better of enterprises and their clients. In response, KYC practices have evolved to use more sophisticated identity verification methods such as biometric authentication and machine learning algorithms. These technological evolutions streamline customer onboarding experiences while balancing security needs with customer convenience.
By 2025, it's expected that 80% of Business-to-Business (B2B) transactions will be conducted digitally, accelerating the shift towards digital business processes. This trend is a part of the broader digital transformation in the corporate world, where 2023 ushered in significant strides in digital wallets and virtual accounts.
Virtual bank accounts have gained significant popularity among businesses. These accounts differ from traditional ones in offering a real-time overview of transactions. A virtual bank account links to a master account and provides insights into all its associated sub-accounts, simplifying business financial management.
Digital wallets have also seen a rise in adoption. They enhance transaction security and convenience by securely storing payment details like credit cards, debit cards, or bank account information. Users benefit from simplified transactions, no longer needing to input extensive card details or remember multiple passwords. A single password for their digital wallet suffices for payment authorization.
The attempt at wallet interoperability faced challenges but paved the way for technology companies to build platforms offering interoperable solutions. Gen Z-focused payment options gained traction, urging payment providers to reshape the customer journey with social media-driven marketing and digitally forward solutions.
The rise of B2B mobile payments is no longer on the horizon; it’s here.
At VoPay, we recognize the need for adaptability in financial technology. Our payment API technology stack is designed to help clients stay ahead of these six trends and those not yet on the horizon.
With a single API integration, SaaS platforms and ISVs are well-positioned for rapid revenue growth, innovative product development and expanded market reach.
