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What is this article about? As the digital landscape continues to evolve at an unprecedented pace, the payments industry finds itself standing at the intersection of innovation and transformation.
Why is it important? While we usher in the new year, it’s time to gaze into the crystal ball and examine the emerging trends, ground-breaking technologies, and paradigm shifts that will shape the payments ecosystem in 2024.
What’s next? From the rising influence of Web3 to the dynamic landscape of acquisitions and partnerships and the relentless march of artificial intelligence (AI) to the changing dynamics of consumer preferences, the year ahead is set to mimic its predecessor, redefining the way consumers pay for goods and services.
Capital challenges for the fintech sector
It could be a troubling year for fledgling fintechs. High-interest rates and bubbling geopolitical uncertainties make for a potentially bleak landscape.
Raising capital for much-needed growth to stay ahead of the legacy banking sector will be tough. Sheildpay’s CEO for UK & Europe, Andrew Hawkins, believes only well-capitalised fintechs with a solid business model and an adept team will survive.
He tells Payments Intelligence: “In the midst of macro-economic shifts and rising geopolitical uncertainty, it is highly unlikely that the total amount of capital being deployed to invest in companies will recover to pre-pandemic levels in 2024,” says Hawkins.
“Fintech as a sector has matured relative to the emerging interest in AI and greentech, so the challenge of a shrinking overall quantum is compounded by finTtch taking a smaller share.
“However, I am optimistic and strongly believe that companies armed with innovative ideas, a credible strategy and a capable team will be able to raise the capital they need to grow.”
Hawkins believes, however, that there is hope for “fintechs that are focussed on solving real problems for their customers and executing effectively”.
Not only is there light in the dark for innovative fintechs, but AI can offer further inspiration for the sector.
“Innovation is what happens when a need is met using novel techniques,” Hawkins adds.
“The rapid strides in technology we’ve seen of late means that these novel techniques are enabled by technology, and things are possible today that simply weren’t possible yesterday.
“AI plays a pivotal role in this process by addressing crucial requirements, and for fintechs, leveraging AI effectively is becoming essential in countering the ever-changing tactics of fraudsters and hackers, addressing an existential threat to their business survival.”
Mergers and acquisitions
Following a slowdown in deal activity across 2023, there is an expectation that there will be difficulties for the banking sector.
Daniel Cohen, CEO of PayU, thinks there could be challenges involved regarding consolidation in the market this year.
He says, “I don’t expect an array of partnerships and acquisitions to stop anytime soon as they are a critical facet for the evolution of the fintech sector. However, I believe these moves will continue to be challenging for banks.
“And we will continue to see a longer evaluation process for banks choosing to acquire vs entering into a partnership to maintain their presence in the market.”
Cohen pointed out the difficulties for banks when it comes to acquiring fintechs, claiming a boom in partnerships over mergers might be more beneficial for some.
He adds “Acquiring a fintech requires time to consider how you integrate different technologies and blend together an array of employees that have different working dynamics and culture.
“Banks will be most successful at acquiring if they are able to review and critique their own culture and capabilities and be willing to provide the space for those former fintech employees to work in a fast-paced environment and accelerate growth.
“If they aren’t able to do this, they should continue down the partnership route, and look at how they can grow alongside fintechs.
Cohen believes there is still a long way to go in order to change the legacy bank mindset and culture when it comes to moving faster in the financial services ecosystem.
“Acquisitions may be a route banks should consider more if they want to expand their vision, elevate their strategy or even expand operations geographically,” he explains.
Finance heavy hitters to embrace tokenisation?
Eyes will be keeping a sharp focus on the comings and goings in the crypto space this year. Tokenisation has stayed predominantly in the background, however, NorthPoint Strategy managing director, Simon Jennings believes the industry is on the cusp of a tokenisation explosion.
“I predict that the trajectory of digital-asset tokenisation will explode in 2024 and there will be a significant paradigm shift.
“This surge will be supported by an evolving regulatory landscape. I expect 2024 will see major financial institutions, from BlackRock to Fidelity fully embracing tokenisation — showcasing unwavering confidence in decentralised networks and propelling this potential multi-trillion industry.
“In 2024, I anticipate witnessing a bridge forming between traditional and blockchain-based assets, disrupting operational layers, and revolutionising various industries through heightened automation, transparency, and efficiency.”
Buy now, pay later, physically
According to Juniper Research data, there were 360 million buy now pay later (BNPL) users in 2023. This number, in the eyes of Rich Bayer, UK country manager of Clearpay, is only set to continue climbing.
It’s fairly obvious that interest-free instalments have taken off online. However, its impact on the high street has been less ground-breaking. This is subject to change, Bayer believes.
He tells Payments Intelligence: “Consumers increasingly expect seamless payments at checkout, whether online or in-store. Over the last couple of years, we’ve seen payment terminals being integrated with BNPL, giving customers more choice over how they pay in-store and enabling retailers to offer more payment options with minimal set-up.
“Major retail brands are increasingly offering in-store customers the ability to pay using BNPL and more retailers are expected to adopt the technology this year.
“We should expect to see the most innovative fintech firms develop a new and inclusive era of payments as we get stuck into 2024.
“Fintechs will be getting creative in their offerings and keeping ease-of-use front of mind when it comes to developing additional services for their retail partners.”
Digitisation of B2B payments
Alongside a backdrop of economic disruption, greener pastures are awaiting the global B2B payments market in 2024, according to Ambar Sur, founder & CEO of TerraPay.
“Despite economic disruption, the global B2B payments market is set to grow considerably,” Sur says.
“This steady growth is accompanied by the rise of digitised payments in the B2B space across geographies, leading to the acceleration of on-demand payment options that allow businesses, customers, suppliers, and merchants to benefit from every transaction.
“Developing the best payment experiences for consumers will take centre stage — businesses, payment providers, both new-age and legacy players, must acknowledge that they need to offer their customers faster, safer, convenient and more diverse payment options to boost their own growth.”
IFX Payments CEO, Will Marwick, agrees with the potential for growth when it comes to B2B payments. He believes that technology, such as real-time payments, can spearhead the movement towards reshaping the financial landscape.
“Technological advancements and a digital-first approach are propelling this transition, offering benefits not only to consumers but also optimising B2B transactions,” he tells Payments Intelligence.
The potential of real-time payments is realised by most, and plenty of growth in the sector is expected in 2024.
Marwick adds, “As we become an increasingly more digital society, this transition to real-time payments makes sense and will also be fuelled by technology and a digital-first approach.
“The benefits are numerous — not just for the consumer, who will benefit from a streamlined payment process, but also for the business. Money will be settled faster, cash flow management will be improved, and there will be an increase in transparency for everyone involved.
Marwick believes that the adaptation of real-time payments will be crucial in terms of digital transformation and will go a long way to optimise B2B payments in the next year.
The appetite for real-time payments will only continue to grow with the introduction of the Payments Systems Regulator’s (PSR) New Payments Architecture (NPA) which, according to Marwick, will serve as the next generation of real-time payments.
Open banking is poised to be massively transformative if the innovation needed to progress the concept is allowed to flourish.
Marion King, chair and trustee of the Open Banking Implementation Entity believes the foundations have been laid for a “thriving ecosystem”.
“Just six years on from the launch of open banking, we boast over eight million users, and over 13 million payments, all helping to contribute £4 billion to the economy. We now look forward to a ‘New Year revolution’ for the industry.
“It will be a pivotal year as we move beyond a competition remedy and look to harness commercial incentives and unlock the full potential of open banking and move towards open finance — the natural next step in the latest evolution of open banking. We will see the passage of the Data Protection and Digital Information (DPDI) Bill through Parliament.
“The Smart Data Council will also progress their work and help support and deliver smart data schemes that will bring the benefits of open banking to other economic sectors such as energy, transport, telecoms, home-buying, and retail.
“This will deliver a true smart data economy in which personal data mobility could increase GDP by £28 billion, at the same time as delivering wider benefits to consumers and small businesses.”
Work to do on regulation…
The regulatory landscape is set for a shake-up in 2024; firms must be aware of the upcoming changes to avoid being left behind.
Lorraine Mouat, head of payment services at Thistle Initiative, is keen for companies to avoid missing the mark when it comes to consumer duty.
She tells Payments Intelligence: “I know consumer duty is old news, but with firms being obliged to provide clear and comprehensive transparency reports, shedding light on their services, fees, and the value they deliver to consumers, there is still work to do in the year ahead.
“Payments firms will be required to compile and submit the inaugural Consumer Duty Board Report. This comprehensive document serves as a testament to a firm’s commitment to consumer-centric practices and regulatory compliance.”
Changes are also set to be seen with the Payment Service and Electronic Money Regulations, changes that Mouat believes demand a nuanced understanding moving forward.
She explains: “Payments firms should keep a watchful eye on regulatory updates to ensure compliance with the evolving legal landscape.
“While PSD3 specifics are still in flux, the industry anticipates potential changes in the regulatory landscape for payment services. Increased focus on security measures, expanded scope, and refined customer authentication processes are on the horizon.
“Firms should stay agile, closely monitoring regulatory updates and positioning themselves for compliance with the anticipated changes.”
She concludes: “The future of payments services regulation promises to be dynamic and transformative. As regulatory frameworks continue to adapt, the year ahead holds opportunities for innovation, resilience, and a heightened commitment to ensuring the stability and security of the payments ecosystem.”
APP fraud high on the agenda
The conversation around authorised push payment (APP) fraud is likely to continue throughout the year. AccessPay CEO Anish Kapoor believes the focus from payment service providers (PSPs) will be firmly fixed on implementing the new reimbursement requirements from the PSR.
Kapoor explains: “Any fraudulent transactions made using faster payments, PSPs will be obliged to reimburse individuals, charities and microenterprises within five working days, though the clock can be stopped if they need to gather further information.
“Most businesses will not be protected by the new rules, so their focus will be on putting in place controls, such as Confirmation of Payee and more robust payment authorisation controls, to combat the risk of APP fraud.
Kapoor explains there was a lack of take up on the part of corporates to prepare for the adoption of the ISO 20022 messaging format last year.
He explains: “Though still subject to delays (in the SEPA region), the transition to ISO 20022 is well underway.
“Payment systems around the world are updating their infrastructure to move across the new format, including the UK, where the Bank of England updated CHAPS, its real-time gross settlement system, in 2023.
“SO 20022 is a much richer format, a major benefit that will allow additional information to be included within the payment message. From November 2024, the Bank of England will mandate the addition of purpose of payment for all property transactions and expects to extend this to all CHAPS payments.”
It’s clear that 2024 will be a transformational one for the payments industry. What remains is just how much change will be brought about and what the next steps will be.
With a changing regulatory space, uncertainty when it comes to just how legacy and challenger banks will work alongside each other and the challenges in addressing APP fraud rates mean that it will be a busy one for all.