The year 2023 is poised to see significant evolutions within the payments landscape. From the rapid rise of contactless payments in the past couple of years to the widespread adoption of embedded payments, consumers and merchants can agree that they want their payments to be seamless, frictionless, and fast.
The Current Payments Landscape
Consumers have always taken part in payments in some shape, but the channels in which payments are taking place have changed. In the wake of COVID-19 lockdowns, the need for contactless payments arose, bringing security to top of mind for consumers and merchants alike.
With these changes come new demands, shifting the landscape of payments. Here is what those in the industry must look out for.
“From the payments landscape forward, I look at it from three different perspectives,” said Sukanya Madhavan, Vice President of Product Management and Engineering at CSG Forte. “From the consumer side, the end consumers want additional methods of payments, such as alternate methods of payment and embedded payments. The goal is making it seamless and simple for consumers to make a payment.
“From the merchant side, adding this to their regular business activities and making payments seamless to their consumers is something to consider, while keeping costs at bay and optimizing payment operations. As a payment solution provider, we need to keep tabs on the market to determine consumers’ needs and ensure we add all these capabilities, such as a QR code or open-banking BNPL (buy now, pay later).“
Merchants must learn to thrive in this increasingly demanding environment to stay competitive. Balancing in-demand offerings while keeping costs low and providing a seamless checkout experience is no small feat.
“Alternative payments are important in meeting consumer needs,” said Daniel Keyes, Senior Research Analyst of Merchant Services at Javelin Strategy & Research. “But they also introduce new complications such as crowding the checkout page. You can potentially overwhelm consumers with options, but you also want to provide them with the ability to pay the way they want to. Offering consumers with the payment options they want while avoiding a fragmented and frustrating checkout experience is a challenge that merchants and their providers will need to meet.”
“We need to have a balance,” Madhavan added. “‘Do you want too many payment methods appearing in your checkout?’ As a payment provider and as a merchant, [having] that flexibility in the offering so you can change it as needed, depending on the market or the specific customer that you’re looking for is critical.”
Luckily, merchants can easily pick and choose the payment options that best suit their business, saving time and money.
“It’s not a one-size-fits-all,” Keyes said. “A restaurant doesn’t need all the payment options that an apparel retailer needs and so on. The ability to choose and understand what is the right match for a merchant is important going forward.”
Additional Ways Consumers Will Engage with Cashless Transactions
In the payments world, we have seen alternative payments options that have sprouted with abandon.
“The alternate-payment methods landscape has expanded in the past few years,” said Madhavan. “Although we’ve had digital wallets for a long time, Apple Pay and GPay adoption is accelerating. We have buy now, pay later, where customers can purchase items they wouldn’t have otherwise had they not had the option of paying for it in three or four or five installments.”
“From the merchant side, that’s a business or a sale that they wouldn’t have. There’s the concern of moving consumers toward additional debt. But it’s more of a calculated risk. We must ensure consumers are financially capable.
“We are also seeing an increased adoption in recurring payments, where people can set and forget it. People want seamless payments, and therefore we are seeing recurring payments grow.”
Younger consumers are more prone to be early adopters of such alternative payment methods as peer-to-peer (P2P) apps like Venmo and paying with a mobile wallet.
“Digital wallets really stand out to me as a cashless payment that is going to take off,” Keyes said. “Adoption has been on the way up. We’re seeing younger consumers rely on them more heavily. They’re making more purchases a week with a digital wallet than older generations, Gen Z in particular.
“I think digital wallets are really poised to become more of consumers’ go-to payment method, which is a big shift from what it’s been in the past years.”
On a personal note, Madhavan related a story about her teenage son’s inclination toward using Apple Pay on his phone instead of opening a bank account of his own.
Keyes added, “If you get a phone in your teenage years and you can get a debit card or a credit card loaded up onto Apple Pay, if that’s the first way you pay for something, why would you suddenly start using cards or other methods later? Those wallets are reaching consumers early and building up a relationship that could last for the rest of their lives.”
Embedded Payments’ Role in the Landscape
One of the biggest draws for embedded payments is just how easy they are to execute. The consumer does not have to search for a card or for cash. With just the push of a button, a purchase can take place, all on the same platform. What’s not to like about that? It’s a massive win for merchants and customers alike.
“We talked about how consumer behaviors have changed, how they demand instant payments,” Madhavan said. “Merchants must now offer all these capabilities in addition to their core business. Embedded payments will make it easier for merchants and a seamless payment experience for the end consumer.
“Another benefit of embedded payments is additional reporting. We know companies spend a ton of time trying to go back and reconcile and make sure the books are right.”
“For merchants, embedded payments open so many doors and make things so much easier,” Keyes added. “For consumers, embedded payments make payments invisible. The average consumer does not want to think about payments and embedded payments. Consumers want a frictionless experience where they don’t even really know they’re paying. There’s not a lot of effort. That’s important for creating seamless, appealing checkout experiences and other shopping experiences. So, you know, I think embedded payments are certainly here to stay, and their importance is only going to grow.”
What’s Next for the Payments Landscape?
Payments providers will need to step up their offerings to serve the growing needs of their merchant customers, who are seeing growth not just in payments but also in alternative forms.
“I believe there is going to be a value sphere expansion,” Madhavan said. “At the core; capabilities and alternate methods of payment are expanding the value sphere. In terms of risk monitoring, fraud management, reporting and reconciliation, they will enhance consumer experience, ensuring merchants can continue to run their business while providing that better experience for the customer. That will be the focus, and we can expect several businesses to invest a lot of money in that area.”
Payments companies must also focus on the quality of their offerings, not just the quantity.
“Payments can be very fragmented,” Keyes said. “We’ve named a million different services that a company can offer: BNPL processing, acquiring digital wallets, [and more]. Payments companies that are trying to offer all these services in one have a real advantage if they can offer quality services. A merchant can get everything they need in one place. An SMB does not have the time to source out different vendors for all their payment needs. It would be much easier for them if it’s an all-in-one platform. Maybe it’s in a very-easy-to-use dashboard.”
Keyes continues, “I think we’re going to see a lot of companies continue to push to meet more if not all of merchants’ needs in order to deepen their relationship and to get more revenue out of the relationship as well. But I think the ability to make payments less fragmented for merchants will be key going forward.”
One thing is certain: More payment methods will mean that more must be done to ensure merchants and customers can enjoy quick, safe, and convenient payments. That is the future.