Events in the payments space are moving rapidly. Advances in artificial intelligence (AI), point-of-sale technology, and real-time payments have left many merchants wondering how to keep up with customer expectations.
Jeff Kump, CSG Forte President, and Daniel Keyes, Senior Analyst of Merchant Services at Javelin Strategy & Research, joined a recent PaymentsJournal podcast to discuss the trends they saw unfold in payments last year and what they expect for 2024.
Key Trends that Unfolded in 2023
You could say 2023 was the year of AI, as businesses raced to harness the technology in valuable ways. Some of the top use cases included improving the customer experience, enhancing customer support and, especially within the payments industry, reducing fraud.
Experts like CSG Forte have established themselves at the forefront of developing these uses for AI. “CSG has been in the AI business for several years, offering predictive behaviors to help improve customer journeys,” Kump says. “As part of leveraging generative AI, we recently launched CSG Bill Explainer, which helps identify monthly changes to the bill and provides a plain language explanation of why changes occurred to reduce billing confusion. In turn, this leads to fewer calls into the call center and a better customer experience.”
The past year also saw a noticeable change in how merchants and consumers used buy now, pay later (BNPL) strategies. As the economy shifted and lending became more expensive, BNPL tamped down. Due to the rise of inflation and increasing interest rates, some merchants used BNPL as a sales tool to offer 0% interest, especially for big-ticket items.
Additionally, advances in Point-of-Sale (POS) technology allowed merchants to accept contactless payments with just a standard smartphone.
“It was not a surprise to see SMBs want to be able to accept payments more flexibly and with less cost,” Keyes says, citing small to medium-sized businesses. “But JPMorgan announced that they’re launching their own mobile point-of-sale technology with Sephora, a huge retailer. This points toward an interest in this technology for larger purchasers, perhaps blended with more standard terminals. That gives customers more opportunities to check out through the store, and stores can create a more high-touch experience with employees armed with standard smartphones, who can check out consumers wherever they are.”
Trends That Fizzled in 2023
When FedNow was introduced, many people hoped that it would disrupt the entire payments ecosystem. “It didn’t take off as quickly as everybody anticipated,” Kump points out. “I still think it’s a great technology, and I expect real-time payments to grow exponentially over the next few years. Part of the delay is that, right now, the consumer has to initiate and push the transaction. When you’re relying on the consumer to make that type of change, it causes additional friction. Adoption will pick up at some point, but I don’t think the growth curve will be as drastic as I think everybody anticipated.”
Between the launch of FedNow and the U.S. government’s interest in regulating interchange, 2023 looked like the beginning of the end for credit and debit card dominance. Consumers switching to account-to-account payments were also supposed to signal the end of the credit card. On top of that, many felt that card rewards might go away if the interchange on credit cards became more heavily regulated, leaving consumers and merchants interested in exploring alternatives. But none of that came to pass.
Adoption of the metaverse has also been slower than expected. The usage in Asia and Europe is higher than in the United States but still not what many proponents thought it would be. “It’s still trying to find its niche of which industries or what use cases make the most sense,” Kump says. “And how do you ensure greater security, especially around payments?”
Trends to Watch in 2024
AI remains a key trend to monitor, as it will continue to optimize the analytics that can give businesses better insights into their own operations. Gaining greater insight into where a business is lagging or ahead of its peers will help optimize its strategy.
Acquiring and merchant services are often thought of as relatively static, but in 2023, that wasn’t the case. “There is likely to be more competition in 2024 and beyond for merchants and other clients to offer solutions in acquiring,” Keyes says.
Bringing account-to-account payments to instant transfers will also be a trend to watch in 2024. ACH has been a lagging payment rail, one that can require a certain amount of time. But speeding that up to an instant transfer rate will be game-changing for many industries.
Open banking is also poised for greater acceptability, especially in the United States, and Kump says it will open “a host of new possibilities and innovation that can be leveraged on top of that.”
How to Stay Ahead
Given the pace of changes in the payments space, businesses will do well to enlist an expert partner who can help them meet their customers’ needs. A trusted payments advisor can empower businesses with the latest technology and guide them toward what is most meaningful for the business—and away from what isn’t.
A payments partner should know your customers and their preferences. By leveraging customer data and analytics, a provider can help a business hone in on its problem points in processes, acceptance, and lowering costs.
“In addition to offering the right solutions, you want to ensure that your provider has the latest security and fraud protections to ensure that you don’t have to give much thought to that area,” Kump says. “Your payment providers should ensure that you’re successful in securing your information and reducing your exposure to sensitive payment data.”
A good payments provider will have the infrastructure to adapt to whatever new payments channels appeal to a business’s customers. It’s a matter of being ready and able to move, which is made much easier and quicker with the right partner.