The key trends shaping the payments industry in 2023 and how to position your business for success.
Change in the payments industry is like a slow-turning super tanker. It takes a while to build momentum but then things happen quickly.
2023 saw the further decline of cash and card volumes in favour of local, Open Banking and real-time payments.
E-commerce and remittances continued to grow, driving the growth of cross-border payments.
Yet while transactions in foreign currencies and countries increased, those in new currencies (crypto) and worlds (metaverse) seem to stall.
We review the main payment trends of 2023 and offer advice on how businesses can make the most of them.
The decline of cash
Pollsters are in rare agreement: cash usage is declining. According to McKinsey, cash as a share of global payments has fallen 20% over the past five years.
The story in Europe is similar. Cash was used in nearly 60% of transactions in the euro area in 2022, the last year for which statistics are available. That’s down from around 80% in 2016.
“While the reason for this change cannot be determined unequivocally,” writes the European Central Bank in a blog, “it seems that consumption and payment behaviours learned during the pandemic outlasted the restrictions that caused them.”
Key takeaway: The decline of cash is a steady and seemingly irreversible trend. However, as usage falls, the fixed costs of managing a cash infrastructure rise relative to total costs. Businesses handling cash are advised to consider ways to cut the cost of operations, perhaps outsourcing or pooling efforts to harness efficiencies.
The decline of cards
Card usage is also declining. It’s less obvious but still occurring. Credit and debit cards only represent around 32% of global e-commerce transaction values. This is predicted to fall to 26% by 2026, according to card acquirer Worldpay.
This speaks to the growing popularity of local or alternative payment methods, or APMs for short. Usually based on domestic bank transfers, they include blik in Poland, iDEAL in the Netherlands and Swish in Sweden.
The growth of Open Banking and real-time payments is also contributing to the increase in account-to-account transactions. Seven million consumers and small and medium businesses were actively using Open Banking-powered services in the UK as of January 2023.
Key takeaway: Payment habits remain resolutely local and connected to bank accounts. Businesses with cross-border expansion plans are advised to consider how to marry global growth with local payment preferences. Open Banking may be a solution, as it securely customers to their bank accounts locally so they can pay sellers worldwide in seconds.
The rise of real-time payments
More than 70 countries on six continents currently support real-time payments. Transaction volumes grew more than 60% globally in 2022 to reach a new high of 195 billion.
The rising tide of real-time payments is clear. By 2027, they’re expected to account for 28% of all electronic payments globally, up from 18% in 2022, according to ACI Worldwide.
Not only did more countries launch real-time payment schemes in 2023, such as FedNow in the US, they linked their systems together, for example Singapore and Malaysia.
The European Payment Council’s One-Leg-Out Instant Credit Transfer scheme (OCT Inst) also launched in November 2023, enabling 24/7 instant payments across currency zones.
Key takeaway: Payment done faster is good. But international payments done faster with better data is transformational. This gives rise to all types of B2C and B2B use cases – gambling pay-outs, insurance reimbursements, gig economy wage payments, supply chain financing options and so on – which businesses can capitalise on.
Crypto and the metaverse stalled?
So much for payments in foreign currencies and countries. When it came to payments in new currencies and new worlds, 2023 was marked by a series of legal and regulatory issues for crypto firms. These ranged from the high-profile FTX trial to greater regulatory oversight, settlements and legal challenges.
Meanwhile, the metaverse seems very 2021. That’s when this immersive digital world was set to change everything, and Facebook even changed its name to Meta. Zuckerberg’s company spent 2023 focusing on internal efficiencies and pivoting to AI.
Key takeaway: Innovation is iterative and mass adoption doesn’t happen overnight. Computers, smartphones and even the internet were all written off by early critics, but each has proved revolutionary. Businesses are advised to maintain a watching brief on new ways to create and store value, as well as the infrastructure to transact and transfer it.
Positioning your business for success
Deciding which trends matter for your business isn’t about predicting the future. Rather it’s about paying attention to the direction of travel and ensuring that your business is prepared.
We recommend focusing on core, durable values that guide purpose. These are important when developing strategy, customer-facing propositions and so on, as well as when communicating with staff, customers, partners and shareholders.
When looking to differentiate your brand, products and customer-facing propositions, look for ways to simplify back-office complexity. This means partnering smart – see our previous article about how to choose the best cross-border payment provider. It also means hiring experts, listening to them and having the confidence and good sense to know when to take their advice.