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Key takeaways from Merchant Payments Ecosystem 2023

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With over a month now passed since 2023’s Merchant Payments Ecosystem conference, and having processed all that we experienced there in full, we’re finally ready to share with you our main insights – and even a handful of short- to medium-term future predictions.

There’s quite a lot to talk about, so let’s not waste any more of your time and dig right in!

Data is well on its way to becoming the new currency

Although broadly applicable in today’s digital environment as a whole, this is especially true for big merchants that have the capacity to collect large volumes of data about their customers. In today’s world, data is paramount not only for effective decision-making, but also for boosting conversation rates and sales volumes, as well as for improving customer retention.

From what we’ve been able to gather, data and digital IDs are set to play a pivotal role in ensuring a personalised experience, which consumers around the world have come to expect from their digital service providers and online platforms.

Weather forecast for SoftPOS – not a cloud in sight

The latest industry forecasts indicate an enormous surge in the adoption of SoftPOS by SMEs in the near future. This is largely thanks to its greater speed and convenience, lower cost, wide-spread compatibility with Android, and the fact that it enables transforming a regular smartphone into a card reader with no extra infrastructure required.

Adoption in countries like Germany, where customers are used to paying by card, will be relatively smooth and straightforward, while in places like China and Africa, where QR code and mobile payments are widespread – the change will barely even register with most people as something new and unusual. 

High conversion, low cost = merchants’ holy grail

The ability of Open Banking to compete with card- and wallet-based payments will depend on the individual market and consumer preferences. For instance, global payments are likely to be dominated by Visa, Mastercard, and Apple Pay, with BLIK and mobile being favoured locally. 

In order to boost conversion, merchants are increasingly focusing on having a personalised UX, minimising payment failure to reduce lost sales and reputational damage, and moving towards a new standard where financial operations take no more than 2-3 clicks for the consumer to complete.

Another issue to be ironed out is the potential misalignment between the interests of merchants and their customers when it comes to the checkout process. The contention is whether it should offer as many payment options as possible and thereby risk becoming overcrowded or vice versa.

AI is making serious headway in sales and analytics

The first important takeaway regarding AI has to do with analytics. With algorithmic competence seemingly growing by the month, not by the year, merchants are keen to use them for analysing customer behaviour. 

For instance, an AI tasked with interpreting user behaviour patterns can suggest the user the preferable way of payment. In this role, an AI tool could be viewed as a helpful guide making the customers’ experience even smoother.

At the same time, in e-commerce, AI analytics are already implemented to improve conversion rates, flag gaps in the checkout process, and more. 

And, of course, we can’t ignore the elephant in the room – ChatGPT. For instance, some providers might try to outsource the decision making process regarding choosing a proper payment provider. While ChatGPT can wade through vast amounts of data and information, it is not yet incapable of actually making an informed decision due to a number of factors. First of all, most models out there don’t have real-time access to the Internet, meaning that they have limited information. Secondly, choosing a provider for the long-run requires more than just comparing two offers. But we have to acknowledge that more providers will have to think about making sure their offers are understandable to everyone, including AI.

Digital wallet-based payments expand offering

As you may know, digital wallets can not only hold monetary value, but also function as representations of a consumer’s identity and points of storage for payment credentials. This area is currently dominated by such providers of X-payment as ApplePay and GooglePay, both of whom are seeking to move regular card payments out of the market.

Another development of note in recent years has been the ongoing replacement of local payment methods by digital wallets, such as MobilePay, adapted to specific markets. In addition to card-based payments, digital wallets of this kind also offer a variety of alternatives based on tokenization and Open Banking, as well as facilitate the deployment of customer loyalty programmes. 

Digital currencies show promise, but concerns remain

While Central Bank Digital Currencies and similar initiatives are now being slowly rolled out to enable instant offline payments via on-device wallets, broader projects like the digital euro still remain in their infancy.

According to some experts, CBDCs are expected to help consumers reduce their account maintenance costs. However, serious questions remain as to how any of this is going to work and what kinds of value, if any, it’ll generate for everyday consumers. The conference featured several discussions on this very topic, but it became clear to us early on that, short of further progress, consensus in this area is rather unlikely.

European ID could reduce paperwork and red tape

The European Digital Identity will be available to all EU citizens, residents, and businesses, facilitating recognition across different institutions via tokenized identity and, thereby, reducing the need for paperwork or associated bureaucratic procedures.

Normally, when a user is asked to set up a new digital identity online, necessary for things like creating a platform or app user account, the way in which their data is used by the service provider is fairly opaque. With an officially sanctioned digital ID, on the other hand, personal data will be transparently handled by a trusted entity.

There’s also now talk of developing a global ID that would function along similar lines. However, with even the EU-wide solution remaining, for the time being, a work in progress, not much can yet be said about the prospects of a vastly scaled-up version of the same.

Merchants seek alternatives to doing fraud prevention in-house

The good old 3DS, developed by Visa and MasterCard to secure online credit and debit card transactions, seems to be on its way out, as fraudsters gain expertise in bypassing it via low-value and one-leg exemptions. In addition, family fraud has been on the rise in recent years, facilitated by the ease of using someone else’s digital credentials to make unauthorised purchases.

Given the above, it’s no wonder that merchants are increasingly choosing to outsource fraud prevention to a trustworthy partner with monitoring and machine learning experience. As an added bonus, turning fraud prevention over to a team of professionals is also less expensive – and makes it easier for merchants to ensure regulatory compliance.

Embedded finance continues to flourish

Marketplaces and platforms are growing both in number and in scale, but often find it difficult – if not prohibitively expensive – to obtain a banking licence, handle all the associated legalities, and get whatever financial services they need to run their business efficiently.

Luckily, fintechs have been quick to catch on. Unlike traditional banks, they’re able to ensure much greater flexibility, attention to clients’ needs, and easy-to-use embedded finance solutions that radically simplify things for their clients and provide customers with a far superior UX.

Besides eliminating the need for merchants to become licensed EMIs, platform solutions offer integrated onboarding, AML/KYC checks, transaction monitoring, fraud prevention, white label cards, digital wallets, and much more – all in one place.

Last but not least, embedded finance is beginning to move towards embedded commerce. With the latter, merchants can integrate their catalogues in remote websites or email/social media channels to maximise sales potential. Embedded commerce is no more complicated than pasting a YouTube link into a social media post, which then enables customers to add products to their cart using embed tools anywhere on the web.

Social e-commerce is already here, and it’s growing

Thanks to the rapid expansion of social e-commerce, brands are gaining larger audiences than at any point in the past, and securing greater customer reach. This is made possible by the fact that consumers enjoy having their entire shopping experience – from product discovery and research to checkout – take place on social media.

Apart from convenience, social e-commerce makes shopping a fundamentally social experience that reduces friction (no need to go off-site to make a purchase), connects brands with Millenials and Gen Z, and opens up vast target audiences for advertising.  

The next step? Metaverse! Now, truth be told, no one really knows how that’s going to look exactly. But, rest assured, where people go, business will follow. And where businesses are established – platforms, fintechs, and other e-commerce players will find plenty to do.

The payments landscape is getting wildly complex

Piggybacking on what we’ve already said about payment methods in this article, the overall payment landscape is getting quite crowded and complicated. For instance, local digital wallets are now intensely competing with global wallets, and market struggle is also taking place channel by channel, forcing checkout innovation for merchants to survive.

All of this is primarily driven by consumers. From their perspective, whatever’s going on the technical side of things, and whoever is providing the services they need – convenience (ease of use), omnichannel availability (ubiquity), and contextual relevance dominate the list of preferences.

So, what comes next?

To avoid making this article even longer than it already is, we’ll simply give you a few pointers to where things may be headed in the near future.

First, global real time payments. According to some experts, the world’s 1,000 dependence on cash may be facing a well-deserved sunset. Instant or immediate payments reduce the number of financial intermediaries and enable individuals, businesses, and governments to transfer funds instantly, and with instant confirmation. Between 2021 and 2028, this market is expected to expand at a CAGR of 33%!

Second, the digital age is truly upon us now, if that wasn’t clear enough before. Expect to see far more news about digital currencies and IDs, crypto payouts, cutting-edge authentication techniques, and regulatory changes.

Third, the global payments ecosystem is undergoing a massive tectonic shift – or, perhaps, a number of major shifts. One area where action won’t be lacking any time soon is the arena where financial incumbents are competing with scrappy innovators. The former will be seeking to consolidate their market share, at times giving rise to new major players, while the latter are likely to emphasise the importance of consumers having as many flexible options as possible.

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