Payment Trends: a post-pandemic scenario

Pandemic undoubtedly introduced new trends to the payment industry and changed customers’ expectations in the blink of an eye, which pushed payment innovation even further. The world was already digitalizing swiftly, and lockdowns along with an accelerated transition from offline to online lifestyle caused many new payment trends and payment methods to surge.

Embedded finance

Firstly, when talking about digital payment trends, it is important to look at the big picture: how the financial ecosystem as a whole and positioning of banks, SME solutions, corporations and marketplaces promise to change drastically due to the customers’ expectations shifting, as well as their view of banks, and their relationships with companies. The appropriate angle from which we can look at this big picture and start the payment innovation conversation is embedded finance, which today possesses such a transformative power for the payments world and banking as we know it, and is basically one of the definitions of payment innovation of this decade.

Embedded finance is an integration of financial solutions by companies whose core product/service offering is non-financial. It owes its existence to open banking, which, in turn, is born from the newest PSD2 regulations compliance. Embedded finance is considered by many a payment trend of the decade, since it is revolutionising customers’ interactions with money and businesses, as well as with banks, in part because the payment experience is almost invisible to the consumer (be it transactions, wallets, insurance, loans, consumer finance or investing), since it is fully digitally integrated in the everyday life, and excludes direct contact with the bank. Biggest players on the global market have embedded finance at the core of their businesses, such as Uber, Amazon, Shopify and Walmart. A very simple but clear example of embedded finance solutions by non-fintech companies would be Banking as a Service, Buy Now Pay Later (BNPL), financing and loans solutions directly managed by marketplaces and the companies that offer them, and not by the banks. Actually, BNPL solutions have seen a surge in use in the last 2 years in the UK and worldwide, in part thanks to the growth of the embedded finance segment induced by the pandemic. We have explored more payment and technology trends in depth in our latest whitepaper “New technologies and trends in digital payments in 2022”.

Embedded finance in the UK

Over the next five years, UK brands expect to earn £230 billion from embedded finance solutions, which is a whopping 37% of the £619 billion total for brands from Europe.¹ Without a doubt, embedded finance plays a very important role in payment innovation in the UK, but some of the embedded financial services take precedence over the others. For instance, embedded lending found most of its popularity in the United Kingdom, especially compared with the European region. Partially, this happened because the UK was among the early adopters of embedded lending solutions. Another reason for embedded lending’s success in the UK is the view of consumers of retail finance as a convenient way to split the costs and being able to afford expensive purchases that otherwise wouldn’t be possible. In addition to embedded lending, embedded insurance met with a lot of success in Europe’s Big Four, especially in the UK, Germany and France, a little less so in Italy, nevertheless, this sector is in the stage of a significant growth in the European region, as well as in the rest of the developed and developing world. Research and Markets reported in their Global Embedded Payments Market Report 2022 that the embedded payments industry alone is expected to grow by over 40% globally and is to reach $124 billion value in 2022, and $380 billion by 2029.

What makes embedded finance appealing?

Nowadays customers’ expectations from digital payments and shopping experience are different than a couple years ago before the pandemic, and they will continue to change in the future, therefore, constant payment innovation is inevitable. Today’s values and priorities of a contemporary consumer are the immediacy and security. Their focus is not on the product anymore, but on the experience and solutions the product/service brings, meaning that the final result matters more than the means for achieving it. Therefore, the customers’ expectation is a fully integrated frictionless payment experience that is digital, convenient and accessible.

In the survey conducted by research agency Coleman Parkes in H2 2021 and commissioned by OpenPayd², decision makers for the identification and implementation of new products and service offers to customers from large brands from the UK, France, Germany, Italy and Spain expressed their sentiment regarding embedded finance. First of all, it is important to mention that only 5% of respondents fully understood the concept of embedded finance, and 3% didn’t know what it meant at all, and the absolute majority (91%) understood the concept only partially. 5% had already implemented embedded financial solutions, and 73% planned to launch embedded finance during the following 2 years, even without the full understanding of the concept.

The most appealing impacts of embedded finance for the European companies, according to the survey, are as follows in order of importance to the respondents:

1. Retaining the front-end customer experience (85%, more than half of which evaluated this impact as very appealing)
2. Increasing the number of customer touch points with the brand (84%)
3. Offering mobile wallet or current account options to customers (79%; interestingly, this aspect is the only one among those offered that was evaluated as very appealing by more than half of the respondents – 54%, and as simply appealing by only 25%)
4. Increased cross-selling opportunities (68%)
5. Sending and receiving cross-border payments (60%)
6. Offering more tailored financing solutions to customers (e.g. loans and insurance) (46%)

We can conclude from the advantages for brands listed above that embedded finance solutions are appealing to the customers as well, due to the following: proximity to the consumer and immediacy; convenient deals and personalised customer journey; future opportunities for customers, because the embedded finance solutions keep growing in revenue generation and evolving in tech complexity, and are being heavily invested in. Therefore, new value propositions will keep appearing for consumers and this payment innovation trend looks very promising.

After everything we have discussed we can say that today in digital payments, shopping experience takes precedence over the awareness of which bank processed the transaction, where banks are perceived more as a utility and less as a financial solution provider, which poses a problem for the banks’ positioning in the foreseeable future. So, what should banks do, considering that they are being pushed further away in the value chain for their clients, and what merchants should consider when choosing banks as their financial solution provider?

Banking strategies

The possible issue for the banks is their invisibility to the customers that use embedded financial solutions, which increases the distance between customer and the bank, so what can they do not to risk being perceived as simply transaction processors and current account providers and how can they contribute to the retailers’ business strategy?

• Firstly, BaaS (Banking as a Service solutions), an end-to-end financial service online, that many banking ecosystems already offer today and some even upgraded to open banking, is a great example of how banks can expand their solutions and position themselves as active participators in the companies’ value chain and business models as payment facilitators in a B2B2C capacity to help retailers and marketplaces offer financial solutions. Axerve, for example, is a part of open banking fintech ecosystem Fabrick, and is part of the Sella Group, that started off as an Italian bank in the 19th century. Here you can learn more about Axerve’s history and positioning in open finance.
• Secondly, banks should expand their cloud-based tech services to Backend as a Service and PaaS (Platform as a Service), a.k.a. bank groups with fintech ecosystem, like Sella Group with Axerve and other companies. For instance, Payment Orchestration Platforms are a payment innovation in itself, and are very underrepresented on the market, especially among banks and bank groups worldwide, and is a promising all-in-one tech platform that processes payments through dynamic routing. This innovative platform also would help banks to act as advisory hubs and strategic payment partners for the merchants, instead of simple transactional hubs. Check out Axerve’s solution for Payment Orchestration. New tech services will help banks to get into an innovative mindset, generate new additional revenue and expand their tech capabilities. All of the above would contribute to returning banks to their solution providers positioning in fintech.
• Last but not least, moving into riskier directions, out of the banks’ comfort zone: integration of new acquisition channels with lower costs; building retail communities around tech solutions, investment in complex applications that have multiple financial services integrated within them (a super-app). All these will help establish strong commercial positions.

If you want to learn more about digital payment trends, download Axerve’s whitepaper “New technologies and trends in digital payments in 2022”.

Request to pay

Request to Pay (also called immediate transfer in the EU) is another digital payment trend that is worth mentioning due to its contribution to payment innovation in real-time digital payments where the dynamic changes from push to pull, and it promises to be widely used by many parties shortly, from consumers to merchants, in Ecommerce, bills, POS payments and B2B payments. So, request to pay is a type of a specific and immediate transfer, where it is requested digitally by the payment recipient to the payer. The request is then received on a super-app or a simpler version of banking or fintech application on a mobile device. Then it is up to the payer whether to initiate a payment and to accredit it to the merchant, and if the payment is approved, it is transferred in real time and disbursed to the e-payment account of the merchant. Request to pay concept was born out of the need to improve customer experience and reduce friction in payments, since it gives the payer more control and reduces costs, and is definitely a digital payment trend to look out for during the next years, and should be considered for integration by merchants and fintech companies.

Other payment trends

Surely, the payment innovation trends list isn’t over here, in addition to the embedded finance, BNPL, Payment Orchestration and Request to Pay, below there are digital payment trends of 2022/2023 that we looked into in depth previously:

• P2P or peer-to-peer payments;
• Blockchain and cryptocurrencies;
• Biometrics and machine learning in fraud prevention and identity fraud;
• Retail virtual assistants and virtual cards;
• Internet of Things (IoT) and Internet of Payments.

2022 and beyond are bound to bring more changes into our everyday lives, payments world together with AI innovations are full of surprises and are taking big steps towards the better future for everyone: merchants, customers, companies and simply the whole world.