A new era of payment innovation

The turmoil caused by the pandemic has created some gaps in the global payment infrastructure. Travel agencies suffered from cash flow, small businesses were threatened by the complexity of cross-border payments, and debt from unregulated buy now and pay later transactions surged. As the world recedes, better payment infrastructure is important to reduce business costs and risks and improve the customer experience.

In recent years, payment methods around the world have changed dramatically. Thanks to pandemics, consumers have become accustomed to doing almost everything online, accelerating digital transformation and incorporating new behaviors. After a 5% decline in global payments revenue in 2021, the payments industry is on track to recover its losses and return to 7% growth a year later. With so much turmoil, what are the most important payment milestones you can expect in the coming year? To answer this question, I have compiled some forecasts for 2022. These are:

Regulators will hit the clearing house hard

As payment methods such as cryptocurrencies and postpay (BNPL) continue to gain popularity, regulators around the world are beginning to notice it. In 2022, surveillance will be strengthened, regulations will be tightened, consumer protection will be strengthened, and innovation of new products will be promoted. New areas of FinTech such as cryptocurrencies and NFTs have attracted the attention of governments around the world due to their deregulated nature and public exposure to fraud and other crimes. One area of ​​progress is in new identity validation models that can better protect consumers in proving ownership of their assets.

The acquisition of FinTech by cryptocurrency puts FinTech ahead of its competitors

Over the last decade, the huge fintech ecosystem has evolved. By the end of 2022, it is projected to be worth more than $ 300 billion, thanks to FinTech’s ability to provide banking services in a faster and more flexible way. Cryptos is next to take advantage of its agility. Next year, there will be a surge in acquisitions in the fintech space by cryptocurrency companies seeking to stay competitive by acquiring payment licenses as part of their transactions.

BNPL is forced to become a credit broker

BNPL is currently a $ 100 billion industry and is expected to continue to grow. However, simple and short-term loans that have popularized BNPL are only possible because they are in the gray area between payment and lending licenses. Technically, there is the former, but not the latter. As a payment license holder, BNPL can proceed with payments in the form of credit to the seller, but does not have to comply with credit regulations. An important concern is how BNPL contributes to personal debt. BNPL companies need to perform rigorous credit assessments and share credit risk assessments with credit rating agencies. Creating a gap in the borrower’s credit history can allow future lenders to overestimate their creditworthiness. The result is a shadow segment of subprime borrowers.

Therefore, regulators are forced to severely limit BNPL and make BNPL a credit broker to protect consumers. As a licensed lender, BNPL needs to dramatically review consumer transparency, clarify that it is offering credit, and redesign its user journey to emphasize low-risk payment methods. You also need to make an urgent investment in risk assessment technology so that you can effectively perform credit checks without interrupting your user experience (UX). This could mean that small retailers opt out of BNPL offerings altogether. Also, while consumer demand for BNPL is unlikely to be exhausted, new rules and restrictions will reduce BNPL’s bottom line.

Travel sector accelerates payment innovation

Travel is rapidly returning to pre-pandemic quantities. As it recovers, the industry as a whole is reassessing its payment infrastructure. In 2022, travel agencies will turn to FinTech to fix the problem and take a competitive initiative, but payment space may seem more difficult than expected.

Travel is set to dramatically rebound, heralding the arrival of the roaring twenties of the industry. 57% of consumers expect to travel within two months of the pandemic’s containment and are in a strong position to do so, with household savings of 10-20% in the United States and Western Europe. It’s skyrocketing. And it’s not just leisure travelers. Travel spending is expected to increase by 37% as meetings are revived and offices are reopened.

As the overall volume recovers, travel agencies will need better payment capabilities to meet demand. The pandemic has revealed how inadequate the current payment system is. At some travel agencies, nearly half of the bookings were canceled or rescheduled, causing headaches for refunds and chargebacks. The complexity of international payments and the high cost of payment processing (on average 3.2% of top-line revenue) exacerbate the problem for travel agencies.

Travel agencies seek to unlock new payment options and modes that help increase demand while lowering supply costs. In 2022, travel agencies will inject a new era of payment capabilities, replacing legacy systems with digital solutions and unlocking automated payment processing, refunds, accounts receivable and more without exposing the travel agency to fraud.

Hundreds of small fintechs are swallowed by larger players

Acquisitions in the payments industry are nothing new. Since the first wave of FinTech came to the market, established financial institutions have been keen on acquiring FinTech. Faced with turmoil, they partnered with FinTech to access technicians, build better products and customer experiences, and bring them to market in a more efficient and agile way.

The tendency to use the FinTech ecosystem as a functional supermarket did not slow down during the pandemic. Last year, there were some significant FI acquisitions of FinTech, including the acquisition of Kabbage by American Express. In fact, 56% of FinTech’s acquisitions were made by trading and financial institutions in 2021. This trend will continue in the future. This series of acquisitions will strengthen ecosystem collaboration and accelerate the tendency for fintech stacks to be rebundled. And that’s good news for consumers. Consumers will benefit from the accelerated pace of innovation and the development of new digital finance solutions that focus on quality rather than quantity.

Ongoing changes

Global payments will be restructured over the next year, with winners and losers. Increasing regulatory pressure and the complexity of building payment capabilities will force some players to go out of business or take over, reshaping the entire ecosystem. However, some face the challenge of developing new products and services that meet the changing needs of other companies and consumers after the pandemic.

As the global payments infrastructure continues to evolve, change will be the only constant in the next 12 months and beyond.

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About the author: Frederick Crossby is Nium’s CRO.

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