In recent years, the financial business ecosystem has experienced a significant transformation, particularly with regard to payment solutions. Particularly between 2021-2022, The payments industry experienced a period of transition that fueled a greater level of industry consolidation and attracted more tech-savvy ecosystem players.
Merchants learned to incorporate newer and easier ways to reach and engage customers through digitally-powered storefronts; people traded with various types of cryptocurrencies as an alternative way to enjoy financial freedom and hedge their funds against economic instability; simply put, payment solutions have developed into an enabling function for the seamless operation of the business and financial worlds. However, 2022 has also seen a sharp economic downturn, including hyperinflation, and a spike in the cost of living. As the payment ecosystem continues to adapt and evolve in the face of such challenges and opportunities, here are the trends we believe will garner the most attention in 2023:
Crypto/ Central Bank Digital Currencies
As is already common knowledge, the payment solutions market will continue to see significant growth in 2023 thanks to the relevance of cryptocurrencies and other digital assets. Most significantly, there will be more regulation and more trust in it as a legitimate payment alternative. This is because cryptocurrency has established a huge significance in user applications and adoptions. In light of this, it is also anticipated that more countries will adopt or test the use of Central Bank Digital Currencies.
To ensure user safety, more private exchanges will take extra precautions to protect their clients and seek to operate in a regulated environment, thereby increasing trust in Crypto as a long-term payment solution. As cryptocurrency becomes more regulated, the likelihood of the trust factor improving is high and we envisage more traditional retail channels offering it as an alternative payment method in addition to the existing traditional payment methods.
Defi
The growing popularity of fiat-to-crypto and crypto-to-fiat services such as GateFi makes it much easier for new customers to enter the DeFi world. The plans of some countries’ central banks to issue a tokenized non-cash currency based on blockchain technology may serve as another incentive to popularize DeFi. Stablecoins issued by regulated organizations can partially replace private decentralized stablecoins and cryptocurrencies in DeFi, which should increase trust in DeFi among new users and institutional investors alike.
AI as a Risk Management and Anti-Fraud Tool
Solving risk management and fraud in finance has been a significant concern for many payment solution organizations around the world, and we predict that this will become even more apparent in the coming year. Competitive pressures and the benefits of AI optimization are driving business processes, and in some cases entire industries, to rely more heavily on AI. Companies are devoting more resources to developing, procuring, or acquiring AI tools and strategies to meet this demand. This is further underpinned by other external risk management factors that influence the Fintech ecosystem such as the diverse geopolitical realities across the globe, the heterogeneity of regulatory requirements across different markets, the emergence of new barriers to the flow of funds, as well as the innovation of new fraudulent measures by cybercriminals. As a result of all of these, it is reasonable to anticipate an emerging trend of the use of artificial intelligence technologies as financial protection and risk management tools in the coming year.
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The Super app Boom
Africa is seeing continued growth in digital services and super apps and we anticipate that this sector will continue to expand in the upcoming year. This trend is evidently emerging amongst financial institutions across the world. These days, the banking applications of conventional financial institutions and other neo-banks are characterized by a plethora of supplemental features made to cater to the demands of customers, whether those needs are directly or indirectly related to the management or usage of their cash.
There are other businesses that provide these Super app services, and Revolut, a financial application that enables you to manage investments, buy insurance, and book hotels, is just one shining example. Additionally, customers can also order movie tickets, summon a taxi, or schedule a doctor’s appointment directly through an application called WeChat. Numerous Nigerian banks that have been successful in incorporating a lifestyle arch into their standard mobile banking applications are also following this trend.
Simply put, financial institutions want to centralize their applications around their customers’ digital needs; the exit threshold of the aforementioned clients invariably drops when such needs are met.
Banking as a Service (BaaS)
This typically implies that payment institutions offer brands, businesses and companies access to their regulated products, often, through Application Programming Interface (API) models, with the said institutions embedding financial products into their end-user offerings. The Use-Cases for this can be as small as the issuance of a virtual card solution to as big as building the next FinTech giant. APIs offer flexibility to businesses looking to embed financial products and they reduce unnecessary friction as any digital company can offer this service without the rigmarole that regulations bring.
It’s interesting to note that during the past year, searches on Google for terms like “digital banking,” and “FinTech” have surged tenfold, along with the number of companies providing BaaS. As a result, it can be concluded that Banking as a Service is undoubtedly here to stay and will significantly influence payment solutions.
Overall, we are optimistic about the potential of the payment solutions market; we envision a time when using digital payments is quick, easy, and frictionless for everyone. The payment industry has remained at the forefront of innovation and will continue to do so as long as user protection and transparency remain top priorities.
