Since 2020, the payments industry has undergone rapid evolution, seeing a tremendous boost to digital and mobile payments and an explosion of new entries to the industry overall. As the economy cools and regulatory scrutiny intensifies, new challenges will have to be overcome by players in the industry. Recent thought leadership reports from big consulting firms like EY, McKinsey, and Forrester Research have offered a variety of key takeaways for those seeking to ride the latest wave roiling the market.
McKinsey has estimated that revenue for the global payments industry is now higher than pre-pandemic expectations, predicting that it will continue to rise to $3 trillion by 2026. The Asia-Pacific region accounted for more than half of 2021’s $2.1 trillion revenue, with North America generating just $500 billion. Growth in the APAC region was driven mainly by account-to-account and online payments.
EY has reported on the rise of “paytech,” which is setting the stage for continued disruption of the legacy financial sector. The report estimates that roughly a fourth of the fintech industry is now made up of paytech companies that act as or service facilitators, payment providers, networks, or equipment suppliers. The firm estimated the payments market at about $24 trillion, with paytech making up $2.17 trillion of the market. Paytechs are also creating a new market for monetized payments data, providing new ways to store, manage, and leverage the information.
Open banking was also touched on by EY, which reported that the increased level of control consumers have over their financial tools and real-time payments are empowering more account-to-account transactions and creating more opportunities for commerce, noting that paytechs are stepping up to embrace new regulations on cross-border payments and offer improved business models for providing services.
In spite of the explosive growth of the paytech industry, venture capital is continuing to move more cautiously through today’s more uncertain economic environment. Forrester Research has predicted that next year will see one quarter of payments companies closing up shop. Companies are responding by cutting expenses, reducing staffing and marketing efforts, which could potentially stifle innovation.
Swipe fees — also known as card network interchange fees — are a growing pain point for merchants, with legislators taking a closer look at tightening regulations and businesses beginning to push back against the additional impact on their margins. Forrester predicts that at least one global retailer will attempt to get around these fees by pushing the use of bank-based payment methods, such as ACH payments or bank-based merchant payment processors.
In spite of the darkening economic skies, there is still plenty of room for innovation and growth in an industry full of untapped potential. As new technologies and services continue to emerge, legacy banks will still have a chance to keep pace with disruptors by investing in key areas.