I’m going to discuss seven trends this year that give innovators and company leaders in the payments industry a strategic framework for success.
1. Real-world issues drive payment innovation to return to the fundamentals.
In 2022, 348 web3 startups received funding totaling $7.5 billion, an increase of $4.5 billion from 2021, to support the unrealized vision of a decentralized web for a select few use cases that will take decades, if not ever, to scale. Last year, more than $120 billion was invested in metaverse projects to explore how people could live their best lives while linked to a virtual world. Even if investors reprimanded Meta, the most ardent supporter of the metaverse, a number of problems reduced its market cap by 65%. Even when the crypto winter grew so icy that it froze, cracked, and collapsed under its own weight, billions more venture capital dollars were invested in cryptocurrency and blockchain startups. Additionally, the most well-known private blockchain projects that were previously hailed as the future of logistics, commerce, and food provenance were abandoned.
Even though all 70 million Baby Boomers will be 65 or older by 2030, and researchers estimate that 70% of adults over 65 will need in-home care at some time in their lives, a firm that helps elderly people find in-home care received a whopping $15 million investment in 2022. Consider the size of the whole addressable market. Just a third of the meager $2.5 billion spent in this category overall in 2021 went to companies in this industry.
2. The biggest danger to traditional retail is the growing refill economy.
Refilling prescriptions is a common practice that enables patients to never run out of the drugs they require to get or stay well. In 2021, prescriptions were renewed for more than 6.5 billion times. Today, any consumer goods in the medicine cabinet, kitchen pantry, refrigerator, mud room, garage, shed, or basement may be made into an auto-refill by innovators using APIs and payments technology. This includes the clothing and accessories that customers routinely replace. Consider white T-shirts, sneakers, socks, and more.
By providing discounts depending on refill frequency, like they do now, brands will encourage customers to embrace this new method of payment in exchange for the consistency of those sales over an extended period of time. The information on consumption trends and usage will support brand growth in adjacent markets, product bundling, and more efficient supply chain and delivery cost management.We also discover that Amazon, which boasts over ten percent of Subscribe & Save customers in the U.S., has benefited, at least in part, from the broader retail subscription purge. Their intended market for converting consumables into refills is Prime Members.
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3. The industrial sector will dominate digital economy innovation.
In 2023, businesses operating in traditional industries—those that manufacture and distribute physical goods like manufacturing, farming, wholesale trade, and construction—as well as those that provide large-scale services like healthcare and logistics/transportation providers—will accelerate their shift to conducting business online. Although many of these companies have obscure names, they collectively account for about 35% of the US GDP and 47% of the worldwide GDP.
Traditional firms already have strong relationships with their customers and suppliers, unlike most consumer networks that must establish their networks from scratch. The purchasing process is complicated, paper-based, and frequently exception-driven, in contrast to consumer networks. Making a digital payment is simply one aspect of moving a business online. Industrial marketplaces will be able to integrate payments and working capital solutions into their processes thanks to advancements in credit, payments, technology, AI, and other fields. Data networks will investigate how payments affect the development of markets for business. Access to financing and working cash will serve as the cornerstones for creating these networks by innovators. There will be an influx of new capital and credit providers to finance and assist the large-scale delivery of that.
Building and running networks that can accommodate edge cases—exceptions that more often than not become the norm in business-to-business interactions along intricate supply chains—is a difficult task. The offline trust required for significant digital change must be established by networks demonstrating their ability to turn exceptions into rule.
4. As users look for ways to streamline routine transactions, commerce platforms transform into Super Apps.
The Super App has a clear allure: it offers users the option to start and end their days in a single, digital habitat. WeChat and Alipay, two Super App pioneers, have found success by successfully acclimating users. But over three-quarters of customers also make more purchases online every week, whether they’re paying bills, sending money to friends and family, or checking their bank statements. In industrialized economies, a remote and hybrid workforce only boosts the appeal of digital as an effective replacement for inconvenient physical world banking and retail experiences.
There are only a few players that can handle this digital front door and turn it into the “super” app since it unifies the management of the majority or even the majority of daily interactions including how consumers purchase, pay, and manage their money. In order to give customers a great deal while still keeping their financial and savings goals, this type of software will acquire its superpowers by leveraging data about banking and payment activities. As network effects inside of these commonplace apps generate new embedded payment options in 2023, new business models will emerge. To broaden their reach and monetize fresh flows, traditional and tech players will undertake acquisitions. As opposed to Big Tech mobile wallets, these players will resemble commerce platforms. These will be dependable middlemen who are already involved in banking and payments and who see chances to integrate commerce into the ecosystems that consumers already know and trust.
Additionally, we will see these platforms extend their reach into non-transactional activities, which currently account for the majority of everyday digital activity. These commonplace apps will integrate commerce into the high-engagement activities that already have the attention of the user, as opposed to starting with them and creating a super app around them.
5. AI becomes the game-changer for the service economy.
The valuation of Open AI, which was estimated to be twice what it was at the beginning of the year, made headlines last week. It’s rumoured that Microsoft wants to buy it, or at the very least use it to improve Bing. The ChatGPT “brain” and underlying technologies from Open AI have the power to revolutionize search by rapidly turning billions of data points into curated snippets. Over the next ten years, the country will need 124,000 fewer doctors to provide for its healthcare demands because to the greying of the workforce and pandemic-related burnout. By 2025, there will be 98,000 fewer medical technicians, 446,000 fewer nursing assistants, and 195,000 fewer nurses overall during the course of the next two decades, while the need for healthcare services will increase.
All industries point to a shortage of trained personnel as a barrier to corporate expansion, a problem that gets worse as new technological advancements call for a different kind of workforce. The knowledge base required to provide the workforce — any employee in any field — with the capabilities to produce a consistent, high-quality level of service is therefore where AI’s greatest promise lies. likewise fast and broadly. This implies that access to the best medical care will no longer be contingent on a patient’s proximity to the best physicians within a five-mile radius. The healthcare ecosystem, including doctors, nurses, and other healthcare professionals, will have access to data sources that will help them make quicker, more accurate diagnoses, treatments, and decisions. Almost all medical professionals will be able to use this technology, which will save costs for the healthcare system while improving patient outcomes and physician satisfaction. Of course, in many payment, banking, and financial activities, AI and machine learning are already taking over the most laborious and routine duties. With better and more accurate results, it is used to fight fraud, underwrite credit, and manage payables and receivables as well as cash flow. These results will become more intelligent, and these use cases will increase.
6. Crypto and FinTech companies now have to demonstrate that their operations don’t hurt customers or pose a systemic danger.
Lawmakers and regulators have taken a cautious approach to FinTech and cryptocurrency legislation, frequently arguing that they shouldn’t take any actions that could imperil the inventions that are meant to change the world. They were hesitant to dispute visions that were being communicated in a language they couldn’t understand and were also reluctant to seek out information. It took place in 2022. The onus of evidence is now on cryptocurrency — and possibly FinTechs more generally — to demonstrate their legitimacy in the wake of the collapse of FTX, the legal actions against the fraudsters and celebrity spokespeople, and the breakdown of the hype machine for crypto.
Players in the cryptocurrency market, notably private stablecoin issuers whose main goal is to facilitate efficient trading of cryptocurrencies, should brace themselves for more of the same scrutiny. As the CFPB and OCC examine the criteria for what it means to be a bank and offer banking-like services, FinTechs will also be scrutinized. Additionally, the CFPB will use rulemaking to make more drastic and quick adjustments to advancements in banking and credit services.
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7. Without blockchains and cryptocurrencies, payments become smarter and faster.
Ever before Ethereum launched in 2014, people have been talking about the potential of smart contracts. What could be more appealing than delivering a payment with instructions to release it only after certain requirements are met? The issue is that, after almost 10 years, it is still only a promise, and a pricey one at that, especially taking into account the processing or “gas” expenses, which are, unfortunately, frequently larger than the processing fees for traditional payments.
In 2023, payments and financial networks—including private blockchains—will become smarter without cryptocurrencies and cryptocurrencies. When businesses develop new use cases for immediate payouts and innovators enable instant to be integrated into any payments workflow at scale, traditional networks will become quicker. Interoperable RTP networks will focus on major thoroughfares and financial institutions to build a critical mass using fiat money. Business-to-business networks will make money “programmable” based on conditions and guidelines set by the networks by using software and data. Banks and participating companies’ transactions will be cleared and settled using closed-loop, permission-based “on us” networks.
Conclusion
I anticipate that ten years from now, we will reflect on the amazing payment innovations that took place in 2023 and exclaim, “Wow.” Although many of them may not score highly on the buzz scale, they will greatly influence a digital economy that is increasingly accessible and connected.
