The new year will see a range of developments across the payments industry, requiring firms in the space, requiring merchants to adapt to changing consumer trends in order to maintain successful operations.
This is the view of Kamran Hedjri, CEO of PXP Financial, who in a written piece for Payment Expert predicted continued growth for open banking, APMs and biometrics in 2022 as well as further tightening of regulatory oversight.
By the latter stages of 2021, a semblance of normality had returned to the purchasing behaviours of consumers. However, the surge in payments innovation and widespread consumer adoption of next-generation payment methods continued, leading to a payments ecosystem that is almost unrecognisable compared to just a few years ago.
Now, as the shutters are lowered in 2021, we look ahead and consider the big, expected changes and trends for 2022 from new technologies and customer demands to tightening regulations. And, what merchants can do to thrive in the 12 months ahead.
The lasting legacy of COVID-19 on the payments industry
One of the most dramatic shifts in consumer behaviour as a result of the pandemic was the move away from cash. Although cash payments were already on a downward trend, declining by 70% since 2010, the drop was particularly notable during the last two years. Whereas cash was used for 56% of all payments in 2010 and for 45% in 2015, in 2020 its usage plummeted to just 17%.
This widespread departure from cash strengthened customer expectations for digital alternatives and the payments industry responded by converging channels and minimising friction between each in all stages of the customer journey.
By leveraging the power of payments, immersive customer experiences were created and will only grow in prevalence and sophistication next year and in the years to come.
Open Banking, APMs and biometrics will soar
Fintech will hit new heights in 2022 as Open Banking becomes more pervasive. It has been estimated that by September 2023, 60% of the UK population will be using the technology. If this estimation proves correct, then it is in 2022 that some of the most serious advancements will be made as it powers competition across the payments and financial services sectors.
Elsewhere, multiple Asian countries such as Hong Kong and Singapore are now prioritising Open Banking. As individuals within these countries display a greater willingness to share their data the uptake of the technology is likely to accelerate in the coming years.
In the US, many banks collaborate with fintechs like PayPal and Intuit and American regulators have taken a comparably more relaxed approach compared to Europe. This is allowing the industry to move more quickly towards standardisation and various initiatives, such as the Financial Data Exchange, aim to standardise Open Banking practices.
The rise of Open Banking will accordingly facilitate more open ecosystems, further intensifying competition and leading to a raft of improved solutions for customers. Incumbent players in the payments space will need to adapt or risk straying towards irrelevance.
With a global population now well versed in payments technologies, the successes of APMs will be amplified and consumer expectations of merchants to accommodate the likes of digital wallets, BNPL, and cryptocurrencies will solidify. In 2022, digital wallets and QR-based options in particular will be key for attracting shoppers back in-store with contactless becoming an outright necessity.
Across the globe, in-store contactless payments via mobile wallet exceeded cash or card payments for the first time in 2020 and are expected to account for around one in 3 in-store transactions by 2024. In 2022, APMs generally will continue their journey towards becoming the most common method of payment and will soon be beating cash and cards in all environments and territories.
AI and Machine Learning are also set to play a more prominent role in enhancing customer experiences. The level of success merchants enjoy with these next-generation technologies will depend on their approach to data and recognising that, rather than an add-on, it is essential for understanding customer preferences and optimising their journeys.
Biometrics are another technology likely to become much more evident in 2022 with many organisations now actively investigating how they can be embedded into customer payment journeys. Quick, simple, and secure, they are already a common feature for unlocking banking apps and the speed of adoption and integration into daily routines continues to grow.
In 2021, over 15,000 businesses across the globe were accepting Bitcoin as the rise in cryptocurrency usage continued. Following this trend, 2022 will see further consumer adoption as these methods of exchange improve their ability to enable friction-free, instant payments.
Adaptation is key and the ‘last mile’ becomes critical
To remain current, grow their customer-base, and increase conversion rates, merchants have always needed to adapt to new trends and technologies. However, the current speed of change in consumer behaviours is unlike anything previously witnessed and those merchants that have resisted digital transformation exercises must urgently rethink their approach.
Particular focus will need to be placed on the ‘last mile’ of the customer journey as it is within the final payments process itself that the overall customer experience is determined. Merchants cannot afford to invest in acquisition strategies without making sure customers can complete a purchase once in the online checkout or in-store.
Regulatory changes in payments will tighten
Enforceable in the UK since September 15th, 2021, Strong Customer Authentication (SCA) is a new requirement of the PSD2, and aims to add extra layers of security by requiring banks to perform additional checks to confirm identity when consumers make payments.
In 2022, merchants must be prepared for customers having to provide two forms of identification to their bank when shopping with them. It is thus vital that merchants understand the regulation and have an SCA protocol established to acquire a competitive edge. To aid understanding, UK merchants can access a wealth of insights from the EU where many member states have, to varying degrees, been applying SCA since 2019.
A requirement for digital IDs is also being planned by some of the biggest global economies which would allow for more open ecosystems. For example, the EU is aiming to launch an identity verification framework in 2022, the impact of which will be felt by many eCommerce traders.
2022, the year of payment partnerships and heightened customer demands
There has been much consolidation activity in recent years and this trend is set to develop in 2022. Deeper collaboration and an embrace of open ecosystems will lead to the creation of new, ground-breaking solutions as partnerships between different players in the payment space act as an innovation enabler.
It will come as welcome news to consumers who increasingly wish to pay for their goods how they want and when they want, and no longer tolerate friction. Seamless payments within the customer journey will this take on added significance in 2022.
However, seamless payments are not all that merchants will need to accommodate. Payment options must be tailored to specific audiences by using intelligent customer profiling. The likes of last used, most used, and fallback payment options must be readily available together with smart recommendation models to help create the immersive payment experiences customers want.
How merchants can meet the demands of 2022
Of most importance is that merchants are prepared for the year ahead and have a flexible technology infrastructure in place that can adjust to ever changing customer needs and behaviours.
The right payments partner has become crucial for addressing both current and future requirements. Bolstered by a payments partner which shares its expertise and uses a consultative approach, merchants can acquire a deep understanding of what the best tools, products, and features are to meet their business objectives.
With the right partnership in place and by intelligently using data to better understand their customers and create best-in-class experiences, merchants should be looking towards 2022 with renewed optimism.