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Covid-19 changed the way consumers and businesses approach payments, and fintech innovation is at the forefront of these developments. Looking to the future, what can we expect from the payments industry?
Covid has made consumers and businesses more accustomed to doing almost everything online. This has created a significant increase in demand for e-commerce, making online checkout experiences more of a priority than ever.
Better payments infrastructure will be critical for merchants to ensure a quick recovery from the impact of the pandemic. From cross-border transactions to the introduction of Buy Now Pay Later (BNPL) to business-to-business (B2B) transactions, there has never been a better time for technology and payments to deliver innovative solutions in unison. As the fintech landscape continues to evolve, here are my top six predictions that will shape payments in 2022 and beyond:
Open banking paves the way for underserved businesses
Open Banking is increasing the services available to businesses that have historically struggled to compete with big-name brands. Partnering with a financial service provider that offers Open Banking services gives them access to consumer banking, transaction and other financial data from banks through APIs (Application Programming Interfaces). This is a huge benefit for merchants as it gives them ownership and eliminates unnecessary third-party processes and fees.
Open Banking services will be essential for all businesses in a post-pandemic environment. SMEs looking to grow their business in a digital marketplace will first see undoubted improvements in their internal processes and their ability to accept payments.
BNPL creates opportunities for B2B use cases
During the pandemic, one in three UK consumers used BNPL services more often than before. Now the payments industry is exploring how BNPL can benefit other companies.
B2B BNPL aims to solve the problem of lack of funds for both buyer and seller. It is less risky than B2C BNPL for both parties as it creates a trusted source for B2B buyers, ensuring they receive credit while the seller gets paid faster through outsourced funds.
B2B BNPL will allow companies to purchase the goods and services needed to grow their business, while the BNPL provider pays the seller in full, bearing the risk of default by their customer.
Harness the power of data
Data, used in the right way, can transform businesses, with the average person projected to produce data every 18 seconds by 2025. Data can identify patterns in purchasing behavior and preferences, allowing companies to companies produce personalized experiences for their customers.
That’s where technologies like AI and machine learning (ML), and their ability to analyze vast amounts of data, can help. AI will define the future of payments as it enables comprehensive analysis of business and consumer transaction histories and spending habits. Merchants who have this at their disposal will generate valuable insights and the ability to create unique experiences for individual shoppers.
The rise of B2B markets
A B2B marketplace is similar to e-commerce websites that connect buyers and suppliers, like ASOS or Etsy. It offers convenience by providing multiple vendor options, a larger number of potential customers, and the ability to provide online services such as commerce and payments all on one platform.
B2B marketplaces are mainly beneficial for SMEs as they help them reach more customers and market their services in a more accessible way. In simple terms, B2B marketplaces offer SMEs in particular the advantage of a broader consumer group and the ability to offer services online without the need to set up an e-commerce site.
However, the future of the market is still in its infancy and could take radically different forms. Big brand B2C marketplaces, for example, could become the dominant multi-category marketplace for B2B use cases. Therefore, distributors will need to seize the market opportunity to play a key role in shaping that future.
Creating solutions that will help SMEs prosper
Consumers and other businesses have put more emphasis on supporting local growers and suppliers since the pandemic. There is a strong sense that small businesses have an important role to play in ‘building back better’. The cash flow research found that 70 per cent of UK consumers are willing to spend up to 10 per cent more on an item from a local or independent supplier than they would pay for the same item from a chain.
SMEs are the lifeblood of the UK economy and fintechs must operate to support both large and smaller businesses. In separate research, Cashflows found that 71 per cent of UK SMEs say their customers expect streamlined online transactions. Strategic partnerships will help merchants gain access to a wide variety of payment methods (both online and in-store) and one-click or personalized checkout experiences. The ability to offer these innovative payment solutions will be key for SMEs to compete with the big brands.
Cryptocurrency entering the mainstream
During the pandemic, fintechs, banks, and governments around the world have been looking for ways to take advantage of the growing interest in cryptocurrencies for everyday transactions.
For example, Stablecoin, a fiat-backed digital currency, has emerged as an innovative payment technology that combines the stability of fiat currencies with the benefits of public blockchain networks. Stablecoin is also growing rapidly, with over $50 billion worth of stablecoins in circulation currently generating $200 billion in payment volumes each month.
The pandemic has accelerated the shift to contactless and digital payments, but has also led to a more widespread recognition of cryptocurrencies as viable forms of payment. While the industry still has a long way to go, clear regulation that gives people more confidence in the security of blockchain networks will be key. In doing so, cryptocurrencies will become a form of payment that could benefit the poor and unbanked, as well as smaller businesses such as street vendors.
The future of payments looks promising
Covid-19 has accelerated innovation within the payments industry, encouraging us all to go digital. As we look to the future, companies must be receptive to the constant and inevitable changes in both technology and consumer behavior. This will be key to ensuring success in a post-pandemic environment.
It is impossible to predict precisely what payment innovation will look like in the next five years, but it is clear that the role of payments now is more than just an exchange of value for goods and services. The pandemic has created a once-in-a-lifetime opportunity to rethink how companies approach their payments strategy. Payment innovation will not only improve the customer journey, but will be imperative for continued growth.
To learn how your company can optimize its payment strategy, visit www.cashflows.com
Originally Posted on Business Reporter