7 payments trends for 2022 as innovation climbs
From cross-border services to BNPL to cybersecurity tools, there will be no shortage of innovation and competition in the payments industry as businesses and their regulators shape new digital tools.
As the COVID-19 pandemic has cut a deadly path across the globe, killing too many people in countries far and wide, it unexpectedly set off a revolution in digital payments to cope with its impact.
In 2022, the demand for contactless, online, digital, frictionless and speedier payments will only increase as the pandemic continues to drive innovation in the industry. That means upstart fintechs, such as digital payments company Stripe and buy now-pay later provider Affirm, will keep offering new ways to make payments as they suck up billions in investor dollars aimed at creating faster, easier and cheaper worldwide payment tools.
From offering services to migrant workers desperate to send wages home to giving retailers new ways to provide installment financing to arming businesses with new cybersecurity tools, the field of payments will keep growing in 2022.
Consumers have been the target of many new payment services as they flooded online markets, but businesses are an even bigger bulls-eye for payments purveyors building new markets.
As new entrants tout their services and products, they're driving more competition and partnerships with major incumbents like card giant Visa and digital payments pioneer PayPal. The most adventurous among them are wading into cryptocurrencies and other digital asset services.
These dynamics are at the core of trends below that will keep the payments industry ablaze in 2022, with government regulators and lawmakers trying to keep the fire under control.
Prepare for battle
A spat between Amazon and Visa over merchant transaction fees is bringing a long-simmering dispute to a boil, and could spill over into more fights between card issuers and their retail partners.
The National Retail Federation (NRF) estimates swipe fees have skyrocketed from $20 billion a year in 2001, when the trade group began tracking them, to $110.3 billion as of 2020, and show no signs of slowing.
“The issue has been exacerbated by the increase in online shopping during the Covid-19 pandemic because virtually all e-commerce purchases are paid for with credit or debit cards,” the NRF has said. “Swipe fees are higher for online purchases than in-store purchases, and most buy online, pick up in-store and curbside delivery purchases are subject to online rates as well.”
As part of the spat, Amazon announced in November that it would no longer honor United Kingdom-issued Visa credit cards come Jan. 19. The e-commerce giant also is reportedly considering dropping its card co-branding deal with Visa and replacing it with rival Mastercard.
Wall Street analysts described Amazon’s move as a negotiating tactic. Indeed, Visa Chief Financial Officer Vasant Prabhu told Reuters in November that the company expects to resolve its differences with Amazon.
Of course, that’s easier said than done.
Amid the rise in e-commerce, there will be more disputes between payment networks and retailers “as both look to adapt to the new digital marketplace,” said Marwan Forzley, CEO of digital payments provider Veem. “On a larger scale, organizations and credit card networks will need to address this trend in the coming months,” he said in a statement.
It’s not just Visa that is dependent on swipe fee income, its rivals Mastercard, American Express and Discover Financial also rely on the interchange fees. According to the Nilson Report, total U.S. swipe fees jumped 70% over the past decade to $110.3 billion in 2020, from $64.6 billion in 2010.
Mushrooming BNPL will add B2B in 2022
Spurring the fee wars are challengers providing new payment tools. Buy now-pay later installment financing is one of them that hooked consumers last year and is expected to gain widespread adoption in 2022.
Amid growing interest in BNPL, which allows consumers to spread out payments over a defined period of time, the space has gotten crowded. BNPL players such as Affirm, Klarna, Afterpay and Sezzle are competing with digial payments behemoth PayPal, card giants and large and mid-tier banks.
BNPL has benefited from massive e-commerce growth during the Covid-19 pandemic. Menda Sims, chief payments officer at digital payments provider Stax, expects current inflation levels could nudge even more consumers toward the installments route.
“To me, I think the big headline is, it’s not just with the small minority," said Nilesh Vaidya, global industry head of retail banking and wealth management for Capgemini Financial Services. "It’s getting more and more mainstream."
BNPL transactions are projected to reach $995 billion by 2026, according to a Forrester report, and installments startups say they gain tens of thousands of new customers weekly.
“What I would expect really going into 2022 is an acceleration of adoption,” said Experian Senior Vice President David Bernard. “Double-digit adoption on the consumer side, and on the merchant side.”
Once BNPL providers establish a relationship with consumers, Vaidya expects they’ll delve deeper into financial services and broaden their services, offering loans, brokerage accounts or crypto. Affirm, Afterpay and Klarna have already introduced new products like debit and rewards programs.
The financing approach may also being to win over businesses. It’s exploded on the consumer side, but “we’ve hardly scratched the surface when it comes to businesses,” Bernard said.
That shift from consumers to commercial contracts could have major implications for other industry players, “because it’s a bigger chunk of money that will move away from the card networks into the loans,” Vaidya said.
Still, BNPL practices may also face more regulatory scrutiny as consumers fall behind on payments. Mizuho Americas analysts point to delinquencies and charge-offs rising across BNPL operators, and the frequency of consumers missing payments or borrowing through multiple apps.
Mobile wallets bulge with services
BNPL tools are one of the many apps bulging in the increasingly ubiquitous mobile wallets packed in Americans’ purses and pockets. Using their phones for payments is likely to become a bigger part of daily habits in 2022.
The deadly COVID-19 pandemic enticed consumers to try contactless apps, and now they’re spurring others on. Watching someone in the morning coffee line pay with a phone makes others want to get on board with the latest tech.
Mega payments processor Fiserv documented the growing U.S. affinity for mobile wallets. In an August survey of 3,000 U.S. adults, 68% had used a digital wallet in the past year, compared to 58% in 2020 and only about half in 2019, the company said.
The U.S. has lagged other parts of the world when it comes to adoption of mobile wallets, and it’s becoming a bigger opportunity cost as companies like PayPal and Square pack more finance functions into their “super apps.”
Gr4vy CEO John Lunn predicted 2022 will be the year that mobile wallets “rise to prominence,” he said by email. The shift will be driven by merchants moving away from card “swipe” fees and younger consumers opting for alternatives, said Lunn, whose San Mateo, California company provides cloud-based payment services for businesses.
“It’s generational,” said Daniela Hawkins, a consultant in the field at the firm Capco. Municipalities and businesses will drive changes in consumer behavior with payment possibilities they offer, Hawkins said, citing city transit systems and the retailer Walmart experimenting with new approaches.
-Published By
Jonathan Berr, Caitlin Mullen and Lynne Marek - Payments Dive
