10 Lessons from the Payments Industry in 2022

The new financial year is close upon us, and financial professionals everywhere aim to make it better than the previous year. As always, applying lessons from the previous year positively will determine their success. However, with the manic rush that leads to the run-up of a new financial year, it can be easy to not take the time to remember what has been.

In this article, we will focus on the most significant lessons from the payments industry in 2022 so that this integral part of the finance industry can continue to move forward in 2023. So, what were the biggest lessons of 2022 that we shouldn’t be in a rush to forget?

1. Payment companies drop in valuation

Every lesson is important – even the bad and the ugly can lead to good outcomes. Maybe the most jarring of lessons in 2022 for payment companies was that their shareholder returns took a dent. Younger companies like Stripe and Klarna most acutely experienced this, resulting in them cutting their internal valuations by 28% and 85% respectively, but companies across the board were affected too.

Despite this perceived setback, as always, in times of jeopardy, there was opportunity. Mergers and acquisitions (M&A) presented themselves as a popular resolution to this situation. Given the decrease in value of payments companies, in 2022 the overall value of M&As was less than in 2021; however, they still resulted in many benefits. Along with giving disruptive companies a much-needed injection of funds, established players also gained access to a growth market they were previously just spectators of. In the long term, the general public will also benefit through gaining the best of both worlds from the payments industry thanks to experience being paired with innovation.

‍Lesson: drops in valuation can make companies reassess their journey, potentially discovering more fruitful and resilient partnerships which will help guide them to profitability.

2. Pay-by-bank swiping transactions fees

The method of transactions from consumer to merchant, whether online or in person, was historically dominated by the use of cards. In 2022 however, increased faith in open banking changed this, driving Pay-by-Bank uptake.

In the UK alone, the number of people using open banking swelled to over 6 million in June 2022. Last year, other countries like Australia also showed that they were keen to jump on the bandwagon with National Australia Bank investing largely in UK-based fintech, Banked, to help bring the technology to their country’s retailers.

This evolution of transactions means merchants will no longer have to pay banks and networks for transaction fees, potentially saving them up to 80%. On the other hand, banks will be missing out on a source of revenue. However, rather than resisting this change, banks have largely embraced it, illustrating that customer experience is now arguably more valuable than some forms of revenue.

‍Lesson: innovations which decrease sources of revenue don’t exclusively deliver negatives depending upon the outcome for customer experience.

3. Monetizing and filling the data void

The era of 3rd-party cookies is coming to an end – something no marketer is pleased about. They must reconsider entire strategies based on audience profiles, and despite the abundance of online data, Google’s initiation of phasing-out 3rd-party cookies in 2022 is making it less accessible.

However, issuers within the payment industry can be the hero which marketers are looking for. As holders of first-hand data, issuers have unique access to data on individuals who make purchases from not just one, but various merchants, every single day.  

To profit from this opportunity which began to really gain momentum in 2022, issuers must have effective data infrastructure in place along with processes which enable them to share their rich sources of data anonymously so that they too comply with current regulations.  

‍Lesson: new ways for payments companies to generate revenue are always emerging.

4. Merchants embracing payments

The popularity of payments technology soared during the pandemic, and its wave has continued to grow. In 2022 it became too large for any merchant to ignore, so much so that some of them began to venture into their own payment innovations.

This is a trend which large organizations such as Apple and Meta are currently exploring, and as is so often the case with these successful companies, it appears to be an astute decision. For starters, by developing their own payments infrastructure in the form of Apple Pay Later, Apple is removing a middleman when it comes to sourcing data whilst taking advantage of an increasingly popular form of payment.

In addition, through the acquisition of CreditKudos and Mobeewave, Apple has created a technology solution which many might never have thought of but fits their business model perfectly. With sales of the iPhone being the largest source of Apple’s growth in 2022, Apple went and made them an even more attractive model for both themselves and their consumers through the release of Tap to Pay on iPhone. iPhones can now be payment terminals too!

Lesson: payments are an invaluable activity for any merchant, but there is always opportunity to make them work harder for them.

5. Regional RTPs and International Network Infringements

Real-time Payments (RTPs) have become revolutionary within individual countries over the last few years; however, offering this payments innovation effectively across multiple borders has remained elusive.

Nordic countries including Denmark, Finland, and Sweden, are lighting the way to overcome this hurdle. Typifying this region of the world, the countries are coming together to collaborate on their pan-regional payments system, P27. Dozens of banks at the end of 2022 testing this unified network marks a huge stride forward in RTPs which other areas of the world are yet to achieve.

Whilst RTPs achieved progress in parts of the world, in other areas networks have faced new challenges and even a regression of their offerings due to national governments enforcing new data regulations. As with every year that passes, 2022 was another year that our lives became more entwined with data, and with it came more jurisdiction. An example of how this played out was the Reserve Bank of India (RBI) banning American Express, Mastercard and Diner Club from producing new cards in 2021 and undergoing negotiations throughout 2022. This all came about due to the RBI claiming that these payments companies were not complying with India’s local data-storage rules.

Lesson: collaboration can unlock tremendous potential, and ensure balance when enforcing new data regulations.

6. ISVs on the charge

The way which small to midsize merchants go about acquiring transformed significantly in 2022 thanks to Integrated Software Vendors (ISVs). Their triumph in this area has been thanks to them being able to do what larger acquiring banks were unable to – be agile.  

From the development of Mindbody for the fitness industry to Toast for restaurants, ISVs have found small gaps (too small for more prominent players) to enter where they can transform processes into those which feel bespoke for specific industries. Their impact is reflected by the fact that in America and Europe, nearly 30% of merchant-acquiring revenue is commanded by ISVs.  

ISVs’ ability to fulfil the needs which other acquiring stakeholders were not, or the ability to do the job of multiple payment companies through focusing solely on one industry, has resulted in a lot of SME merchants viewing ISVs as a more significant influencer than banking providers in some instances.

‍Lesson: informing development on needs specific to industries can disrupt and create a loyal customer base.  

7. Crypto Crashes Call for CBDC

Another ugly lesson from 2022 was the volatility of cryptocurrencies which many have long feared. Of particular concern was that many of the difficulties which the crypto market faced last year were consequences of external factors, undermining its supposed hermetic nature.

For starters, higher interest rates which initiated the cost-of-living crisis drove large numbers of investors to detract from their crypto investments. On top of this, Celsius Network put a freeze on withdrawals, only worsening the situation by demolishing trust and promoting further withdrawals across the crypto landscape. In addition, the global energy crisis had a direct impact on crypto mining. With electricity costs rising and the value of Bitcoin decreasing, miners faced significantly reduced profits or even losses in 2022.

However, external factors were not satisfied with merely having a knock-on effect on the crypto community. They also actively came after it in 2022, arguably with good reason. For instance, immediately after the fallout of Luna, the US Treasury Secretary reaffirmed their wish for regulation.

Another attempt by external forces to change the narrative around digital currencies which gained momentum in 2022 following crypto disasters was international governments pushing on with the development of Central Bank Digital Currencies (CBDCs). As digital equivalents to fiat currencies which aren’t decentralised and are backed by the reserves of central banks, these seem like a solid resolution to the turmoil which crypto experienced in 2022. Paired with the advantages they would gift governments when it comes to fraud, last year banks of 114 countries investigated how they can put them into action.

‍Lesson: no matter how disconnected something might be touted, everything is connected making backups, transparency, and collaboration vital.

8. Technology blunting financial sanctions

In February 2022, Russia began an invasion in Ukraine. Western countries were cautious about reacting in a military capacity but did hastily coordinate to impose financial sanctions. What was perceived to be the most damaging at the time of enforcement was removing the majority of Russian banks from SWIFT.

However, following this being threatened originally in 2014 as a reaction to Russia’s invasion of Crimea, Russia took preliminary action to nullify this threat should it ever be actioned through the development of System for Transfer of Financial Messages (SPFS). Although initially designed to cater for domestic transactions, it has also accumulated 404 financial institutions, including 23 from Germany, Switzerland, Armenia, Belarus, Kazakhstan, and Kyrgyzstan. As a result, despite Russia’s removal from SWIFT, their development of alternative SWIFT technology has contributed significantly to the Russian economy only contracting by 2.2% in 2022.

Similarly, China has created their own alternative to SWIFT named Cross-Border Interbank Payments System (CIPS). It boasts connections to 1,280 financial institutions in 103 countries and regions. Evidently, technological advances are therefore enabling entire countries to go it alone and still sustain a well-functioning payments infrastructure which has the capacity to entice collaboration with others.  

‍Lesson: increased development and availability of transactional technologies means that choice of values can be compatible with payment efficiency.

9. Networks leading ESG

With every passing year, the importance of ESG grows. Affecting every single one of us, and it also affects every industry. Within the payments industry, in 2022, networks took a leading role in promoting ESG.

Recognising, in particular, the importance of environmentalism to consumers, networks developed solutions which allowed issuers to embed sustainability into their card offerings. From carbon footprint calculators to cardholder rewards for sustainable behaviors, networks enable issuers to boost their ESG principles.

Importantly, networks didn’t just encourage others to prioritize ESG; they did too. A brilliant example of this from 2022 was Mastercard tying their employee bonus scheme directly to the individual ESG scores of staff.

Although the payments industry not directly linked to the environment, 2022 was the year that networks really embodied the principles behind ESG – they put their money where their mouth is with their own internal ESG commitments and collaboratively helped others put sustainability first.

‍Lesson: everything we do impacts the environment meaning that no company is unable to help it.

10. ISO20022 – a lesson in being prepared

Ever since the conception of the idea behind ISO20022, the path to make it a reality has been a windy one. Nevertheless, throughout much of 2022, November remained the go-live month for the brand new ISO20022 cross-border payments and reporting system.

However, as we now know, this event is now set for March 2023. SWIFT accepted calls for postponement following the European Central Bank delaying their own transfer to the ISO20022 system to around about the same time as the Bank of England’s. For a system designed to generate improvements through consistency, it was right to delay until a point of optimal collaboration!

‍Lesson: being prepared in advance is always best, but also always be equipped for changes.

2022 in review

For all areas of finance, 2022 was forecast as a tumultuous year, including the payments industry. However, although there were some challenges along the way, 2022 was a year when new initiatives came of age and some hard but beneficial lessons were learnt.

Collectively, these lessons are either related to innovation, opportunity, or the importance of regulation. At Aurum, we strive to fulfil and enable all of these. Our automated reconciliation software can:

• Innovate the reconciliation process of organizations across the world
• Generate opportunities for financial teams by delivering greater data insights and saving time
• Ensure regulations are met by acting as a core internal financial control

With more than 14 years as financial data matching software specialists, we put businesses in the driving seat with their data, ensuring compliance and control with a quality product tailored to each client’s needs.

If automated reconciliation didn’t feature in your 2022, why not make it part of your success in 2023?  

‍Book a demo with us now.