Now trending: The evolution of payments in 2023

The payments space is evolving at an unprecedented rate, but with 2023 set to be a turbulent year for businesses and individuals alike, questions have been raised whether this pace of progress is sustainable. 

With a looming global recession, there’s every reason to anticipate a wave of insolvencies, defaulted payments and an uptick in payment fraud. However, for businesses that are able to successfully navigate these difficult times, the payments sector holds the potential for many exciting developments.

Investors will continue to tighten their belts

Payments startups and other fintechs are preparing for a funding drought that will see investment activity continue to decline. Q3 of this year saw venture funding in Europe drop to its lowest level in almost two years – a 44% decrease compared to the same period in 2021. For some paytechs, the best chance at securing stability and funding during 2023 may instead come from partnerships with incumbent financial institutions. For others, the focus will be split between preserving their runway and demonstrating profitability to investors.

Against a backdrop of bleak investment outlook, embedded finance will play a key role. As traditional investors draw back, an opportunity will arise for embedded finance to bridge the gap that is left behind. In France, trade credit is the main source of financing for SMEs, accounting for €700bn of business trade, compared with €250bn of business loans and €60bn of factoring. These figures alone highlight the important role that embedded lending solutions could play in the coming months, and take me nicely on to my next point.

Embedded finance will become increasingly important

Payments used to be viewed as “boring infrastructure” but thanks to embedded finance, they’ve become the facilitator for offering all kinds of new services to a wider audience via APIs. For me, this makes embedded finance one of the most exciting areas in payments, and I see it only becoming more important as we move through 2023.

In 2020, the revenue of embedded payments alone was $16.1 billion and is projected to reach $140.8 billion by 2025. Recently, vast swathes of businesses have begun to realise the true potential that embedded financial services propose. 

Slowly, incumbents have been losing their monopoly over financial services as fintechs, retailers and other non-traditional firms create efficient and cost-effective digital-first solutions. As the demand for such products grows and expectations increase, we will see some really innovative and entrepreneurial activity in the embedded payments space.

Off the back of this, big banks and financial institutions will seek to form symbiotic relationships with fintech firms. The incumbents will benefit from the speed, agility and tech that they just can’t harness in-house, while the fintechs gain premium funding and a huge new audience.

Embedded finance improves the accessibility of financial services in two ways. Firstly, by bringing in a financial product like insurance at the point of need, embedded finance providers are significantly lowering the barriers to entry. Secondly, these businesses are able to bridge the financing and insurance gap by relying on alternative data sources. I advocate for embedded finance so strongly because I believe that everyone benefits.

Payments will facilitate the continued merge of offline and online commerce

2023 will see a continuation of the ongoing trend that has seen the worlds of online and offline commerce begin to merge.

Consumers desire a shopping experience combining the best that the online and offline worlds have to offer. They want the option to touch, see and try products while avoiding queues and crowds. They favour the price transparency offered by online shopping, but also crave the ability to take home purchases immediately. Naturally, payments has a big part to play in this, with tech like digital wallets and in-store BNPL just the first manifestation.

The QR code will continue to enjoy a renaissance 

QR codes are one small part of the much broader trend described above.

The COVID-19 pandemic gave new life to the humble QR code. For many months pub and restaurant goers would use their mobile devices to access contact-free menus and payment portals, in order to minimise contact. Even though the majority of drinking and dining experiences are now back to normal, QR codes continue to enjoy a resurgence in popularity. In 2022, QR codes have accumulated a total of more than 6.8 million scans globally – up 433% year-on-year. 

Studies predict that global spending via QR code payments will top $3 trillion by 2025, up 25% from this year, driven by a focus on promoting financial inclusion in developing countries as well as payments innovation in other regions.

Louis Carbonnier, co-founder & co-CEO of Hokodo