By Ashish Bhatnagar, Head of Cards & Payments, Global Growth Markets and Shreegopal Ramakrishnan, Director, Cards & Payments Consulting, Cognizant

In 2023, the cards and payments market will be more open, faster and standardised. Due to greater competition and acceleration of innovation, the sector is developing at a record rate and is no longer purely made up of a handful of players.

This speed of evolution has been made possible by regulators lowering barriers to entry, and new players accelerating innovation. Globally, there is a shift toward more responsive and faster transaction and settlement cycles, with over 60 countries already deploying “instant-payment” solutions. These changes in the market have and will continue to create new opportunities for both traditional players and disruptors to gain new customers, develop new products, and gain market share, reshaping the industry.

Cognizant’s 2023 cards and payments outlook offers six key trends that are likely to impact the market over the next 12 months:

1. Market fragmentation before consolidation 

As new entrants continue to enter the market, the disruption felt by traditional players is rapid and significant. These new entrants, which include fintechs with specialized products alongside new bilateral and multilateral payment networks, are shaking the payments ecosystem by leveraging their technological capabilities and customer-centric focus.

Regulation has opened up competition and lowered the barrier to entry. This, together with technological advances, has allowed for a more instant, frictionless and embedded customer journey. A few years ago, innovation was happening on the edges — e.g., with digital wallets or alternative payment methods. But now, changes are happening right at the core.  While we will continue to see innovations happening on the edges, we are increasingly seeing financial institutions undertaking initiatives to modernise their core

With many players leveraging technology, it makes this market an exciting space, with consumers and businesses being the largest beneficiaries. Maintaining trust will be vital for all players going forward; therefore, constant investment is paramount to keep up with regulations and stay ahead of the competition.

As the ecosystem evolves we will likely see further fragmentation before consolidation occurs.

2. Improvement of cross-border payments

Cross-border payments, particularly in the B2B space, are set for a shakeup in 2023 with extensive development, and improvement, expected in the coming 12 months.

Today, cross-border payments tend to be slow, generate high transaction charges, and are less transparent than domestic payments. However, improvements are being made, for example by Swift, P27 (in the Nordic region) and Nexus, as regulators lay the groundwork for cross-border payments to be modernized.

The improvements are positively impacting speed and security with new frameworks, but there are still obstacles that are yet to be surmounted including challenges related to technology, regulation and liquidity. The ISO 20022’s common technical standard enables interoperability, improved risk management and efficiencies. 2023 will likely see greater adoption of enhanced and rich data that will significantly improve cross-border payments.

3. Big Techs’ appetite for investment 

Big Tech companies like Google, Apple, and Amazon are increasingly investing in the payments market. Despite a tough 2022, their interest in this sector continues to grow, leading to increased competition and disruption. Big Tech firms have already begun to change the way payments are processed and have the potential to displace traditional players. With a strong customer base and advanced technology, they are well-positioned to compete with established players in the market. Innovations, such as digital wallets and other pioneering products, are transforming the payments landscape by providing a more easily accessible front door for customers.

Traditional players will need to decide which role they want to play in Big Tech entry into the payments industry, whether it’s competing directly or partnering with the Big Tech as an enabler to grow revenue channels.

4. Super app growth 

At the latest count, by BankMyCell, there were almost seven billion active smartphones on the planet — equivalent to over 86% of the global population. Therefore, unsurprisingly, there is an ever-increasing demand for mobile-first experiences, especially in the payments space.

In Asia, data-driven super apps are growing in usage and influence. Apps, such as WeChat, owned by TenCent, allow customers to purchase goods wherever is most convenient — customers can buy and book almost anything via smartphone.

As Gartner explains, “Super apps can consolidate and replace multiple apps for customer or employee use and support a business ecosystem.” We will see companies globally trying to emulate the success of Super apps like WeChat via an aggressive strategy . However, such a move may be hindered by the local banking regulations and will require cooperation between regulators and technology companies.

5. Asia Pacific continues to leapfrog other nations

Rising transaction volumes in Asia Pacific are outpacing the rest of the world and are likely to continue to do so. According to Cognizant’s 2022 State of Global Payments industry analysis, the region shows healthy annual growth of more than 8% which put them ahead of the Middle East and Africa (6.9%) and North America and Europe (both at 5%-plus).

Western countries are lagging China and India, mainly because there is a large cost to replace payment infrastructure. Many Asian countries seem to be able to leapfrog others without being burdened by legacy infrastructure, which enables rapid innovation. Growing platforms, such as RuPay in India and UnionPay in China, are looking to expand capabilities and enter new markets. Many Asian governments are rolling out financial inclusion and faster payment programs.

6. Balancing transactions in the physical and virtual

Effective payment solutions traditionally need to balance speed, cost, security and experience. With customers demanding ‘anywhere service’ payment providers must follow suit and ensure services are available where customers are spending their time. As technology advances at speed, the scope of ‘where’ will continue to expand from physical to virtual.

Unlike most other trends, the real success of payments will not come from payments occupying centre stage of our daily lives and ensuing payment transactions, but from disappearing into the background and providing invisible, embedded payment experiences. All transactions will gradually become more integrated with customers’ experiences and eventually slip beneath customers’ consciousness. Successful payment providers will strive to develop payment solutions that aren’t just frictionless, but also invisible.

Cryptocurrencies are here to stay in relation to the evolving payments infrastructure. They have proven use cases as alternatives to fiat currencies in certain economies. For most developed and developing economies crypto is a grey area and considered a risky investment due to its volatility, however many governments will continue to invest in their central bank digital currency projects in 2023.

The last, but not the least important aspect – and probably the most challenging one – is whether we do all this in an environmentally friendly way. By offering sustainable alternatives to traditional physical money and cards, payment providers can empower citizens to take control of their carbon emissions, whilst collecting data that drives insights into how people spend. These payment services have the potential to stimulate investment, shape the future, and ensure customers are more conscious of their decisions and impact on the environment.

For more insights, read our outlook series on Capital Markets and Banking, visit the Banking section of our website or contact us.