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Top Trends in Payments 2022

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Top Trends in Payments 2022

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The Covid-19 pandemic necessitated the payments industry undergo a facelift, sparked by novel approaches from new-age players, fostered by industry consolidation, and customers’ demand for end-to-end experience. Crossing the threshold, the industry is entering a new era – Payments 4.X, where payments are embedded and invisible, and an enabling function to provide frictionless customer experience. As customers make a permanent shift to next-gen payment methods, Digital IDs are critical for a seamless payment experience. The B2B payments segment is witnessing rapid digitization. BigTechs, PayTechs, and industry newcomers are ready to jump in with newfangled solutions to help underserved small to medium-sized businesses (SMBs).

As incumbents struggle with profits, new-age firms are forging ahead to take the lead in the Payments 4.X era by riding the success of non-card products and services. The new era demands collaboration, platformification, and firms can unleash full market potential only by embracing API-based business models and open ecosystems. Data prowess and enhanced payment processing capabilities are inevitable to thrive ahead. The clock is ticking for banks and traditional payments firms because the competitive advantage is not guaranteed forever. As industry players seek economies of scale, consolidations loom, and non-banks explore new territories to threaten incumbents’ market share. While all these 2022 trends are at play, central bank digital currency (CBDC) is emerging globally and might open a new chapter in the current payments landscape.

The Covid-19 pandemic necessitated the payments industry undergo a facelift, sparked by novel approaches from new-age players, fostered by industry consolidation, and customers’ demand for end-to-end experience. Crossing the threshold, the industry is entering a new era – Payments 4.X, where payments are embedded and invisible, and an enabling function to provide frictionless customer experience. As customers make a permanent shift to next-gen payment methods, Digital IDs are critical for a seamless payment experience. The B2B payments segment is witnessing rapid digitization. BigTechs, PayTechs, and industry newcomers are ready to jump in with newfangled solutions to help underserved small to medium-sized businesses (SMBs).

As incumbents struggle with profits, new-age firms are forging ahead to take the lead in the Payments 4.X era by riding the success of non-card products and services. The new era demands collaboration, platformification, and firms can unleash full market potential only by embracing API-based business models and open ecosystems. Data prowess and enhanced payment processing capabilities are inevitable to thrive ahead. The clock is ticking for banks and traditional payments firms because the competitive advantage is not guaranteed forever. As industry players seek economies of scale, consolidations loom, and non-banks explore new territories to threaten incumbents’ market share. While all these 2022 trends are at play, central bank digital currency (CBDC) is emerging globally and might open a new chapter in the current payments landscape.

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Top Trends in Payments 2022

  1. 1. TOP TRENDS IN PAYMENTS 2022 SLIDESHARE DECK RESEARCH INSTITUTE November 2021
  2. 2. Payments Trends 2022 | SlideShare deck | November 2021 2 Company Confidential © Capgemini 2021. All rights reserved | ASSESS YOUR SCENARIOS! STRIKE THE BALANCE BETWEEN ADOPTION AND BUSINESS IMPACT! Top Trends in Payments for 2022 by Capgemini Source: Capgemini Financial Services Analysis, 2021. Customer centricity 1 Next-gen payment methods will drive growth in the Payments 4.X era 2 Digital ID infrastructure will be the key as payments become transparent Go-to-market agility 3 D2C and other novel propositions from non-banks empower SMBs and merchants 4 BigTechs foray into B2B segment through partnerships Open ecosystem 5 Cost and operational advantages drive banks to embrace open ecosystems Intelligent process 6 PaaS and data-based API business models help unlock new frontiers Business resilience 7 Cybersecurity is critical as data becomes nimble in open finance future 8 PayTechs focus on market expansion and M&As to improve profitability 9 Consolidation remains unabated driven by need for economies of scale 10 Growing interest on CBDCs demand future-readiness Adoption priority (2022) Business impact (2022) Medium High Significant Medium High Significant 1 5 4 8 9 10 6 7 3 2
  3. 3. Payments Trends 2022 | SlideShare deck | November 2021 3 Company Confidential © Capgemini 2021. All rights reserved | TREND 1: NEXT-GEN PAYMENT METHODS WILL DRIVE GROWTH IN THE PAYMENTS 4.X ERA The traditional payments instrument mix is morphing into a new payments mix due to accelerated customer adoption of digital payments The pandemic increased the urgency for banks and payments firms to modernize payment systems, transform the payments mix and increase affinity to digital payments. Source: Capgemini Financial Services Analysis, 2021. Customer centricity Go-to-market agility Open ecosystem Intelligent process Business resilience Traditional payments mix Cas h Checks Credit cards Debit cards Credit transfers Direct debits Traditional payments Instant payments + e-money payments The COVID-19 pandemic accelerated customer adoption of digital payments Instrument mix is getting altered E-commerce is the mainstream shopping preference End-to-end payment experience is critical New payments mix
  4. 4. Payments Trends 2022 | SlideShare deck | November 2021 4 Company Confidential © Capgemini 2021. All rights reserved | TREND 2: DIGITAL ID INFRASTRUCTURE WILL BE THE KEY AS PAYMENTS BECOME TRANSPARENT As consumers and businesses demand safeguards from payment fraud, digital ID evolves as a prominent tool for remote identification and authentication Access to a single, unified, more integrated digital ID scheme will streamline the identity process globally, and enhance consumer experiences in Payments 4.X era. Source: Capgemini Financial Services Analysis, 2021. Customer centricity Go-to-market agility Open ecosystem Intelligent process Business resilience DIGITAL ID INFRASTRUCTURE Individual control over ID data Catalyst for financial inclusion Multi-use cases extend beyond payments Security and convenience Frictionless onboarding Universal access and speed
  5. 5. Payments Trends 2022 | SlideShare deck | November 2021 5 Company Confidential © Capgemini 2021. All rights reserved | TREND 3: D2C AND OTHER NOVEL PROPOSITIONS FROM NON-BANKS EMPOWER SMBS AND MERCHANTS As the gap between lending and payments shrinks, expect to see more innovative offerings built on data and intelligent analytics to improve CX for SMBs. Source: Capgemini Financial Services Analysis, 2021. Customer centricity Go-to-market agility Open ecosystem Intelligent process Business resilience SMBs have little access to formal credit owing to roadblocks such as insufficient credit history, slow loan approval processes, and inflexible policies of traditional lenders Digital channels are providing a fast, seamless, and convenient way to serve SMBs Growing adoption of digital payments accelerated by the pandemic Unmet market needs Digital proliferation Customer readiness Enhanced customer experience for SMB customers being delivered by new-age players will further increase the expectations for fast and seamless services The lending pie will grow as the underserved segments get easy access to credit Probability of delinquencies and defaults will reduce with vendor payments and supply-chain financing options becoming digital To fill the gap left by the traditional lenders, new age players are coming in with tailored, innovative, and niche offerings to address SMBs’ unique needs
  6. 6. Payments Trends 2022 | SlideShare deck | November 2021 6 Company Confidential © Capgemini 2021. All rights reserved | TREND 4: BIGTECHS FORAY INTO B2B SEGMENT THROUGH PARTNERSHIPS Source: Capgemini Financial Services Analysis, 2021. Customer centricity Go-to-market agility Open ecosystem Intelligent process Business resilience BigTechs Core assets Primary resources which BigTechs are using to offer products and services for their B2B clientele at scale Business strategy Strategies deployed to acquire capabilities and/or infrastructure to distribute offerings Primary offerings Services to enable payments and transactionall services Value-added services B2B marketplaces can be facilitated through their ecosystems for a frictionless one-stop shop for businesses Invoice automation and disbursements Deep pockets Advanced technology resources Tech giants leverage payments as a steppingstone in their FinTech journey to expand their customer base SMB lending is slowly moving to BigTechs, and in 2022, banks will compete with these technology giants while also collaborating regarding capabilities and reach.
  7. 7. Payments Trends 2022 | SlideShare deck | November 2021 7 Company Confidential © Capgemini 2021. All rights reserved | TREND 5: COST AND OPERATIONAL ADVANTAGES DRIVE BANKS TO EMBRACE OPEN ECOSYSTEMS Source: Capgemini Financial Services Analysis, 2021. Customer centricity Go-to-market agility Open ecosystem Intelligent process Business resilience OPEN ECOSYSTEMS Access to federated data exchanges Capabilities for beyond-banking and payment services Resources for fraud prevention and transaction monitoring Expedited adherence to standards and compliance Shared utilities for operational and cost efficiencies Firms are embracing open ecosystems to gain efficiencies at scale while reducing costs through shared utilities Open ecosystems make bode well in low-profit environments as they offer FIs a cost-effective way to meet consumer demand while utilizing digital efficiencies to streamline operations.
  8. 8. Payments Trends 2022 | SlideShare deck | November 2021 8 Company Confidential © Capgemini 2021. All rights reserved | TREND 6: PAAS AND DATA-BASED API BUSINESS MODELS HELP UNLOCK NEW FRONTIERS Source: Capgemini Financial Services Analysis, 2021. Customer centricity Go-to-market agility Open ecosystem Intelligent process Business resilience To generate new revenue streams from financial and non-financial partnerships, banks and payments firms need to build a strategy for leveraging APIs and open banking Banks must build foundations that deliver flexibility and agility to offer customer-centric solutions, and in line with that, incumbents will craft API strategies in 2022 and beyond. Infrastructure (inward looking/back-end)  Native embedding of on-demand infrastructure requirements for real-time payments processing, messaging, smart routing, cross-border payments e.g., SWIFT, Finix, Volante-Ripple  Dominated by e-commerce players e.g., Shopify, Amazon, Tencent  Good at marketplace economy and generate network effects Distribution (customer-facing) Connection (FinTech/third-party facing)  Compliance-as-a-Service, consent management, federated digital ID  E.g., Plaid, Qover, Intuit, Quickbooks Collaboration in Payments 4.X
  9. 9. Payments Trends 2022 | SlideShare deck | November 2021 9 Company Confidential © Capgemini 2021. All rights reserved | TREND 7: CYBERSECURITY IS CRITICAL AS DATA BECOMES NIMBLE IN OPEN FINANCE FUTURE Source: Capgemini Financial Services Analysis, 2021. Customer centricity Go-to-market agility Open ecosystem Intelligent process Business resilience As more and more consumers embraced new payments methods in the wake of the pandemic, cybersecurity became even more important In 2022, expect firms to implement a combination of digital identity, automation, and analytics to derive insights that reduce cyber risks and offer value-added customer services. Artificial intelligence, machine learning Data analytics Regulations on cybersecurity-digital ID Cyber-risk mitigation solutions implemented by FIs and regulators Factors driving the importance of cybersecurity in payments space Growth in non-cash transactions volume Increase in ecommerce payments Accelerated innovation in payment methods Rising cyber threat Rising cyber threat Cloud technology
  10. 10. Payments Trends 2022 | SlideShare deck | November 2021 10 Company Confidential © Capgemini 2021. All rights reserved | TREND 8: PAYTECHS FOCUS ON MARKET EXPANSION AND M&AS TO IMPROVE PROFITABILITY Source: Capgemini Financial Services Analysis, 2021. Customer centricity Go-to-market agility Open ecosystem Intelligent process Business resilience In 2022 and the years ahead, the payments industry will shift from payments as a product to becoming an enabling function for customer reach and CX. Inception (0–5 years) Proliferation (5–7 years) Diversification Primary offering Scale-up offering (within FS) Scale-up offering (beyond FS) Boosting revenues and profits Creating a digital ecosystem Expanding to new geographies Set their sights on bigger ambitions by diversifying their offerings to achieve business resilience Riding on success of non-card products and services Digital payments as an entry point for FinTechs to set foot in financial services Strategic ambitions Data-driven hyper-scalers move on from payments and set their sights on diversifying offerings, building ecosystems, and achieving profitability and business resilience
  11. 11. Payments Trends 2022 | SlideShare deck | November 2021 11 Company Confidential © Capgemini 2021. All rights reserved | TREND 9: CONSOLIDATION REMAINS UNABATED DRIVEN BY NEED FOR ECONOMIES OF SCALE Source: Capgemini Financial Services Analysis, 2021. Customer centricity Go-to-market agility Open ecosystem Intelligent process Business resilience As consolidation continues, payments firms might bulk up to offer a one-stop shop for end-to-end services and provide a wide variety of value propositions. Payments firms realize the need for consolidation to increase their scale of operations, expand their portfolio, and extend their geographical reach. Urgency to scale up operations, expand portfolio, and geographical reach to remain resilient and sustainable in payments industry Potential cost savings by establishing synergy with leading technology players or large FIs Accelerated growth in payments innovation and unprecedented customer need for personalized experiences Call for modernizing of the incumbents inflexible, expensive, and outdated legacy core systems Need to mitigate competition and increase market share in payments landscape Consolidation drivers
  12. 12. Payments Trends 2022 | SlideShare deck | November 2021 12 Company Confidential © Capgemini 2021. All rights reserved | TREND 10: GROWING INTEREST ON CBDCS DEMAND FUTURE-READINESS Source: Capgemini Financial Services Analysis, 2021. Customer centricity Go-to-market agility Open ecosystem Intelligent process Business resilience As consolidation continues, payments firms might bulk up to offer a one-stop shop for end-to-end services and provide a wide variety of value propositions. Realizing the importance of developing digital fiat currency, as many as 86% of the world’s central banks are exploring digital currency in various use cases High cross-border transaction cost CBDC will help curb the higher cross border transaction cost incurred in legacy settlement process due to presence of intermediaries Thread of illicit transactions CBDCs will help eliminate the unlawful activities and terror financing that shot up significantly through cryptocurrencies Widespread acceptance of cryptocurrency Payments firms and banks are including cryptocurrency as an additional payment method in their portfolio Increase in cryptocurrency transaction volume Nearly 32% increase in cryptocurrency transaction volume, per Coinbase’s Q2 2021 report and over 45% of our WPR 21 surveyed consumers willing to use cryptocurrency payments in next 1–2 years CBDC drivers Cryptocurrency pressures monetary policy To fend off the potential monetary policy pressure from cryptocurrencies, central banks are actively working towards CBDCs
  13. 13. This presentation contains information that may be privileged or confidential and is the property of the Capgemini Group. Copyright © 2021 Capgemini. All rights reserved. Capgemini is a global leader in partnering with companies to transform and manage their business by harnessing the power of technology. The Group is guided everyday by its purpose of unleashing human energy through technology for an inclusive and sustainable future. It is a responsible and diverse organization of 270,000 team members in nearly 50 countries. With its strong 50 year heritage and deep industry expertise, Capgemini is trusted by its clients to address the entire breadth of their business needs, from strategy and design to operations, fuelled by the fast evolving and innovative world of cloud, data, AI, connectivity, software, digital engineering and platforms. The Group reported in 2020 global revenues of €16 billion. About Capgemini Get the Future You Want | www.capgemini.com

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