The payments industry has been undergoing rapid transformation in recent years, driven by technological advancements, changing consumer preferences, and regulatory developments. MPE 2023 offered a forum for stakeholders to exchange insights and perspectives on key issues such as the potential of climate-neutral payments, the evolution of payments orchestration and new uses cases for this technology, the use of embedded finance to prioritise the needs and preferences of the customer, and the potential of CBDCs and stablecoins.
Although making forecasts in an unpredictable market is challenging, we can always spot the trends that will define the year to come, trying to provide our readership with important takeaways that add value to all merchants, PSPs, issuers, acquirers, and fintechs in the payments ecosystem.
Climate change has become an increasingly pressing global issue, and the payments sector plays a crucial role in solving it. Every year, the payments industry processes trillions of dollars in transactions, and the carbon footprint of these transactions could prove to be enormous. As a result, there is a growing awareness that the payments sector must limit its environmental effect and encourage sustainable practices.
However, climate change is associated with greater costs due to increasing energy prices, supply chain disruptions, the need for investment in sustainable technology, and higher regulatory compliance expenses. To avoid these costs and develop a more sustainable future, payment providers and businesses must take efforts to decrease their carbon footprint and support sustainable practices.
According to the MPE panellists who joined the session on sustainable payments, informing customers about the sustainability of a payment method is an important first step in promoting sustainable payment practices. There are a few ways that businesses and payment providers can educate customers about the environmental impact of different payment methods and encourage them to make more sustainable choices. For example, implementing a reward system like offering cashback or loyalty points to customers who choose to use more sustainable payment methods could be a great encouragement for people to start paying more attention to the choices they make.
Moreover, it is important to keep in mind that consumers trust brands. Therefore, when a consumer trusts a brand's commitment to sustainability, they are more likely to choose products that align with their values and are environmentally friendly. This can lead to increased demand for sustainable products, which can encourage companies to invest in sustainable practices and reduce their carbon footprint.
As change happens through small steps, it is important for merchants to pick up the simplest things they can change and try offering their customers choices that require the least effort. One of these options is reducing paper waste by opting for digital receipts, invoices, and other documents. This can be done by using email, SMS, or other digital channels to deliver receipts and invoices to customers. Moreover, merchants can use energy-efficient technology, such as LED lighting and energy-efficient POS systems, to reduce energy consumption and costs.
However, as highlighted throughout the whole session, collaboration will be the key to success, as it is the simplest way for payment providers, merchants, customers, regulators, and other stakeholders to share data, resources, and expertise to develop sustainable strategies that reduce the environmental impact of payment processing. This can further lead to creating a collective voice that can influence regulatory policy and industry standards.
By working together, stakeholders can demonstrate their commitment and promote a culture of sustainability that benefits both the environment and society as a whole.
The payments orchestration space is expected to continue to evolve rapidly in 2023, with a focus on improving the user experience, leveraging new technologies, and driving innovation in the payments industry. This solution gained more and more popularity as it can help merchants to expand into new regions by providing a range of payment services that are tailored to specific, regional needs.
Integrating local payment methods remains an important aspect of payments orchestration, because if a provider creates a universal strategy across multiple regions and different cultures, then it is destined to fail. As local payment methods are often preferred by customers due to their familiarity, convenience, and trustworthiness, partnering with local payment providers can simplify the integration process and ensure compliance with local regulations.
As reconciliation is an essential process for merchants that involves matching incoming payments with outgoing transactions, tracking expenses, and balancing accounts, payment orchestration providers aim to streamline this process by providing merchants with a single point of access to all their payment data, regardless of the payment method, currency, or country.
Settlement processing, conciliation, and reconciliation with the RP are usually the largest cost reduction factors in any orchestration project. Therefore, by streamlining these processes, payment orchestration platforms can help merchants reduce the time and effort required to manage their payment flows, which can translate into significant cost savings. As payment orchestration platforms provide real-time monitoring of incoming payments and outgoing transactions, they can help to reduce the risk of disputes and chargebacks, which can be costly for merchants.
Tokenization is another key feature of payment orchestration platforms, enabling merchants to accept payments more securely, efficiently, and cost-effectively. Payment orchestration platforms use tokenization to provide a seamless and integrated payment experience for merchants and their customers, while also helping to reduce the complexity and risk associated with payment processing. However, as suggested by the MPE speakers who joined the session on payment orchestration, there’s still space for better use of tokenization, maybe even creating a network for PSPs so they can use only one token.
As for future developments, there is hope that one day payment orchestration will solve the entire end-to-end value chain process, allowing merchants to manage their payment processes more efficiently than ever before. It would provide a seamless and integrated payment experience for merchants and their customers while reducing the complexity, cost, and risk associated with managing payments.
The evolution of SaaS in payments has been driven by a desire to provide more sophisticated, specialised solutions that meet the specific needs of businesses across a wide range of industries and use cases. The trend towards greater customisation, integration, and intelligence is likely to continue driving the evolution of SaaS in payments towards SaaS 3.0 in the coming years.
In today’s reality, the link between embedded payments and SaaS is driven by a desire to offer a more seamless, integrated payment experience to customers, as well as to differentiate SaaS providers from their competitors by offering an added feature that can help to drive revenue growth and improve customer retention.
With new fintech infrastructure players, businesses now transition from reselling to embedding financial services directly into SaaS products. Reselling is a reliable option that enables new services to be launched quickly. However, embedding directly means higher margins and a more transparent customer experience. With embedded services, vertical SaaS solutions can access various proprietary data that flows from all the services used to adapt to customer needs and risk profiles.
Compliance and regulation risks remain a major concern for SaaS developers. One of the biggest risks is the lack of transparency. Another big issue, especially in Europe, is where the data reside. Therefore, SaaS providers must ensure that they have appropriate measures in place to protect customer data and comply with data residency requirements. This includes selecting secure and reliable data centre or cloud infrastructure providers, implementing appropriate security measures, and ensuring that customers have the ability to easily move their data if needed.
The next stage for payments is likely to involve the adoption of digital currencies, including CBDCs, especially as 80% of central banks are considering launching them. The European Central Bank (ECB) is currently exploring the feasibility of a digital euro, and while the specifics are not yet final, the central bank will reach a decision in September or October 2023 regarding the evolution of the digital euro project.
Overall, a digital euro has the potential to bring significant benefits to the European economy, including increased financial inclusion, faster and cheaper payments, and improved security and privacy. However, its development and implementation require careful consideration of the potential risks and challenges, as well as the regulatory and legal frameworks needed to ensure its safe and effective use.
Therefore, as the panellists who joined the session on digital currencies have mentioned, China remains the world leader in CBDC development and has been testing its digital currency, the Digital Yuan, in various cities since 2020. The Digital Yuan is a two-tiered system, with the People's Bank of China (PBOC) issuing the currency to commercial banks, which then distribute it to customers.
CBDCs have the potential to transform the way we think about money and financial transactions. Unfortunately, there are still many questions and challenges that need to be addressed before CBDCs can be widely adopted. For example, one of the biggest concerns of the consumer is the possibility of using CBDCs on the dark web for illegal transactions, just like other forms of digital currency. However, it is important to note that CBDCs are being developed with strong security and anti-fraud measures in place, which could make them more difficult to use for illegal activities.
Furthermore, central banks and regulators are working to ensure that CBDCs are only used for legal transactions and are not used to finance illegal activities. This includes implementing robust KYC and AML procedures to prevent criminal activity.
By tackling key topics for merchants, acquirers, issuers, PSPs, and other industry professionals, MPE 2023 provided a comprehensive analysis of the payments industry, helped define the future of merchant payments, and provided its attendees with insightful tips on how to be successful in 2023 and beyond. Once again, we were delighted to attend Merchant Payments Ecosystem in Berlin, and we look forward to yet another successful edition in 2024!
About Claudia Pincovski
Claudia is a senior content editor at The Paypers working on the Banking & Fintech team at The Paypers. Holding a bachelor’s degree in Journalism, she is very passionate about exploring the latest news on financial inclusion, financial literacy, digital banking, and Open Finance. Claudia is a diligent researcher, a meticulous editor, and an active advocate for diversity and inclusion.
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