Oleg Stefanets, Chief Risk Officer
Merchants and payment solution providers to fight together against increasing fraud risk
With every transaction, merchants garner insights into their customers - their purchase behaviour and preferences, product choices and personal data. This vast amount of data presents a huge opportunity in the fight against fraud to spot uncharacteristic activity, but the battle can’t be fought alone. Conversely, payment service providers (PSPs) are collecting their own data at even greater scale, and have harnessed the power of machine learning technology to enhance risk and fraud management capabilities.
The whole is greater than the sum of its parts, so in 2024 we’ll see merchants and PSPs work together to share data and resources to truly address fraud risk. As fraud cases intensify, merchants will need to carefully consider if their PSP is providing the services and support they require.
Merchants selling products with easy resale value will be prime targets of chargeback fraud
Card-not-present (CNP) fraud losses are likely to increase by nearly 40% from 2023, reaching a global value of more than $28.1 billion by 2026. While the introduction of Secure Customer Authentication (SCA) regulation in Europe has plateaued this somewhat, chargeback fraud continues to be a top concern for merchants who have to foot the bill. Physical products will continue to be those most commonly targeted due to their easy resale value and difficult traceability. As ecommerce grows and so too does CNP fraud, merchants selling high-value physical products such as electronics or jewellery will need to consider how they protect themselves in 2024.
Mitigating fraud demands better technology adoption
Existing technologies around two-factor authentication (2FA) and early instances of machine learning have helped combat rising levels of fraud thus far, but as the UK reaches the milestone of 25% of all purchases made online in 2025 (EPI, 2023); greater weaponry is required. Biometrics can take this one step further as it is inherently harder to falsify, and so presents a huge opportunity to improve security. In 2024, thanks to Open Banking, greater access to data could be paired with the powers of generative AI to process and analyse large volumes of data around customer behaviour and merchant product information. Real-time data sharing and powerful AI tools will be a key factor in tackling the growing fraud risk without sacrificing customer experience.
Nikolett Palinkas, SVP of Client Relations
‘Learn and leap’ innovation strategy
In 2024, the payment industry is likely to adopt a ‘watch, learn and jump ahead’ innovation strategy. Understanding the need to learn from early innovators, those paytechs who will thrive will be the ones who closely observe market trends, competitor strategies and emerging technologies. Then, once the observant phase is over, companies can benefit from last-mover advantage to learn from others’ mistakes, leverage the insights gained and implement cutting-edge solutions that truly meet the needs of their customers and end users.
Strategic growth partnerships
PSPs should increasingly focus on collaborative partnerships with merchants, rather than simply providing services, as a key driver for mutual growth. Rather than just offering services, payment partners should look to position themselves as strategic allies to merchants, providing not only solutions, but also tailored education and support. This may involve dedicated customer success managers, personalised training programmes or continuous engagement to empower merchants in understanding and optimising their payments processes. The result will be a symbiotic relationship where the success of merchants directly contributes to the growth and success of payment partners.
Igor Skachkov, Chief Product Officer
The rise of collaboration for product development
The next year is set to see more focus on collaboration and consolidation in product development than ever before. In the financial services industry, in particular, we’ve already seen lots of successful examples of collaboration.
In 2024 the need to work together will take precedence over fierce competition. These partnerships help players to deliver services faster compared to developing them in-house, especially when specific services are not part of their core business. Recognising the benefits of collaboration and working together, industry leaders will look to increasingly engage in strategic partnerships, paving the way for greater product innovation and a collaborative financial ecosystem. Traditional players will explore the concept of ‘co-opetition’, merging their strengths to provide more comprehensive and integrated solutions and bring new products or services to market much more quickly.
Merchants who start selling internationally will be left behind if they don’t embrace alternative payment methods
The frictionless experience enabled by alternative payment methods (APMs) has become table stakes expectations for consumers, particularly among millennial and Gen Z audiences. APMs such as digital wallets, buy now pay later (BNPL) and A2A bank transfers offer greater flexibility to consumers as well as lower processing fees for merchants - a win all round. BNPL services have been embraced thus far and A2A bank transfers are gaining momentum under the umbrella of instant payments. This puts a lot of burden on payment service providers as they need to handle the full cycle of payment provision, checkout experience, compliance, anti-fraud measures, settlement cycles as main criteria when making a decision. Top performing providers allow merchants to focus on their main business independently of the country a purchase is made in and do not need to care much about the payment related challenges. The ability of payment providers to cover a full cycle of payment processing needs to be carefully evaluated and merchants will rely on payment solution providers who can demonstrate strong performance against all of the above criteria.
Fazley Chowdhury, Group Chief Technology Officer
Keeping agile in 2024
To remain competitive next year, the payments industry needs to keep agility at the forefront of technological considerations. Companies need to recognise the need to stay nimble in the face of evolving technology, market demands and competitive landscapes. This is likely to be a two-fold strategy: creating tech stacks in-house and forming strategic partnerships with agile collaborators.
Forward-thinking companies will invest in cultivating internal technology innovation hubs, to allow for swift adaptation for changing market dynamics. The emphasis will be on empowering internal teams to ideate, experiment, and implement cutting-edge solutions, enabling the organisation to respond rapidly to emerging trends and customer needs.
Simultaneously, companies will forge strategic partnerships with agile external entities. These partnerships will extend beyond traditional vendor relationships to encompass collaborative ecosystems where knowledge sharing and resource pooling create a collective agility. Such collaborations will enable companies to tap into external expertise, adopt emerging technologies faster, and navigate market shifts with greater flexibility.
Those who successfully navigate this dual strategy will not only stay ahead of industry disruptions but will also contribute to the overall resilience and dynamism of the payments ecosystem.
Advancing towards AI maturity in payments
2024 will see the payments industry on the cusp of a transformative journey towards fully embracing AI. However, more groundwork is needed for a substantial integration of the technology across the industry. Addressing challenges around data ownership, data bias, regulatory compliance and technological understanding will become critical, as well as understanding the need for substantial investment in infrastructure, talent, and technology.
This understanding will prompt a concerted industry-wide effort to lay the necessary groundwork for the widespread adoption of AI and catalyse its use in customer service optimisation, personalised user experiences, and predictive analytics for the end-user. For merchants, however, real-time fraud and risk mitigation strategies will require more time to mature.
Jolita Strasunskaite, Chief People Officer
The evolution of traditional HR strategies
Driven by evolving workplace trends, the payments industry is likely to witness a significant evolution in HR strategies. Quality talent is pivotal to the success of any business, yet the payments industry is facing an intensifying talent shortage and continuing demand for flexible work models. Businesses will therefore need to prioritise innovative approaches to talent acquisition and retention. This may include embracing AI recruitment tools or virtual onboarding platforms, to reduce bias and increase transparency. And at the same time, to nurture a skilled workforce, HR strategies are likely to focus on leadership development, time management and data security, to align with broader industry trends. Having the right people, with the right expertise, will propel innovation forward.
Sean Forward, UK CEO
Loyalty programs: the catalyst in the Open Banking evolution
Open Banking had a slow start in terms of adoption rates, but there is growing momentum around it, with both the number of transactions and adoption increasing significantly. Its slow start has been, in part, due to a number of misalignments, including a lack of customer dispute process and the need to simplify its commercial model. However, while there is still work to be done, the outlook is positive, and if the UK is able to capitalise the opportunity Open Banking brings, it can be seen as a leader in the payments space once again.
The emergence of loyalty programs could be the catalyst Open Banking is calling out for. Companies such as M&S and John Lewis are focusing on loyalty and reward schemes because of the change in the way people want to engage with financial products. They're looking for more sophisticated loyalty programs which provide greater insight and a more advanced user experience. As a result, they may eventually try to move away from expensive credit cards and towards Open Banking, which facilitates instant bank transfers that are much cheaper.
The rise of digital currencies
As cryptocurrency has taken a backseat in recent months, other digital currencies, such as CBDCs are likely to have a big impact on the future of payments. It is unlikely that CBDCs will be widely adopted in 2024, but the framework and foundations will continue to be developed, and interest and acceptance for the currency will continue to rise. Meanwhile, stablecoins and other digital currencies are also growing in popularity. There is a chance that the hype around non-stablecoins and other peripheral digital currencies will fade away, and that increased scrutiny from the FCA in the UK will help to stabilise the industry as a whole.
Ugne Buraciene, Group CEO
Evolution and trends in the payments industry: A focus on regulatory developments, open banking, and emerging challenges
The payments industry is expected to undergo incremental improvements rather than major shifts, with a focus on preparing for regulatory enhancements such as the anticipated PSR and PSD3 releases in the EU. Notable developments include the evolution of Open Banking, regulatory improvements in buy-now-pay-later (BNPL) methods, and a tendency to further strengthen consumer protection regulation. This is a result of evolving customer needs, which are now geared towards instant payments and embedded finance solutions, including BNPL services.
Key industry trends revolve around real-time payments and Payment-as-a-Service (PaaS). However, we can also expect challenges in consumer adoption, particularly in point-of-sale (POS) payments. Despite its growth potential, POS payments face hurdles like infrastructure challenges. Discussions about B2B payments emphasise the need for optimising processes in invoicing and payroll.
The rise of collaborative marketplace models
The merchant payments landscape is undergoing a competitive transformation, resembling a strategic struggle for dominance among merchants, acquirers, and card networks. Fintech dynamics show a shift towards a collaborative marketplace ecosystem, where adaptability and collaboration are key for success. Companies excelling in this environment are those capable of seamless collaboration, embracing a multifunctional approach.
Specialised providers cater to specific needs, while an end-to-end payment infrastructure in the marketplace model fosters collaboration. Core players include banks, fintechs, and technology providers, with a focus on safety, regulatory compliance and fraud risk monitoring. Large acquirers face challenges due to their size, which hinders agility in adapting to evolving merchant needs, at a time when the market favours flexibility and adaptability.
Navigating regulatory constraints, addressing legacy systems, and embracing the potential of AI
As regulatory constraints are on the rise, we may not see a rollercoaster of groundbreaking technological changes in the payments industry for now, but it's precisely within these boundaries that we’ll make smart decisions within these rules.
The potential of technologies like AI is undeniable, especially in simplifying APIs, streamlining integrations, and enhancing fraud monitoring. Future technological advancements should focus on addressing legacy frameworks, particularly among established providers, while newer players benefit from agility through modern infrastructures.
The key transformation involves moving away from outdated systems to more flexible frameworks. Practical application of AI, particularly in transaction monitoring and fraud detection, is crucial, emphasising secure implementation. The overarching goal for providers is to facilitate a smoother and faster onboarding process for merchants, aligning with the industry's emphasis on efficiency and speed.
Prioritising speed, integration efficiency, and tailored solutions for SME merchants
In considering the future of B2B payments and SME merchant transactions, it boils down to familiar themes. The urgency to establish an online presence swiftly, ensure secure payment acceptance, and prioritising seamless integrations remains paramount. This becomes especially crucial for SMEs that might lack extensive resources.
The key aspects revolve around speed, integration efficiency, and a user-friendly experience. Providers should cater to the diverse needs of merchants, including support for local payment methods. Additionally, there's a potential shift towards the incorporation of lending solutions tailored for SMEs, similar to the model seen in Shopify Capital. This approach involves leveraging transactional data to offer strategic loans and boosting sales for sellers efficiently.
Moreover, the emergence of business-oriented "pay later" solutions geared towards SMEs is noteworthy. It aligns with the trend of providing financing and lending options tailored to the specific needs of small and medium-sized enterprises. This includes innovative approaches where transactional data forms the basis for extending loans to sellers, fostering increased sales with streamlined efficiency due to readily available data.
Adapting to shifting customer preferences with all-in-one payment solutions
The evolving landscape of customer preferences in payments is influenced by generational and cultural differences. With customers demonstrating a decreasing loyalty to specific payment methods, speed has become crucial, with 44% of customers prioritising it above all else in their selection of payment methods. This has given services like Apple Pay an opportunity to capitalise on its technology to create seamless payment experiences.
Open Banking faced initial challenges but is adapting by focusing on building trust and simplifying procedures, aligning with the consumer preference for faster and more straightforward payment methods. This demand for speed and convenience creates a need for alternative payment methods, challenging merchants with complex compliance and security requirements. payabl. positions itself as the "Lego of payments," offering merchants customisable building blocks for payment and banking services solutions. The upcoming payabl.one platform aims to simplify payments further by uniting all aspects of payment and banking management in a single dashboard.
The industry's vision involves seamlessly integrating payments into daily life, but challenges exist in aligning speed with compliance, monitoring, and secure procedures, particularly in the pursuit of instant payments.