The payments landscape is poised for continued transformation in 2024. From increasing consumer desire for seamless, embedded financial experiences to the returning demand for in-store POS solutions, payments businesses are continuing to adapt to an ever-evolving digital ecosystem.
Blankfactor’s VP, Head of Payments Delivery, Septimiu Mitu, shares six key payments industry trends that are reshaping businesses’s priorities, investments, and growth strategies.
1. Industry vertical specialization: Beyond legacy offerings
In 2024, the payments industry is likely going to continue the trend toward industry vertical-based offerings, building custom financial services and experiences for each sector, and growing beyond the traditional boundaries of “vanilla” card acceptance. Legacy players are facing tough competition as specialized providers move to solve complex challenges in various sectors. The big banks, such as Chase, are fighting back by aggressively marketing one-stop-shop banking and acceptance services to their customers.
Notably, industry leaders such as Global Payments and Shift4 are setting the bar high by tailoring solutions for large venues and stadiums, offering seamless payment experiences from ticket purchasing to concessions. This specialized approach enables more streamlined operations, enhances customer experiences, and drives long-term growth. And for venues, modernizing payment technology means faster, more frictionless checkout and lower labor costs, which translates to higher revenue. (Payments Dive)
A recent 2023 PSP Vertical Benchmark Report by TSG notes that industry specialization must be carefully considered by PSPs, including analyzing the sector’s potential profitability and overall alignment with the business strategy. Some of the most attractive industries named by TSG include lodging, parking lots, and amusement parks; other vertical specializations include oil and gasoline, hospitality, and airlines.
2. Resurgence of modern POS payment solutions
Retail traffic plummeted between 2019 and 2021 by over 20% for several industries, a major measure of the COVID-19 pandemic’s impact on point-of-sale (POS) transactions. (Statista) But in 2023 and beyond, the future of POS retail is far more optimistic, with the POS terminal market size projected to grow by 8.3% at a compound annual growth rate (CAGR) from 2023 – 2030. (Grand View Research)
As in-person commerce makes a comeback, modern point-of-sale systems are reemerging as a focal point for payments companies. And platforms like Clover have been steadily gaining traction and market share; last year, a McKinsey report noted that roughly 50% of merchants were turning to ISVs as opposed to traditional merchant acquirers for solutions and value-added services.
With that, a wave of businesses is vying to emulate the success of leading platforms, aiming to revolutionize the in-store transaction and payment processing experience across diverse industries. Notably, collaborations between established card acquirers and fintech entities are giving rise to bank-grade POS solutions, enabling cross-selling opportunities and comprehensive financial service offerings. Merchants report that business credit cards, accounting solutions, and fraud management are among the most useful potential solutions from providers, as McKinsey notes.
These payments industry trends are not just about facilitating transactions; it’s about crafting seamless, integrated experiences that bridge the gap between physical and digital touchpoints — and reshaping the way consumers interact with businesses. Omnichannel has become table stakes for many industries.
3. Fintech expansion into diverse service offerings
The fintech landscape is undergoing a substantial expansion in 2024, with key players like Stripe diversifying their service offerings to include commercial card issuing and leveraging merchant accounts.
Earlier this year, Stripe released new revenue and finance automation tools to provide platform users with better money management solutions. And Square launched its own new line of business solutions, from restaurant bookings to subscription management. (American Banker)
This strategic expansion beyond conventional boundaries is redefining the competitive landscape, enabling fintech companies to broaden their market reach and cement their position as all-in-one financial service providers. By tapping into unexplored territories and bridging the gaps in the financial ecosystem, these entities are spearheading an era of comprehensive financial solutions that cater to the evolving needs of businesses and consumers alike.
Major card networks are also continually expanding value-added service offerings, including Visa’s move to expand open banking solutions and shift small businesses from consumer credit to business accounts.
4. High-interest rate environment pushing fintechs to seek profitability
Free money is gone, potentially for years, as central banks tighten monetary policy. Many VC-backed companies are starting to run out of runway or be pushed by owners to reach profitability faster. This is already beginning to cause company failures in 2023 and will likely continue in 2024. A recent example is Olive AI, a high-flying healthcare RCM firm that dropped from a $4B valuation to bankruptcy and is being sold for parts in a matter of months.
Investors are thinking much harder about where to focus their investments and efforts in portfolio companies, whether in innovation or streamlining operations. We see a lot of investment in modern credit card issuing — which tends to be more lucrative than debit/prepaid, but also a more complex problem to solve — and a renewed focus on the still-way-behind B2B payments market.
On the operational side, we see a renewed focus on both reducing cost with automation/GenAI and increasing the top line — for instance, by rethinking portfolio risk management to increase profitability while managing risk.
5. The rise of embedded payments & fintech offerings
Demand for embedded payments is driven by a range of consumer behavioral shifts and market factors, including the increasing demand for real-time experiences. Ernst & Young notes that 94% of financial technology leaders say that adapting to real-time consumer needs is key to the success of financial products.
To better capture customers where they are and become true fintech powerhouses, companies across diverse sectors emphasize integrating embedded payments within their core offerings. This integration is not only bolstering their value propositions but also unlocking additional revenue streams. For instance, SaaS solutions with a sharp vertical focus are augmenting their services by incorporating digital payments functionalities, thereby capitalizing on the potential for increased profit margins.
Simultaneously, the maturation of PayFac platforms like Adyen and Stripe signals a fundamental shift toward a more comprehensive and interconnected financial ecosystem. And from a customer acquisition perspective, embedded payments have clear benefits. With embedded payments solutions unifying services, merchants will increasingly depend on a complex web of solutions from the provider, making it challenging to make a switch (TSG).
NMI’s acquisition of IRIS CRM underlines the growing payments industry trends toward consolidating services to deliver a holistic financial experience to end-users.
6. GenAI fever giving way to pragmatism
Like peers in every other industry, payments companies are in the midst of a GenAI fever. Every conversation with an executive this year touched on this and will likely continue in 2024. Most incumbents have already played with GenAI in 2023, working with consultants to tease out potentially valuable use cases and partnering with Big Tech to produce POCs. Ideas are plentiful, but execution is not quite there. For the vast majority of companies, building and training foundational LLM models from scratch is impossible, as they cannot attract relevant, scarce, and expensive talent.
There are some silver linings, though. First, just as it happened a few short years ago with machine learning, Big Tech (Google, Microsoft/OpenAI, Amazon, and Oracle) is in an arms race to offer access to large-scale and high-performance models that companies can leverage and build on top of with significantly lower barriers to entry. Secondly, we are starting to see pragmatic startups driven by fintech industry veterans focused on compliance-first GenAI offerings for the banking and financial services sector (i.e., Vectari, launched by Bank of America executives). Blankfactor’s AI Labs also offers domain-tailored AI solutions that leverage the team’s deep financial services expertise to help companies align AI strategy with business goals.
We expect to start seeing use cases beyond the overly obvious GenAI chatbot/helpdesk taking the limelight as fintechs large and small start building the engineering muscle to leverage the new “democratized” Big Tech offerings either directly or by partnering with GenAI-focused providers.
Stay ahead of payments industry trends with the latest technologies
Shifting payments industry trends are shaping business priorities faster than ever in 2024. From the increasing adoption of new payment methods like digital wallets and contactless payments to the transformative potential of generative AI, companies will need to continually evolve.
Work with one of the fastest-growing companies in America and stay ahead of the payments trends. At Blankfactor, we deliver tailored digital solutions for a range of clients in payments, including issuers, acquirers, networks, cross-border payments, PSPs, payment facilitators, ISVs, and merchants. Turbocharge your time to market with our outcome-based delivery model and a range of accelerators for payment orchestration, mobile wallets, ledgers, billing & pricing engines, settlement, and reconciliation.
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