Embedding into applications, point-of-sale, and checkout interfaces will continue to expand their relevance as a distribution channel for financial services.
Convenience and improvements in user experiences (UX) are key drivers for consumer choice and increased sales conversions. However, this shift comes at the cost of payment and financial services companies becoming subject to the commercial preferences and strategies of retailers, marketplaces, and checkout service providers.
This will keep resulting in a loss of customer visibility, data, and a further push toward commoditisation.
2024: a challenging year, US credit delinquencies at decade long high
While the risks of a severe recession seem to have receded in the US and Europe, the industry is likely to face a challenging next year. Inflation is receding, but this does not necessarily mean that consumers will see prices going down.
Having maxed out on credit to uphold standards of living in the context of a growing cost of living and having splurged on ‘Buy Now, Pay Later’ (BNPL) options in the run-up to the holiday season, US credit delinquencies are at their highest since 2013, currently exceeding 8% or outstandings.
Other countries are following a similar trajectory, resulting in an uncertain, if not prudentially negative, outlook for retail and related spending, credit, and payments. This uncertainty will impact the top and bottom lines of financial services and processors alike.
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There is a growing need for cybersecurity and related education. Fraud and crime are non-cyclical, perpetually growing challenges as criminals exploit vulnerabilities in banking, payments, and users’ technology to steal payment credentials and sensitive customer information.
Progress in payment technology and AI developments are double-edged swords—providing better capabilities to combat fraud on one side and offering fraudsters new ways to target the industry on the other.
Fintech investment to remain, cautious, selective
The availability of sensitive information through embedding and open finance compounds the challenge. In many instances, the weakest link is not the payment infrastructure but the customers themselves.
Fintech investment will remain cautious and selective, possibly with the exception of GenAI. Although this technology is likely at the peak of its hype cycle, it will continue to attract investment while a more pervasive AI-driven transformation continues to reshape companies and their operations, selectively changing levels of process automation and related skills and talent capacity demands.
In 2024, Real-Time and Immediate Payment Services (RTP/IPS) will be available in even more countries, competing with cards as a settlement rail for wallet-initiated transactions. The rollout of FedNow and the development of other domestic infrastructures will continue. On one side, payment providers will be developing payment acceptance solutions at relatively lower transaction costs for merchants, and on the other side, consumers will have to choose between solutions with or without payment guarantees. The further rollout of domestic RTP/IPS will continue to foster ambition and ongoing development, such as in South East Asia, of cross-border interlinking initiatives.
Francesco Burelli is a Partner at Arkwright Consulting