Digitization is reshaping the payments industry— including retail, B2B, and P2P payments— ultimately redefining providers’ strategies in the year ahead.
Growing ecommerce, rising connected device penetration, and new technologies like blockchain are reshaping how payment providers that enable commerce do business. To embrace lasting pandemic-driven shifts, they’ll need to tap new customer bases and leverage new technology.
Key Takeaways
Key Takeaways
As US ecommerce sales exceed $1 trillion for the first time this year and keep growing, providers will embrace new devices and channels to capture sales—reflective of overall industry momentum.
- As pandemic-era payment channel habits crystallize, providers will offer less expensive, faster, and more seamless experiences to consumers and businesses.
- In-store payments will maintain their retail stronghold, but experiential shopping will give payment providers the opportunity to sell new services. They’ll focus on wide payment method acceptance, new checkout tools, and exclusive events.
- The shifting device mix within ecommerce will intensify checkout providers’ focus on mobile channels. PCs are ceding share to mobile and connected devices, while social channels are growing volume.
- P2P payment providers facing saturation will target younger consumers and add features to reach new users, grow engagement, and monetize.
- Digital is driving down remittance costs but intensifying competition. Industry titans and digital upstarts will embrace new features and technologies to grow volume.
- B2B payment digitization will accelerate as businesses eschew checks. Providers flocking to the space will fight to stand out with value-added features and new payment options.
- The cross-border payments segment is roaring back from a pandemic slowdown. Providers will angle for cross-border ecommerce shoppers and dabble in blockchain-based B2B transfers as competition builds.
Introduction
Evolving back-end payment processes and devices influence not only how buyers choose to pay, but the channels they use for purchasing. These effects accelerated across retail, P2P, B2C, and B2B transactions beginning in 2020, but the second full year of the pandemic made it clear that they’re here to stay, even as spending levels normalize.
This is changing the stakes for providers. In all corners of the payments industry, providers are racing to explore new transaction flows, reach new subsets of consumers and businesses, and embrace new devices and transaction technologies. This report will detail the drivers of digital change across payments industry channels, devices, and customer bases.
Retail In-Store Payments
In-store sales will remain the largest retail channel by both share and dollars as shopping habits normalize. In-store retail shrank only slightly early in the pandemic thanks to essential spending, but it shot up after a wholesale return to stores last year. From 2022 on, in-store’s share of retail sales will once again contract as customers gravitate toward ecommerce.
Key Trends To Watch
Key Trends To Watch
Merchants Will Accept New Payment Methods to Meet Customer Preferences
Sixty-one percent of small businesses said customers changed how they wanted to pay during the pandemic, per an October 2021 Paysafe survey. Customers will abandon their carts if businesses don’t offer digital payment methods—41% of consumers surveyed by Visa in December 2021 had done so in-store—driving merchant demand for solutions that support more payment methods.
Fast-growing volume and usership will make mobile proximity payments the top priority for providers. Shoppers’ pandemic-era quest for contactless payments has driven lasting gains: Over half of smartphone users will pay via mobile by 2025, and spending will grow nearly four times faster than the number of users.
Here’s what will drive mobile proximity usage in the years to come:
- Greater acceptance. Around two-thirds of merchants currently accept proximity payments. QR code payments, which are experiencing greater usage among consumers, could be a way in for small sellers since merchants need little payment terminal hardware to accept them. This could drive spend by letting customers pay with wallets more often.
- Wallet improvements. New features, like Google’s couponing push and Apple Card Family, give users reasons to onboard to wallets—and reach for them at the point-of-sale.
Providers will also emphasize adding support for two other growing payment methods:
- Historically ecommerce-focused buy now, pay later (BNPL) providers will increase in-store reach through high-profile partnerships akin to Afterpay’s Nordstrom partnership or Zip’s physical and virtual card products.
- Back-end cryptocurrency payment providers, like InComm Payments, will add simple merchant-facing integrations.
New Checkout Experiences Could Meet Growing Demand for Speed, Safety, and Security
About 4 in 10 consumers noticed which retailers didn’t adjust their checkout experiences during the pandemic, per Paysafe—driving businesses to accelerate upgrade plans. New offerings will emphasize self-pay solutions. And next-generation autonomous checkout services that let customers shop without stopping to pay will also become more commonplace as major retailers like Starbucks and BP improve visibility.
Consumers Will Demand Hybrid Digital and In-Person Retail Experiences
Shoppers are embracing click and collect and delivery. To meet the demand for omni- and multichannel experiences, merchants are implementing increasingly sophisticated payment tools, like Clover Online Ordering with Delivery. Next, providers will focus on developing hybrid solutions that support in-store shoppers tethered to their devices, like price comparison tools or fitting room technology.
Payment providers will also build shopping-focused offerings they can sell to merchants looking to enhance consumers’ retail experience. Payment providers can enable experiential shopping and “retail-tainment” and bundle the offerings with existing software packages—growing retailers’ sales and their own volume in turn.
Retail Ecommerce Payments
US retail ecommerce sales will exceed $1 trillion for the first time this year as the flexibility and convenience customers found during the pandemic sticks. Spend shifting online will drive double-digit ecommerce spending growth: Average spend per digital buyer will grow at an 11.6% compound annual growth rate (CAGR) between 2022 and 2025 to reach nearly $7,000, versus a 1.9% CAGR for the number of total digital buyers.
Key Trends To Watch
Shifting Channel Preferences Will Intensify Providers’ Focus on Mcommerce
While ecommerce volume will continue growing across channels, it will do so at uneven rates:
- Desktop and laptop retail ecommerce growth will decelerate as the segment bleeds share. Growth in this segment will lag ecommerce overall through 2025.
- Instead, customers will buy more on mobile, which will exceed 4 in 10 retail ecommerce dollars for the first time this year. Rising time spent on mobile will trickle into shopping. The biggest beneficiary will be smartphones, which will make up 85.0% of mcommerce sales this year.
To align with usage trends, checkout providers will double down on optimizing the mobile payments experience. PC-based ecommerce volume still exceeds mobile’s, so providers won’t eschew it entirely. But in 2022, they’ll focus resources on developing mobile offerings beyond one-click buy buttons.
Providers will streamline checkout processes through services like mobile browser extensions that target shoppers’ preferred channels, tighter super app integrations, and new tech like shoppable video.
Providers Will Capitalize on the Social Commerce Boom—and Drive Consumer Trust
New customers will test social buying opportunities as social commerce grows at a double-digit rate. However, consumers remain hesitant about the legitimacy and reliability of social commerce.
Payment providers will tighten ties between their ecommerce offerings and social platforms’ features. Payment providers can power in-app checkout—and quell consumer fears in the process. Three opportunities give digital payment players a route into the space—and could enrich them with fresh volume and a growing cadre of happy sellers:
- Shoppable content. Square and Shopify let sellers set up shop on TikTok.
- Creator payments. Providers are looking at enabling direct payments, which may lead to more features like Twitter’s PayPal- and Stripe-operated tip jar and Super Follows.
- Platform ownership. After acquiring Tidal, Block (formerly Square) is using it to build out artist payouts and will continue to add integrations. Other music service tie-ups or deals resembling the rumored (but denied) PayPal-Pinterest agreement may not be far behind.
Connected Devices Will Present New Transaction Opportunities
US mobile phone users own 5.7 connected devices each, on average, per a May 2021 Northridge Group survey, incentivizing providers to enable transactions in three categories:
- Smartwatch payment user growth will outpace overall device penetration through 2025. Increased contactless payment appetite and new eligible devices, like Timex’s smartwatch line, will drive growth, and the deployment of Web3 could multiply opportunities.
- Almost 84% of US households will have connected TVs in 2022, per our forecast, opening the door to shoppable TV. NBC, for example, just launched a series of livestream shopping shows, which could grow spending in the category.
- We estimate that half of US adults now drive a connected car, which could push in-car spending to $1 billion by 2023, per Gartner. BlackBerry and Stripe dove in with car-based wallet tie-ups. Other adjacent partnerships from Visa and Amazon might foreshadow greater efforts.
More device types will become payment terminals in the coming years. New cloud-based tools like Visa Acceptance Cloud let providers embed transaction software into nontraditional devices, opening the door to more IoT payment opportunities.
Providers Will Embrace Voice Payments to Complement Other Services
Two factors drove the drop-off:
Lack of interest. Only 14% of US respondents to a December 2021 Insider Intelligence and Bizrate survey had used voice shopping, while 58% were uninterested in or unaware of the tech—little change from 2020.
Poor user experience (UX). A gap persists between smart speaker shoppers (34.4 million as of this year) and buyers (26.1 million): Nearly a quarter of users opt not to complete a purchase. This likely owes to shoppers struggling or failing to find what they’re looking for.
Lackluster customer engagement means that voice-based commerce may be most valuable as a supplement for other payments features. Despite low interest, providers continue to invest: Google recently launched voice-activated fuel payments through Android phones and connected cars, for example. These could fuel mobile wallet or connected car system usage.
P2P Domestic Payments
Saturation means that US mobile P2P payment volume growth will primarily come from existing users forming habits around the tech. Volume will rise at an 11.3% CAGR between 2022 and 2025—approximately double the growth rate for users. Over 7 in 10 smartphone owners will be mobile P2P payment users by 2025.
Key Trends To Watch
P2P Providers Will Target Untapped Audiences to Combat Saturation
Two groups could supply new P2P users:
Younger consumers. Gen Zers are about to gain spending power, and P2P players could build lasting ties with them. Cash App is letting 13- to-17-year-old users join a limited version of its platform with parental permission, which it estimates could expand its addressable base by 20 million. And Zelle is working with Everfi to ramp up financial literacy education.
Security-minded consumers. P2P fraud is mounting as user concern about payment security overall grows. Providers will bolster security protections—Venmo recently overhauled its privacy options, for example—and improve consumer education to onboard those who have avoided P2P payments due to safety concerns.<
P2P Providers Will Aim to Drive Engagement and Monetization
New features can help P2P apps expand beyond sending payments to friends and family—ultimately driving customers to open these apps more often. Providers are laser-focused on two areas:
Crypto ownership and day trading. Both are on the rise in the US. Most recently, Venmo added crypto price alerts and enabled crypto cash back, while Cash App launched Bitcoin and stock gift-giving.
Shopping. Providers will make their in-store and online commerce offerings more robust. Venmo’s new business profiles make it easier for small and medium-sized businesses (SMBs) to formally accept QR codes, for example. More features could follow this year: Venmo is launching Amazon support and Zelle may take its small-business focus in-store.
Adding use cases will drive business for providers in the following ways:
Increase Engagement
Providers can tighten ties with users by giving them more scenarios in which to use P2P apps. This is critical given that 3 in 4 P2P users engage with multiple apps, per a December 2020 Mercator Advisory Group report, and it could grow volume even if new use cases don’t directly relate to P2P transfers. Mounting competition from newer entrants—like Meta (formerly Facebook), which just expanded chat-based payment splitting—makes securing primary P2P provider status increasingly important.
Reduce Losses
Consumer unwillingness to pay for P2P transfers forces providers to take a loss that magnifies as volume grows. Separate features with consumer- or merchant-facing fees can offset these losses: After promoting features that could turn Venmo profitable, PayPal no longer cites P2P as a top driver of take rate declines, while Cash App’s Bitcoin emphasis has helped it turn a profit. This year, providers will continue to seek tiered consumer-facing features and new seller partnerships; Venmo already raised consumer-facing Instant Transfer costs and merchant acceptance fees, for example.
Consumer Remittance Payments
After roaring back in 2021, global remittance inflow growth will continue this year. Volume will grow at a similar pace as retail into 2023, driven by outflows from the US and inflows to India and Mexico, per our forecasts.
Key Trends To Watch
Remittance Giants Will Ramp Up Digital to Fend Off Upstarts and Disintermediation
Close to 4 in 10 US adults who send money abroad plan to increase their use of digital transfers, per a December 2021 Visa survey. This will drive digital remittances to jump 45.0% between 2021 and 2025, to $428 billion, per an April 2021 report from Juniper Research.
Digitally proficient fintechs are stealing share from incumbents. Newer entrants like Remitly and Zepz have beat out giants like Western Union and MoneyGram with lower costs, simpler platforms, and speedier transactions. While giants have retained their dominance, they will revamp their approach to digital as competition mounts.
Incumbents and upstart remittance providers will compete on three major battlefields:
Better UX, like Google Pay’s tie-up with Western Union and Wise that makes transfers simpler for more users.
New features, like Western Union’s shopping offering that could tighten relationships with users.
Affordability, as providers strive to charge no more than a 3% fee on remittances, in keeping with the United Nation’s cost reduction goal—though such fee cuts could dampen revenues.
Stronger digital remittance offerings will become even more important amid disintermediation threats from banks. In late 2021, Southeast Asian nations connected domestic payment networks: Singapore, for example, built out interoperability with the Philippines’ central bank, India’s Unified Payments Interface, and Malaysia’s DuitNow to simplify cross-border transactions between app users in each country. If other regions follow suit, remittance players could lose volume as users switch to transacting in apps they already use.
Blockchain Integrations Could Disrupt Legacy Remittance Channels
Integrating blockchain on the back end can eliminate middlemen, which reduces the time it takes to send remittances from days to several seconds, cuts costs by up to 80%, and limits regulatory risks. As providers look to grow volume and reach in 2022, they’ll strike partnerships similar to MoneyGram’s USD Coin-focused deal with Stellar, which lets users send or receive funds in crypto or fiat currency and enables near-instant back-end settlement capabilities. Offering these services at scale—and in ways with visible user impacts—will be providers’ next competitive challenge.
B2B Payments
After dipping in 2020, US B2B payments are set for a second consecutive year of growth in 2022, with volume forecast to reach $28.611 trillion. More notably, the mix of payment methods will shift: Check and cash—which held half the market pre-pandemic—will cede eight points of share to ACH and cards.
Key Trends To Watch
B2B Payment Providers Will Digitize to Cut Costs and Improve Efficiency
Forty-six percent of businesses plan to automate or increase automation of payments in the next year, per June 2021 Amex data. Merchants are seeking to replace checks with digital alternatives, especially in the era of remote work.
To capitalize on the opportunity, payment providers will deepen their push into the B2B space: Global Payments just acquired accounts payable automation fintech MineralTree for $500 million, for example. But digitization can create revenue challenges—ACH payments are not particularly lucrative, for example—that will drive more providers toward digital offerings as they seek out volume growth in ways that offset costs.
Small Businesses Will Drive Digital B2B Growth
Small businesses comprise a significant share of the US B2B payments market, but a dearth of accessible, affordable solutions has kept many from digitizing: Just 29% of those earning below $250 million in revenues have digitized processes, per MineralTree. But mounting demand in this segment as SMBs grow will drive payment players to fill the gap. They’ll do so through more affordable features with faster integration times that improve cash flow, cut costs, and increase efficiency. Solutions might resemble white-labeled offerings, like those offered by Sage and Paystand.
Providers Will Develop Products Aimed at Businesses Looking to Digitize
Providers will build next-generation solutions in four areas:
Virtual cards’ ease of use and security benefits will make them the fastest-growing segment of B2B card payments by volume, per Juniper Research. As issuers look to capitalize on the interchange revenue opportunity, we’ll see more partnerships like Amex’s deal with Extend, which lets cardmembers create virtual cards for employees, contractors, and vendors.
BNPL for businesses will spring up from providers like Veem, Billie, and Behalf, which recently closed huge funding rounds or forged high-profile partnerships. Their growth could rival consumer-side BNPL gains, Rob Rosenblatt, CEO of Behalf, previously told Insider Intelligence.
Providers will incorporate real-time, low-cost payments using technology like blockchain, which about 20% of B2B decision-makers have expressed an interest in, per GWI. Visa and JPMorgan are already experimenting with B2B blockchain.
As cross-border B2B grows, local currency acceptance can reduce costs and improve transparency for businesses. To fortify relationships with them, payment providers will follow Wise and Fiserv in increasing local payment support.
Providers Will Use Automation to Stand Out Amid Mounting Competition
Just 9% of businesses use fully automated solutions, per MineralTree, but they’re a top driver of digital payment volume. Providers will enable businesses to automate processes in two ways:
All-in-one solutions that combine B2B payments with accounting, invoicing, or supply management, like Intuit QuickBooks does and Equifax is exploring.
Incorporating machine learning and AI, following the lead of Bill.com and Wells Fargo, to speed processes and reduce fraud.
B2C Payments
Disbursements will continue their growth streak after a 2020 boost from stimulus funds and other government benefits. In 2021, 158 million customers (just under half of the US population) received a total of 11 billion disbursements, per an August 2021 PYMNTS and Ingo Money survey.
Key Trends To Watch
Providers Will Offer Customers More Choice in Digital Disbursement Payment Methods
Checks’ share of disbursements shrank from 33.2% to 9.9% between 2018 and 2021, per PYMNTS and Ingo Money, driving providers to introduce more digital solutions: Fiserv, ACI Worldwide, and Bank of America all launched tools that give providers and consumers more choice in where disbursements are routed. More providers will follow suit to maintain parity and limit attrition. Simultaneously, the market for solutions that support disbursement tech—like Adobe’s Mastercard deal that speeds verification—will expand.
Providers Will Venture Into Real-Time Payments
Real-time payouts will become the most common disbursement channel in 2022 after tripling year over year in 2021, per PYMNTS and Ingo Money—making the offering a need-to-have for payers. We may see more solutions like UK-based TrueLayer’s Payouts, which uses open banking to enable instant refunds.
Instant transfers also create an easy upsell opportunity: One-third of consumers would pay extra to receive instant disbursements, especially in insurance and income—double 2020’s share, per the same survey from PYMNTS and Ingo Money.
Cross-Border Payments
Cross-border payment growth declined less than expected in 2020, per an October 2021 McKinsey report, and came back sharply last year. In Q4 2021, Visa’s cross-border growth increased to 40% (up from a 23% decline for calendar year 2020). And Mastercard’s cross-border volume grew 53% in Q4 2021, compared with 32% for the full year.
Gains will continue this year, with global cross-border volume reaching $156 trillion, per EY estimates—20% higher than the $130 trillion McKinsey estimated for 2019.
Key Trends To Watch
Providers Will Reduce Seller Pain Points in Cross-Border Ecommerce
Cross-border ecommerce transactions grew 17% in 2020 and likely maintained their upswing into 2021, according to McKinsey. These gains are reflected in steady increases in cross-border buyers globally, particularly in China, which has pushed merchant services providers to help clients attract global buyers. Shopify’s new commerce hub aims to alleviate language barriers and regulatory hurdles, while Barclaycard’s new feature lets businesses accept over 100 currencies using a fixed conversion rate, as two examples.
Local, regional, and multinational players will add new tools that increase conversions and win customers in the year ahead. They’ll focus on local currency acceptance; security, tax, and regulatory issues; and settlement times. Innovation may emphasize non-European regions—PayPal is targeting Africa, for example—as Brexit makes cross-border ecommerce in Europe pricier and more complex.
Providers Will Embrace Blockchain to Speed Cross-Border B2B
The likes of Visa and SWIFT will ramp up blockchain investments to capitalize on a booming space: Blockchain could comprise up to 9.7% of B2B cross-border payments by 2024, per Insider Intelligence calculations based on Juniper Research data.
A New Class of Payment Networks Could Undercut Card Networks’ Cross-Border Dominance
Multinational giants Visa and Mastercard have long appealed for cross-border payments, but their high fees frustrate payers and payees. Cheaper offerings are cropping up from banks (e.g., the European Payments Initiative) and domestic players (like those in Southeast Asia), which could chip away at card networks’ share. This will push card networks to make more acquisitions and partnerships in less tapped markets to entrench their positioning.