June 14, 2023
Macropay Review: Economic Trends and Payments

The need for new and creative ideas in the payment industry is usually connected to global economic patterns. Similarly, the way businesses structure their payment systems is greatly influenced by how their customers prefer to pay. To fully understand the situation, we must also acknowledge that everyday people, also known as customers, spend their money based on economic trends and how it affects their daily lives. This almost linear connection of how worldwide trends affect the way people purchase, which in turn affects the way businesses accept payments is made even clear through this Macropay Review.

Trend No. 1: Increase in sustainability in economic growth

Governments have introduced various financial instruments that aid in long-term investments in sustainable economic activities and projects, supporting the shift to a low-carbon economy. sustainability strategy integrates the policies and practices to create profits, consider their workplaces, and try to be eco-friendly along their entire value chain.

Environmental sustainability has become a key factor in retail and consumer behavior. 82% of shoppers want brands to embrace sustainable and people-first practices, and Gen-Z is leading the charge.

In 2023, online payment platforms must consider reducing their carbon footprint by using renewable energy sources, reducing paper usage, and minimizing waste if they are to attract more clients. Companies such as TreeCard have built a debit card that puts 80% of profits directly into responsible reforestation. The company is on a mission to build an ecosystem of responsible alternatives to everyday services like banking and internet search.

Trend No. 2: Global inflation will fall in 2023 and 2024 amid subpar economic growth

Global growth is projected to fall from an estimated 3.4 percent in 2022 to 2.9 percent in 2023, then rise to 3.1 percent in 2024. The forecast for 2023 is 0.2 percentage points higher than predicted in the October 2022 World Economic Outlook (WEO) but below the historical (2000–19) average of 3.8 percent.

A decrease in inflation will Increase purchasing power around the world. With falling inflation, consumers’ purchasing power increases, as the same amount of money can purchase more goods and services. Consumer cash flow will rise by 2 percent in the first quarter, and rise to 6 percent-plus in the second half of 2023, an overall gain of about $600 billion. This will lead to an increase in consumer spending and growth in the online payments market.

Also, falling inflation will result in decreased interest rates. Falling inflation often leads to decreased interest rates, making it easier for consumers to access credit such as BNPL and use online payment systems like payment gateways and alternative payment systems. This will set the online payments market to expand.

High-interest rates and service fees caused by inflation were among the factors that inhibited the adoption of digital payments globally. Moreso, as the online payments market grows, competition among payment providers will increase. This will lead to lower fees, increased innovation, and improved services for consumers in 2023 and beyond.

With the decreasing inflation and shift in consumer behavior, it will be more likely to choose online payment methods this year over traditional payment methods, as the consumers will take advantage of the convenience, speed, and security offered by digital payments like alternative payments and B2B payment gateways

Trend No. 3: Growth in E-commerce, social commerce, and live commerce

Revenue in the eCommerce market is projected to reach US$4.48tn in 2023. Revenue is expected to show an annual growth rate (CAGR 2023-2027) of 9.30%, resulting in a projected market volume of US$6.39tn by 2027.

In the eCommerce market, the number of users is expected to amount to 5,263.6m users by 2027. User penetration will be 57.3% in 2023 and is expected to hit 66.2% by 2027.

E-commerce has made it easier for consumers to shop and make purchases from the comfort of their own homes, and the use of online payments has become an integral part of the e-commerce experience.

Online payments provide a convenient, secure, and efficient way for consumers to complete transactions on e-commerce platforms. This, in turn, will lead to the growth of the online payments market, as more and more consumers are turning to digital payment methods to make purchases.

In addition, the growth of e-commerce has driven innovation in the online payments industry, as payment providers seek to meet the needs of e-commerce businesses and their customers.

BNPL activities have increased in recent years with many e-commerce retailers offering BNPL options through partnerships with BNPL providers. This trend is expected to continue in 2023. BNPL will allow e-commerce businesses to offer consumers a more seamless and accessible shopping experience, while also potentially increasing sales and customer loyalty.

Alternative payment methods such as Apple Pay and Google Wallet, digital currencies, and online payment services like PayPal will see their uses increase in 2023 as many adopt e-commerce trade.

E-commerce retailers will be forced to use payment gateways to process transactions between merchants and customers.

Globally, social commerce is expected to grow three times as fast as traditional commerce to $1.2 trillion by 2025, up from $492 billion currently. Roughly 62% of this growth will be driven by millennials (33%) and Gen-Z (29%), with Gen-X (28%) and baby boomers (10%) trailing closely behind. In all, social commerce is poised to take a large chunk of the e-commerce market as consumers gravitate to doing their shopping on social apps. All live commerce and social commerce depend on digital payments, thus increasing the adoption of online payments.

Trend No. 4: Labor market to alter how employees are paid

According to ILO, global employment growth is expected to slow down in 2023 to 1% from 2% in 2022 as a result of the Urkrain-Russia war, high inflation, and tight monetary policies. The slowdown in employment opportunities will force many people to switch to the gig economy for them to survive.

Growth of the gig economy will lead to a significant increase in the number of freelancers and independent contractors who need to receive payments from multiple clients leading to a growing demand for online payment platforms that can handle multiple transactions.

In 2023, the projected gross volume of the gig economy is expected to reach 455.2 billion U.S. dollars. The gig economy is commonly defined as digital platforms that allow freelancers to connect with potential clients for short-term jobs, contracted work, or asset-sharing.

Also, many companies will embrace remote work this year. The massive transition to remote work since 2020 has allowed professionals and companies alike to realize the benefits of remote work and, as a result, companies are adopting hybrid and remote work models for the long-term. A recent AT&T study found the hybrid work model is expected to grow from 42% in 2021 to 81% in 2024.

With more people working from home across the world, there will be a rise in the use of digital payment methods for remote transactions, such as virtual card payments, mobile wallets, and digital currencies. This will lead to higher demand for secure and user-friendly online payment solutions. Payment security and prevention will be key in choosing which online payment service they will use in their daily transactions.

Trend No. 5: Blockchain, real-time payments, and open banking take center stage

According to Fintech Futures, the real-time payment market growth is expected to reach an impressive USD86.89 billion by 2028, representing an estimated CAGR of 32% from 2022 to 2028.

New payment infrastructure needs to be designed in 2023 to support real-time payments, which will allow funds to be transferred and processed in near real-time, typically within a matter of seconds or minutes.

For business-to-business (B2B) transactions, the adoption of new payment rails will particularly be impactful. B2B payments are often large and complex, with multiple parties involved in the transaction. The speed and efficiency of new payment rails will allow businesses to quickly transfer funds, streamline the payment process, and reduce the risk of payment failures.

Banks are expected to take strategic steps towards infrastructure changes to ensure enough flexibility to cope with next-generation, real-time payment types.

Banks and financial institutions globally are entering a new era, as they prepare to transition their payment systems from using the SWIFT messages exchanges network (known as ISO 15022) to the new, highly structured, and data-rich ISO 20022 financial messaging standard.

Trend No. 6: Privacy and security focus by governments

In 2023, there will be an increased emphasis on cybersecurity in payments, driven by the expansion of eCommerce, non-cash payments, and cyber threats. According to a 2020 report by Argus Research, cybersecurity losses could reach USD10.5 trillion by 2025.

A 2021 publication by market research company Nilson, highlighted chargebacks as a major issue, where fraud is predicted to cost the debit and credit card industries more than USD400 billion in damages over the next ten years.

Consumers are more likely to choose platforms and payment options that guarantee their security and prevent fraud.

Trend No. 7: Growth of electronic transaction volumes

A study by Juniper Research reveals mobile contactless transaction volumes will significantly exceed contactless card volumes by 2023. Transaction volumes for mobile payments will grow from 26 billion in 2021 to 49 billion in 2023, representing a growth of 92%.

With the widespread adoption of digital devices and the internet, consumers and businesses are relying more and more on electronic transactions for their financial needs.

The popularity of smartphones and the widespread availability of mobile internet is making it possible for consumers to make payments and manage their finances on the go. This will further fuel the growth of the online payments market and will make it easier for consumers to make purchases and transfer funds.

Macropay Review in Snippets: Online Payments Market Dynamics

  • Cards have been the default payment method for a long time. This is not true anymore with the rise of Alternative Payments that are devouring market share from traditional card payment methods.
  • Alternative payments such as digital wallets, account-to-account (A2A) payments with open banking, and BNPL are becoming some of the preferred payment methods for consumers.
  • By 2025, mobile payments will account for 53% of all e-commerce transactions.
  • Digital commerce has the highest transaction value of $5.99 trillion in 2023 and it is projected to reach $8.89 trillion by 2027.
  • By 2024, digital commerce payments will reach 4674.2 million users.

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