After the unprecedented nature of 2020 and 2021, many were looking forward to a more stable, ‘normal’ year in 2022. It has turned out to be anything but.
The war in Ukraine has triggered consequences reaching every corner of the globe. The sanctions placed on Russia instantly affected the global energy supply, which led to an affordability crisis, rising inflation and ultimately higher interest rates. The cheap money that has been available to businesses and consumers for the last decade is no more.
While half a world away from Ukraine, these domino effects have long since reached Asia Pacific's (Apac) shores. But what does all this mean for finance, particularly the payments space, in 2023?
The following four trends look set to define the next year and beyond.
Tightening purse strings offer risk and opportunity
Higher interest rates and the rising cost of living are a one-two punch to consumer wallets. Many will be looking to tighten the purse strings through 2023 as ever-increasing mortgage payments and energy prices begin to bite. The constant threat of adverse weather due to climate change will also have an effect – in Australia, the cost of fresh produce rose by up to 400% at certain points in 2022 as floods devastated crops.
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Many financial institutions and payment providers will feel the bite of lower activity. But others may identify and capitalise on the opportunity. One example is Buy Now Pay Later (BNPL), which offers hard-budgeting consumers access to interest-free credit, provided they pay it back on time.
If they play their cards right, BNPL providers could see an uptick in activity at a time when many other payment services are feeling the pinch.
ESG firms not backing up words with action will be punished
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The rise of ethical investing means financial firms are obliged to make efforts on environmental, social and governance (ESG) fronts. Not only that, good ESG is becoming good business, as investors and consumers alike increasingly show favour toward organisations that can boast strong ESG credentials. This is true across industries and segments, and payments is no different. But many are finding that ESG is easy to say and far harder to do.
Investors are putting pressure on firms to act quickly on ESG, but this is not a pursuit that can be rushed or approached half-heartedly. This has seen many firms failing to follow through on promises, or worse, misrepresenting or overstating their accomplishments.
US and EU regulators have already cracked down on what they call ‘performative ESG’, and Apac authorities look set to follow suit. No fewer than 50 Apac firms already find themselves in the regulatory cross-hairs and face brand damage, revenue hits, and even multimillion-dollar fines if found guilty of misleading the public.
Cross-border commerce will increase
2022 saw the ratification of the Regional Comprehensive Economic Partnership Agreement (RCEP), a sprawling regional free trade agreement that covers 15 countries with a combined population of 2.3 billion. It is the world’s largest free trade agreement by member GDP (US$26.3 trillion).
By easing barriers and restrictions and removing tariffs, the RCEP could prove transformational for the APAC region, with some estimates suggesting cross-border commerce will rise by 20%.
If they aren’t already, financial firms should be looking to capitalise on what is an incredible opportunity to secure their slice of this expanding pie. They should be searching for the international payment opportunities generated by the agreement and launching into the markets of member countries.
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Digital disruptors will be swallowed by established firms
A number of fintech start-ups -- from payment providers to neo-banks -- have disrupted a market that has historically been known for its conservatism and has long been dominated by established players.
While it looked for a moment that the financial plutocracy would be broken up by these new players through 2022 and into 2023, it appears that legacy firms aren’t ready to give up their stranglehold just yet.
In 2022, many start-ups were bought by large financial firms. Australian neo-bank 86 400, for example, was absorbed by the National Australia Bank and subsequently rebranded as ubank. It was also a big year for M&A activity in the BNPL space, as the three major players in the Australian market – Afterpay, Zipco and Humm Group – began gobbling up competition. It’s a trend that shows no sign of slowing in 2023.
As we move into 2023, the challenges are many and varied for consumers and financial firms alike. While it remains to be seen how the industry will react to and cope with these trials and tribulations, the power is still very much in the hands of each firm.
Arun Kini is the regional sales director of Payments for Apac at Finastra
