Payment Perspectives 2022

A stronger focus on customer benefits

What will 2022 bring to the payment industry? Which important developments will we have to engage with, and which trends are clearly emerging? What are the current challenges in e-commerce and how should we assess the activities of various players who are looking at new processes beyond traditional payment methods? We at Netcetera take a brief look back at 2021 and, building on this, provide educated predictions for 2022.

Key milestones in the past year included the EU committing to Strong Customer Authentication under the European Payment Services Directive (PSD2) in March, the announcement of the development of a digital euro by the European Central Bank in July, and the release of the new  EMV® 3 -D Secure protocol 2.3 in early October. Developments in Bitcoin and Mastercard's decision to retire Maestro cards were also points of particular interest. Recent news from Mastercard and Visa also reveals how strongly the two companies are now investing in the areas of account-to-account payments and value-added services. Finally, there was a movement to strengthen European sovereignty in payments, for example, with the European Payments Initiative (EPI).

In 2022, we can expect particularly exciting developments in the following eight areas:

  • the expansion of tokenization to more applications
  • digital identities related to payments
  • an increase in account-to-account (A2A) payments and stronger support for open banking
  • European independence in payments
  • improvements in conversion and user experience
  • value-added services related to payments
  • growing interest in cryptocurrencies
  • increased attention to sustainability in payments

Expanding tokenization and digital identities

Tokenization has so far been used primarily for credit cards by replacing the real card number with another number (token) to prevent the misuse of real card numbers. This principle can also be applied to economic assets (real estate, shares and other securities, works of art) and money. Tangible assets can be represented by tokens in the same way as monetary assets. These tokens can be exchanged and traded directly among each other with the appropriate contract design (smart contracts).

In the case of digital identities, the user data has so far been stored and managed centrally by individual providers. Nevertheless, users can already prove their identity in several ways. However, it is becoming clear that the trend in this area is toward self-sovereign identities (SSI). This means that every user can decide for themselves how their personal data is stored and managed. This will lead to a significant expansion in the number of users and the possible applications for digital identities.

From Open Banking to Open Finance

Further progress will be made this year in democratizing banking interfaces under Open Banking. The Berlin Group, published its 2022 working plan for the "openFinance API Framework" in December 2021. Various extensions are planned beyond the banking interface previously required by PSD2. These relate, for example, to push messages to account holders, advance scheduling for payments, deferred and recurring payments, the new request-to-pay service, the initiation of consumer loans (BNPL, Buy Now Pay Later), and SEPA direct debit mandates.

The APIs (Application Programming Interface) developed within this framework are intended to ensure efficient and secure data exchange. The aim is to be able to offer bank customers a wider range of relevant services.

Strengthening European payments sovereignty

There are two approaches planned to strengthen European autonomy and independence in payments: the bank-led European Payments Initiative (EPI) and the digital euro announced by the European Central Bank together with several national central banks.

The EPI is intended to overcome the fragmentation of the European payment landscape with its many national solutions. To this end, a pan-European payment solution is to be created that is based on the cooperation between important European countries. This is intended to offer a European alternative to global American and Chinese digital payment solution providers. EPI will enable all types of transactions, whether in-store, e-commerce, cash withdrawals, or payments between individuals (P2P). Clearing and settlement are to be based on instant payments (SEPA Credit Transfer Inst, SCT Inst). The main hurdles in implementing EPI are the very different starting conditions in the various countries and the fact that no immediate business case can be presented for the banks involved.

The digital euro is intended to function in a similar way to cash: Accessible to all consumers and businesses. Another parallel to cash, it is to be issued by the European Central Bank together with the national central banks and its value is to be guaranteed. One goal is to use it to support the digitization of the European economy. After the ECB launches the project in mid-2021, the digital euro is expected to start being used in 2025.

E-commerce: more user-friendly than ever

The coronavirus crisis is ensuring that more and more consumers are shopping online. There is no end in sight to the strong growth in e-commerce. However, there are still purchase transactions that cannot be completed successfully - whether because customers cancel the transaction, a card has not yet been approved for e-commerce, the card validity has expired, or an authorization fails due to an incorrect CVV or a limit being exceeded. PSD2, with its requirement for strong customer authentication, provides greater security, but still creates losses through friction.

The challenge of making e-commerce checkout even more user-friendly therefore remains. Several instruments promise progress, such as the new version of 3-D Secure 2.3, tokenization, and the imminent launch of "Click to Pay" or "Delegated Authentication" in several European countries. Netcetera has developed suitable solutions for the implementation in each case.

Profiling through value added services

If you want to stand out from the competition with your range of payment methods, you should offer your customers added value. The main challenge here is to identify the value-added services that are really relevant for the respective customers. Promising developments can be observed in two areas.

Under the catchphrase "Buy Now Pay Later" (BNPL), new forms of sales financing are currently emerging with which banks can recapture lost market share. It is very easy to create links with credit cards as well.

As part of the general discussion about sustainability, interest in digital receipts is increasing. More and more consumers find it unacceptable to make digital contactless payments and then receive a paper receipt that is often not recyclable. However, in view of the diverse checkout landscape, there are high hurdles for the necessary standardization.

Green payment becomes mainstream

The general discussion about environmental protection and sustainability has also reached the financial sector. When shopping, for example, the majority of millennials make sure that retailers that they purchase from operate sustainably. This also applies to investments and other financial services. There are now many ways to check the sustainability of individual offers. It also cannot be ruled out that credit institutions will be encouraged to be more sustainable in the future through regulation.

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