World Payments Report 2022: versatility, the future of innovation and the power of digital

Amidst uncertainty and unprecedented volatility across the payments industry as a result of the global COVID-19 crisis, the industry as a whole has displayed resilience and flexibility in the past year, according to the latest World Payments Report, recently issued by Capgemini.

There are many opportunities for innovation and development as digital technologies take centre stage in evolving customer journeys, whilst challenges remain regarding reliance on legacy systems, adjusting to market demands and the general movements in the market overall. The findings of the 2022 World Payments Report will be discussed in detail during Sibos 2022. In anticipation of this, on behalf of Worldline, Paul Jennekens presents the conclusions of the report in this blog.

The impact of COVID and going digital

The global impact of the COVID-19 pandemic and the resulting lockdowns required many industries to adopt digital technologies to continue interacting with their customers. In turn, consumers have become more comfortable using digital technologies and are demanding digital services and interconnected platforms from their chosen companies and institutions.

Digital adoption has been high – non-cash transactions are on track to achieve a 16.5% compound annual growth (2021-2026), while adoption of innovative formats, including QR codes and digital wallets, has accelerated. This has resulted in increased demand for streamlined customer journeys, added value and an increased variation in payment options.

"This is certainly one of the report's key takeaways," says Jeroen Hölscher, Head of Global Cards & Payments Practice at Capgemini. "From this, you can see that different markets are emerging regarding digital ability and demands. So, when considering how to meet these demands, providers should have a more flexible platform to deal with their customers' requests and mix and match services, or at least allow their customers to mix and match depending on their wishes."

From the provider's side, this has also resulted in a need for increased data. What do their customers need, use or want? Who are their customers, and what offers them maximum value? Using standards such as ISO 20022, which can provide added value, is increasingly important. This need for data is reflected in the report and reinforced by Jeroen. "You need to understand what your different clients are and to provide them exactly what they need - this has become more evident in the past several years."

Innovation and versatility are essential

Many companies face critical decisions regarding legacy systems to take full advantage of the many opportunities that emerging technologies and digital services bring. The report indicates that outdated legacy systems slow and stifle innovation – a key differentiator in the market. However, the report's findings also suggest that only one in three payment firms are ready to mothball heritage systems.

This results in a dilemma for many payment firms. On the one hand, they recognise the need to become more versatile and modular in their offerings and their systems. In opposition to this, they face significant challenges in overhauling or adapting their systems to new composable platforms that enable future-proof and responsive solutions.

"This is, of course, a challenge," suggests Jeroen. "Firms recognise the benefits that cloud-native, microservice-focused and API-enabled services can bring, but to achieve this is not always so easy. It means you need to review your legacy systems and identify where you can change them to the correct model. Sometimes this might be a wholesale replacement or by changing portions over time. Ultimately, to achieve improved cost base and a speed to market, along with the added value they can offer their customers, there's nothing else to be done other than transformation."

Moving towards future proof, versatile solutions require short-term complexity. In the medium to long-term, switching to versatile, modular solutions and approaches will enable players in the payments industry to react to emerging tech, trends and movements and better serve the needs and demands of their customers. In the medium term, finding market differentiators and standing out from the crowd will become more critical in building trust, value and loyalty.

Effective preparation will unlock future potential

Preparing for transition and identifying customer markets and how emerging digital technologies may impact their usage is key to long-term success. Effective businesses will use data to influence their business decisions and build strategies. By being open to new forms of payment and digital tech, payment providers can be better prepared for future integrations and new technologies, such as Distributed Ledger Technology (DLT).

As Jeroen suggests, the transformation journey will not happen overnight, so companies must prepare for complexity in the short term. "The industry will see more fragmentation, more payment types and different ways to pay. So, there will be a multitude of options, which, if key players wish to remain competitive, they will need to support. In the longer term, this may give way to standardisation as solutions for seamless experiences and specialised customer journeys become possible from inter-connected and modular systems. This is where being prepared comes into play."

Regarding DLT, adoption rates are expected to remain level in the medium-term. There are many plays that companies can make upon evaluating their own potential and risk aversion. The findings of the report suggest that providers can; embrace multi-rail foundations, bolster core infrastructure and explore possibilities of central bank digital currencies (CBDC), or become a DLT adoption frontrunner via ecosystem collaboration. All three represent ways to enter the age of seamless value exchange.

In conclusion

No matter how financial providers move forward, being agile, flexible, versatile and open to the evolving digital world are key to sustained success and the steady growth of customer value and customer loyalty. Through adoption and transformation, companies can remain relevant and competitive or offer key market differentiators to lead the pack. You can read the report in full here.

Key take-aways:

• Digital adoption has been high and is here to stay
• Versatility is essential for businesses to adapt to a changing market
• Data is becoming ever-more important
• Businesses should prepare for short-term complexity for long-term success
• Various opportunities have been presented – companies should take the time to assess which play is best for their position
• Competition is increasing – innovation is key to creating differentiators