Two weeks ago, RFI Global released an article reviewing the predictions we made at the end of 2021 for the year ahead. The link to that article can be found here.
In this article we showcase our predictions
for 2023 including key changes to the banking and payments landscape for both
consumers and businesses.
PREDICTION # 1
see the full impact of increased cost of living pressure on consumer behaviour
Over the past six months we have seen cost
of living pressures emerge as a key concern for consumers across the globe.
More recently, rising interest rates have further impacted customer budgets. Our
surveys conducted over the course of November 2022 reveal 82% of consumers in
the UK, 81% of consumers in Canada, and 80% of consumers in Australia are
concerned about the impact of the rising cost of living. In all markets, the
rising cost of living was a greater cause of concern than the economic outlook,
unemployment, further COVID-19 lockdowns and rate rises.
Consumers emerged from the pandemic with significant savings buffers, as well as a changed attitude towards savings with customers placing a greater importance on saving ‘just in case’. We can expect that these savings buffers will be, to an extent, insulating consumers from the immediate impacts of rising living costs and higher interest rates. In fact, in Canada and the UK, the majority of consumers report still feeling at least somewhat confident about their financial situation (56% and 66%, respectively). But pandemic savings buffers are already being impacted by a return to pre-covid spending in addition to the rising cost of living. Data released by the Australian Bureau of Statistics in December shows that the household savings ratio has now dropped to pre-pandemic levels.
Our data shows signs of consumers beginning to re-think their priorities when it comes to spending and saving. The top two actions taken by consumers across markets are reducing discretionary spending and dipping into savings. As savings buffers are further eroded, we can expect a more significant shift in consumer behaviour as customers re-assess their outgoings and become more price sensitive.
We can also expect to see change in attitudes towards and usage of credit. Consumers are displaying greater debt aversion and are reluctant to borrow more given rising rates. However, there is a segment of the market who rely on credit to stretch their pay. With cost-of-living pressures impacting budgets and savings buffers declining it is likely that we will witness both an overall decline in credit demand and an increase in cardholders’ revolving balances – in some markets, and notably in Australia, we saw this during the pandemic with overall card spend and balances accruing interest dropping at an overall level but revolve rates remaining relatively stable. We should also expect to see greater demand for low rate and interest free products – including BNPL.
Globally, banks did a great job of demonstrating they were there for customers during the pandemic – customers will be looking for similar reassurance in 2023 as well as guidance to help them understand how macro-economic factors will impact them.
Globally, banks did a great job of demonstrating they were there for customers during the pandemic – customers will be looking for similar reassurance in 2023 as well as guidance to help them understand how macro-economic factors will impact them. Kate Wilson, Global Head - Consumer Credit, Deposits and Payments, RFI Global
PREDICTION # 2
BNPL will continue to evolve – with traditional providers driving growth in the category
Since the start of the pandemic in 2020 we have seen a significant increase in BNPL usage globally, with rapid growth in e-commerce helping to support BNPL adoption. The BNPL industry is now facing challenges with news of de-valuations of BNPL companies, providers pulling out of markets and abandoning expansion plans dominating headlines in the second half of 2022. BNPL has always been a controversial product and for some, the recent news surrounding the sector is confirmation that the product does not have longevity. However, while investor interest in the sector is declining, consumer interest is not. According to recent RFI data, the vast majority of BNPL users intend to continue using BNPL over the next 12 months. In some markets we are also seeing indications that consumers are considering BNPL as an alternative to interest bearing credit products.
RFI data tells us that consumers like that BNPL not only allows them to avoid interest, but also helps them to feel more in control of their spending and debt repayments and allows them to get more out of their pay by making it stretch further. It’s not hard to imagine that these core features of BNPL will become more appealing to customers facing cost of living pressure and higher borrowing costs and could spur further demand for BNPL even as overall demand for credit wanes due to the higher cost of borrowing.
The consolidation we are seeing in the BNPL landscape is the sign of a maturing market. While it is unlikely that we will see new pure-play BNPL providers emerge in 2023 we can expect that traditional financial service providers will increasingly offer BNPL or BNPL-like products to their customers. A number of major banks have already launched interest free or instalment plan products and features. In Australia, the birthplace of BNPL, all four of the major banks have launched new products in response to BNPL take up. RFI data also tells us that consumers are interested in using BNPL services offered by their bank; 3 in 4 BNPL users in Australia and the UK would consider a BNPL service from their bank appealing.
Customers have voted with their feet and have proved the longevity of the product construct. While the new interest free and instalment propositions being launched by banks and credit card providers might look a little different to traditional BNPL offerings, it is clear that BNPL is here to stay – and over the coming year we can expect to see the category evolve further.
The consolidation we are seeing in the BNPL landscape is the sign of a maturing market. While it is unlikely that we will see new pure-play BNPL providers emerge in 2023 we can expect that traditional financial service providers will increasingly offer BNPL or BNPL-like products to their customers. Kate Wilson, Global Head - Consumer Credit, Deposits and Payments, RFI Global
PREDICTION # 3
The FinTech industry will enter a new period of accelerated growth as digitally savvy consumers look for support amidst economic uncertainty
When the pandemic engulfed the world in 2020 and access to traditional banking channels was restricted, the uptake of digital channels and digital-only providers soared. Since then, the number of consumers globally who do all their banking on mobile devices has increased significantly. This propelled the growth of the FinTech industry.
Now, as people around the world face up to economic uncertainty and rising inflation, digital-only providers stand to benefit once again as consumers in this environment are likely to watch their spending more closely, become more price-sensitive and shop around for financial solutions.
Digital-only providers offering financial management tools will provide a platform for consumers to monitor and manage their personal budgets as well as a wider array of more personalised financial solutions and credit options, which are seen as more attractive and financially competitive than products offered by more traditional providers.
Now, as people around the world face up to economic uncertainty and rising inflation, digital-only providers stand to benefit once again as consumers in this environment are likely to watch their spending more closely, become more price-sensitive and shop around for financial solutions. Hubert Petka, Global Head - Consumer Digital and Segment, RFI Global
PREDICTION # 4
It will be a pivotal year for crypto industry following strong headwinds in 2022
Valuations of most cryptocurrencies suffered large falls in 2022. The outlook of the industry deteriorated further following the sudden collapse of FTX in November and the shockwaves it sent through the entire crypto ecosystem.
With the price of Bitcoin now sitting at a third of its peak valuation in 2021 and investors still counting their losses following record drops, question marks hang over the future of the crypto industry. Yet, cryptocurrencies are destined to survive.
Consumer interest in the sector remains resilient despite higher volatility and rapidly depreciating valuations. When RFI Global spoke to consumers about cryptocurrency holdings between April and June of this year, at the time when value of Bitcoin was tumbling, 2 in 5 investors globally still expected their holdings and use of cryptocurrencies to increase over the next 12 months, whilst only 1 in 6 planned to scale back their involvement. Growing interest from institutional investors is also poised to buoy valuations and provide a much-needed lifeline at a critical time.
Lower valuations are also likely to attract savvier investors seeking growth opportunities, and the fact that many investors hold cryptocurrencies as they find them exciting and because they view crypto as easy to access and trade bodes well for the future of the category.
Lower valuations are also likely to attract savvier investors seeking growth opportunities, and the fact that many investors hold cryptocurrencies as they find them exciting and because they view crypto as easy to access and trade bodes well for the future of the category. Hubert Petka, Global Head - Consumer Digital and Segment, RFI Global
PREDICTION # 5
Appetite for sustainable finance^ will continue to grow, in terms of dollar value and its importance in bank choice. Growth potential is likely to be highest in APAC.
Demand for sustainable finance amongst businesses has grown rapidly in recent years. As an example, sustainable green and sustainability linked loan issuance was up 200% from 2020 to 2021.
While most sustainability linked loan issuance has come from Europe and North America, RFI SME and Commercial data suggests future demand may be highest in APAC markets. In particular, India, Indonesia and China/PRD have registered some of the highest interest in sustainable finance. India has seen a more than 30% increase in demand for sustainable finance since 2016, while Indonesia's demand has grown by over 20%. China/PRD has also seen a significant increase in demand for sustainable finance - it grew by more than 10% between 2016 and 2019.
There are many considerations in interpreting these numbers. Fast-growing markets like China, India and Indonesia tend to have a relatively high demand most banking products, a product of more rapid growth. There are also industry composition drivers, knowledge/awareness differences and factors such as the supply of sustainable financing behind these differences. While direct country comparisons may not be entirely like-for-like, they serve as a starting point for further deep dives by industry, business size and phases of growth.
Across markets we now see many businesses indicating that sustainability played a role in their choice of main bank. For example, in Indonesia and India, upwards of 40% of businesses cite it as a factor, while in European markets like Germany and France, the figure is closer to 1 in 4. In the PRD region the availability of sustainable finance solutions now ranks 7th based on its importance as a driver of main bank choice. Similarly, many businesses say poor availability of sustainable finance options would be a key reason to avoid a bank. In India, it is the number 1 reason for avoiding a bank, in Singapore, it ranks 3rd while in Canada it is the 9th most important driver of avoidance. With demand for sustainable finance growing, we are also likely to see its importance as a driver of choice and bank avoidance increasing over time.
^Sustainable finance – refers to green loans, sustainability linked loans, green trade financing etc.
While most sustainability linked loan issuance has come from Europe and North America, RFI SME and Commercial data suggests future demand may be highest in APAC markets. In particular, India, Indonesia and China/PRD have registered some of the highest interest in sustainable finance. Amit Khan, Global Head – SME and Commercial Banking, RFI Global
PREDICTION # 6
Small business will emerge as the key battleground for payments
In recent years we have seen renewed focus on expanding the breadth of payment options available to SMEs, as well as a proliferation in terms of the range of payment acceptance options on offer. As a result, in 2023 we expect innovation and competition in the small business payments space to intensify significantly.
In terms of making payments, there are a number of factors that have collectively drawn the attention of the industry to small businesses. Particularly at the micro-end of the spectrum, small businesses mirror the attitudes and behaviours of consumers in general – and therefore the range of payment options that have been developed with consumers in mind can more easily transition towards the business space by first making the jump to small businesses. We have seen early signs of this with Buy Now Pay Later, where major players like Zip and Humm have launched business-focused BNPL offerings.
Similarly, we are starting to see payment solutions that have historically been confined to larger businesses beginning to move downstream to SMEs. A great example of this is virtual cards; while they have been used by larger businesses extensively for facilitating supplier payments as well as a range of other use-cases, we expect that in 2023 we will see providers globally begin to apply this functionality and develop use cases specifically for small businesses. Our surveys clearly show the appetite for this type of innovation among SMEs; data from RFI Global’s latest B2B Payments surveys in Australia, Canada, the UK and USA found that 37-47% of SMEs that do not currently use virtual cards find the concept appealing.
It's not only on the payables side that we expect to see significant change in the year ahead; we are anticipating significant changes in the payments acceptance space as well. Here again BNPL has a role to play; the integration of Afterpay into the Block/Square ecosystem should expand the reach of BNPL among small businesses considerably, and we expect the diffusion of BNPL into new verticals to continue unabated over the next year.
We are also seeing the ongoing impacts of the pandemic continuing to affect payment acceptance; however, here we are going to highlight a potential silver lining of the pandemic rather than its many, many negative impacts. One key outcome we have been tracking over the past 2-3 years has been an acceleration in many long-term payments trends, including declining cash usage, rising usage of e-commerce, and – perhaps as a consequence of these – growth in card acceptance. This last point is most relevant when looking ahead over the next 12 months, because this is where we expect to see continued innovation. With the launch of Apple’s Tap to Pay in 2022, 2023 will finally be the year that we see the market embracing Software-based POS (SoftPOS), eliminating two of the remaining barriers of card acceptance for micro merchants – the cost of acquiring hardware, and inconvenience/time required to acquire, learn and implement said hardware.
We also expect further integration and improved products and services stemming from payments acceptance over the next 12 months; from integrated QR streamlining the loyalty process for retail, better integrations between acceptance solutions and other POS and business management solutions, 2023 will see providers focusing on developing solutions that help remove friction and complication for small businesses and allow them to focus on running and managing their operations.
With the launch of Apple’s Tap to Pay in 2022, 2023 will finally be the year that we see the market embracing Software-based POS (SoftPOS), eliminating two of the remaining barriers of card acceptance for micro merchants – the cost of acquiring hardware, and inconvenience/time required to acquire, learn and implement said hardware. Mark Schultz, Global Head – Business Payments, RFI Global