This year presented tumult for payments companies, forcing them to grapple with soaring inflation, currency volatility, Russia’s invasion of Ukraine and consumer shifts as the COVID-19 pandemic wanes. In response, the industry kept evolving to emphasize faster, easier payments.
As 2022 winds down, attention is shifting to 2023, and the payments hurdles and opportunities that may emerge as the U.S. economy targets a smooth landing. In this sixth edition of our CEOs Sound Off series, we spoke with three industry leaders to get their perspective on the trends and challenges likely to surface next year.
Below are insights from Henrique Dubugras, CEO of corporate spend management fintech Brex, which is based in San Francisco; Nandan Sheth, CEO of Atlanta-based Splitit, which provides buy now-pay later services to consumers via their existing credit cards; and Jeremy Almond, CEO of Scotts Valley, California-based Paystand, a blockchain-powered payment network for business-to-business (B2B) payments.
Editor’s note: The interview responses have been edited for brevity and clarity.
PAYMENTS DIVE: What do you think the payments trends for 2023 will be?
HENRIQUE DUBUGRAS: I think one is real time. Payments and finance are still [shifting] from the batch world, where everything is done in batches, to a real-time role. That trend is increasing every year. Payments in general are becoming more 24/7 and real-time, both the processes and the money transfer itself. The second trend is global. There's this huge trend with payments and fintech being local to now going global. The third thing I’ll say is that with increases in interest rates, you’ll see a fight for deposits.
NANDAN SHETH: Trend number one is going to be the next evolution of buy now-pay later. We call that BNPL 2.0, which is going to be very different from the legacy buy now-pay later business models, especially because of the regulatory changes being spearheaded by the Consumer Financial Protection Bureau in the United States, but also other regulators in other countries. And what you're going to see is a shift back to more conventional lending practices driven by the key stakeholders in the lending, financial services and fintech value chain. You're going to see much more collaboration between the fintechs and the traditional financial services players. As part of that, I think you're going to see a much more global standard for buy now-pay later. That standard is going to be driven by assets that are already in the market, such as the card rails, such as the banking platforms, such as online banking.
JEREMY ALMOND: As we've seen over the last decade or so, blockchain is a transformative technology in payments and financial services. We now have over 100 million wallet users in blockchain and crypto today. We're seeing new applications: decentralized finance, the ability to move capital in highly efficient ways. The underlying technology is evolving, and most importantly, the amount of users is rapidly, rapidly increasing. We foresee that it's getting to critical mass in 2023.
What do you think will be the biggest challenges for the payments industry in 2023?
DUBUGRAS: Fintechs are the type of businesses that need money to grow. If funding is reduced, they will grow less, compared to banks and traditional players that have the capital. I would predict that the companies that are well capitalized and raised a lot of money last year will do really well in consolidating their position, versus companies that need to raise money — they’ll do worse because they won't have the balance sheet to win, and that's particularly important in fintech.
SHETH: One of the biggest challenges in payments and financial services is going to be the implication of inflation, and how inflation impacts lending, and how the restriction in lending curtails individuals in their making purchases. I think there's going to be a lot more tightening of the belt as lenders become much more selective about who they lend to. It's going to become very difficult for consumers, and frankly merchants also, to absorb higher interest rates.
ALMOND: Through 2022, and certainly in early 2023, market conditions will remain choppy. The economic outlook is quite mixed. What that means is, for businesses, capital efficiency becomes ever more important. How do they get their money quicker, how do they get their money in ways that they can automate and scale faster? Automation is huge for them. And then ultimately, how do they lower their costs so they can put that money back and reinvest in the business? In B2B payments, there’s still a significant amount of commercial payments that are done through paper checks. One of the big challenges is the industry needs to move to more modern tech, and modern business models, because businesses fundamentally need them to be more efficient in economic climates where costs have been scaling.
What do you think the industry’s merger and acquisition landscape will look like next year?
SHETH: Companies that want to sell, or have to sell, or have an urgency to sell, those companies’ valuations have come down and they’ll be selling at a valuation that's going to be less than it was 12 months ago. Companies that don't need to sell, or don't need to do an M&A transaction, that are healthy, are going to just wait it out. My sense is that the deal flow for M&A is going to slow down to a level that's going to be less than what it was, on an average basis, for the last three years. You’re going to see a lot more divestitures from large companies. That’s going to come on the back of pressure that those companies are going to feel in terms of growth.
DUBUGRAS: A lot of people are saying that mergers and acquisitions will happen. Honestly, I'm on the fence. I'm not sure yet. Public company consolidation — I think that’s definitely going to happen. Private equity takes private. Big companies buying big companies. On the public side, I definitely expect that. On the private side, I’m not so sure yet. I think it’ll all depend on whether valuations correct on the private side or not.
What do you think the regulatory climate for the industry will look like next year?
DUBUGRAS: Definitely more conservative than before. Regulators are learning and improving, but they’re also very worried. It won’t be an easy regulatory year for companies that are bleeding edge, like crypto and decentralized finance.
SHETH: For general consumer lending, I think there's going to be a lot more parity between fintechs and more traditional financial services. There's going to be a consistency in regulation between those two categories that doesn't exist today. If you look at the more emerging payment methods, including cryptocurrency, I think regulation will also tighten there, but it's going to make those payment methods stronger, and it's going to allow more mainstream players to adopt those payment methods because there is a regulatory framework. And there's going to be a lot more alignment among countries around cross-border payments. And frankly, I think there's going to be a lot more collaboration, as it relates to regulation, to make it easier to conduct cross-border commerce.
ALMOND: The fee structure for the Visas and Mastercards of the world are just untenable for merchants, so it’ll be interesting to watch what the regulators and the government do there. There's more institutional adoption on the blockchain and crypto side than there's ever been before, and that means there's more pressure back to the government and regulators on what are the right institutional approaches.