Happy New Year! – What difference can a year make?

Happy New Year! – What difference can a year make?

Huge, it would seem. The momentum and focus of payments, commerce and financial services businesses at year end 2022 was vastly different to its start.

Two corrective macro cycles overlaying each other have determined a massive swing in sentiment and subsequent actions in the markets:


  1. Firstly, post Covid reopening (for most) plus geo-political tensions in the extreme, have driven inflation into an upward spiral not seen for over a decade, resulting in economic hardships for many worldwide, and seemingly going to get worse before it gets better over the next 2-4 years. Ironically, the western ‘advanced’ countries look to be the most affected but supply chains make the ripples felt globally to different levels.
  2. Dot Com 2 has triggered and is rolling – Fintech confidence and valuations descended from stratospheric levels, ongoing investment levels shrunk quickly and now many Fintechs are struggling to survive – the fall out looks to be significant in the coming year.


Whilst these two cycles are corrective and bring hardships, they also are likely to bring normalisation back; two examples being (a) strong robust businesses will again flourish ahead of others as expectations on sustainable performance like generating predictable profits are rewarded, and (b) the Fintech community will release large numbers of talent back into the normal world to feed more traditional essential businesses, which in turn drives further progress in (a).

In Payments and wider financial services, last year we saw many consumers revert back to old shopping habits; face to face bounced back strongly. BNPL, that poster child of embedded finance, morphed from being the hottest industry ‘must have’ to a delicate balance between a quick commercial opportunity and being caught under regulatory scrutiny and negative press of irresponsible lending. The decade low interest rates are ramping their way back into payments revenue calculations. ISO20022 is the (mandated) answer to all messages. Instant Payments stumbles slightly with fraud and incoming introduction of bank liability levels. DeFi and crypto has lost its way for now. And, far from declining, cash in circulation scaled to record global highs!

However, such seeming course reversals can be misleading.


Underlying currents remain unchanged


On the surface, the changes manifested as disparate, unconnected, and conflicting waves, however underneath, the currents remained in the same direction. Despite the 2022 flip, we at PayX found the already underway tectonic trends continuing firmly across global markets.

Like in other industries, the blurring of digital and physical continued its march in financial services too. Reflecting weak future expectations, the price-to-book ratios of most banks persisted much lower than that for digital savvy versions. Platforms continued to creep into the banking arena. Challenging traditional models continue to make headway focusing on neglected market segments – e.g., underserved SMEs, cross-border payments. The march of software and cloud carried on transforming how the industry has operated for decades. Payments scope continued to expand into overall commerce experiences. Realtime A2A payments pushed on, transforming whole cash-based markets with exponential growth. Embedded Finance, even in its early innings, remained the touted go-to-future for the industry.

This continuity of trends reflected in the issues on which our clients quizzed us and sought our partnership through the year. Broadly the issues can be categorised as 3 focus types – Reach, Expand and Optimise.


Top client trends in 2022


1) REACH: Interpreting market forces and setting change direction. Clients wanting to understand implications, the resultant goal setting, and practical implementable route to those goals – utilising PayX perspectives to strategic advantage.

Some examples: Defining the payment strategy roadmap; Help creating marketplace models, platforms and ecosystems; Identifying which next-gen services and fintech partnerships to adopt and how; Increasing SME penetration; Expected impact of CBDC and crypto; How to monetise open banking; Setting the digital transformation prioritisation based on return/effort matrix.

2) EXPAND: Navigating deployment of immediate required market products, features and technology. Clients wanting to overcome challenges in laying the groundwork for transformation, future growth, and improved returns – leveraging PayX experience to reduce implementation risk.

Some examples: Driving out high legacy system costs using hybrid solutions with newer tech stacks while maintaining robustness and low risk; material cost savings and better customer service with benchmarking and more efficient operating infrastructure; Supporting ISO20022 migration and the complexity of standards interoperability; ATM network reset to deliver cost savings and revenue opportunities; Deploying next-gen products and solutions; Leveraging contactless growth with SoftPOS deployment; Modernisation of B2B payments.

3) OPTIMISE: Perhaps perceived as obvious but an increasingly large focus in 2022 and likely even more so in 2023; extracting maximum profits from existing operations. Clients wanting to make the current core operational business as efficient as possible, finding savings from low hanging opportunities – using PayX models, tools, best practice learnings and recurring services.

Some examples: Scheme/Interchange cost audit and optimisation; Better cost management and recovery; Pricing Model modernisation aligned with costs and market dynamics, better portfolio segmentation & risk management; Full commercial model review; Contracts auditing and updating; Billing process sampling and review.


2023 expectations


In 2023, even as new and old, short-term waves and trends rise or ebb, we expect the entrenched strong currents to continue flowing. So more of the Reach, Expand and Optimise. 2023 however is already strongly positioned, and many have started execution for an overriding cost reduction phase to align with the next corrective 2-3 years. This therefore influences the mix aligned by the evolving market movement.


  • The recession, whether technically reached or just driven by fear momentum, is definitely forcing more focus on short term Profitability through smart revenue and cost saving through optimisation initiatives. We already have a solid pipeline of quick-win high potential optimisation undertakings through our client base and expect that to grow significantly. Payments businesses need strong granular control and up to date performance measurement to compete well in the continually pressured core business lines.


  • Tightness in capital markets and difficulty in accessing capital will drive the need for consolidation and catalyse M&A opportunities and activity. We expect more traditional organisations to enjoy the fire-side sale of the struggling fintech world, both acquiring full entities and also picking off talent and other components, plus we expect more bank and vendor consolidation as boardrooms recognise some organisational models and cultures will not survive over the longer term. A topical example of this consolidation being ACI Worldwide, for decades the defacto standard worldwide for acquiring/switching platform, reported (by Bloomburg) to be discussing a sale (We have our own Industry Analyst Opinion on this along with its consequences that we are happy to share so just contact us).


  • We expect the continued increase in regulatory actions on the subjects of Payment Networks (esp. network fees in Europe and the UK), BNPL, Open Banking, Crypto, CBDCs and Real-time payments. This we believe will rise to be a very hot topic as typically regulation is driving operating business costs up (sometimes materially) without any fast return, which is in conflict to shareholder and public market expectations of increased profitability in harsh market conditions. The more regulation increases in 2023/24, the more heated the response from the operating businesses will become.


  • Growth in Net interest income (NII) (assuming defaults don’t go wild) may provide a funding buffer to some banks to bite the bullet and fuel major upgrading of core infrastructure. We continue to see a steady rise of banks upgrading their core banking systems; given the distraction and long (often delayed) project execution times then maybe the timing is good to do large infrastructure programmes in a consolidation market cycle rather than try in fast moving growth cycles.


  • We expect a few brave mega players to make strategic moves to more of a global digital ecosystem/platform position, which will in turn galvanise a few brave banks to announce their own digital transformation to align. In the process, 2023 may start revealing solid proof points for monetisation of open APIs and open finance.


  • We expect more partnerships between winning incumbents and winning fintechs thus making effective partnering a reality for some in 2023. We have therefore geared up our AddVentures unit to help our customer base find and execute fast-track, quality robust partnerships.


In conclusion, we believe 2023 will be a year for quality players to succeed, in both generating quality profitable business on what they do best, and also continuing to position for the inevitable more digital world. At PayX we have always focused on working with the best players in the market and their core businesses, and we look forward to continuing to deliver as a trusted partner to our existing and growing global client base.

As always from PayX and AddVentures.io, we wish you all the success in 2023 and look forward to further partnering with you. Please do not hesitate to contact us for further detail on this outlook or wider Payments/Commerce topics.


Adrian Hausser

Group CEO