By Dale Laszig
Like kaleidoscopes that reconfigure shards of glass, fintechs transform and unify commercial transactions in ways that delight buyers and sellers and reshape the future of commerce.
2023 can be seen through multiple lenses, creating a colorful diorama of cross-border commerce, cybersecurity, embedded finance, faster payments, and regulatory oversight. Here’s our year-end review of the biggest fintech and payment developments in 2023.
RTP is Introduced – and is Scaling
The Deloitte Center for Financial Services, which has tracked real-time payment (RTP) methods for decades, suggests RTP is finally poised to scale. A July 2023 article by Zachary Aron, Val Srinivas, and Richa Wadhwani observed that RTP benefits extend beyond payments.
“In addition to driving business growth across borders and giving access to new markets, real-time payments would also add more transparency to the otherwise fragmented and unpredictable B2B payments landscape,” the authors wrote. “Many RTP systems use International Organization for Standardization (ISO) 2022 messaging standards that enable two-way communication, such as ‘request for payment,’ ‘request for information,’ and ‘confirmation of payment.’
Banks, armed with RTP, can enrich B2B transactions with deeper insights and value-added B2B services, the authors noted. In a world of fast-flowing information and money transfers, they suggested that services such as automated matching of purchase orders to invoices, virtual accounts and electronic would become table stakes.
But security analysts view faster payments through a risk management lens, emphasizing its potential for misuse and abuse by opportunistic fraudsters – suggesting there is more work to do in this area.
“Unfortunately, fraudsters have wasted no time in [capitalizing] on these systems,” said Nathan Close, head of solution consulting at Outseer. “They employ various techniques, including social engineering, to deceive unsuspecting consumers into voluntarily sending funds to them. This rise in fraud attacks, particularly mule activity and consumer-authorised push payment (APP) fraud, has compelled financial institutions and regulators to be on high alert.”
Additional data from UK’s Payment Systems Regulator found rising APP fraud revenues and transaction volumes at the region’s top 14 banks and 9 smaller firms. Fraudsters trick people into sending a payment to an outside account, policymakers explained, stating the PSR will introduce stricter reimbursement and security measures to stem these attacks, which accounted for 40% of fraud losses in 2022.
The Journey to a Passwordless Future
In the face of faster, more sophisticated forms of fraud, security experts advocate replacing passwords with strong authentication methods that are resistant to phishing, pharming, whaling and other prevalent attack vectors. FIDO Alliance unveiled passkeys in March 2022, a simple, secure alternative to passwords, currently available at Google, Apple, PayPal and other leading tech companies.
FIDO’s annual “Online Authentication Barometer,” released in October at the alliance’s annual Authenticate conference, shows passkeys gaining worldwide adoption, paving the way to simpler, stronger authentication backed by open, scalable, interoperable frameworks.
Andrew Shikiar, executive director and CMO of the FIDO Alliance, believes a passwordless future is within reach. “This year’s Barometer data showed promising signs of shifting consumer attitudes and desire to use stronger authentication methods, with biometrics especially proving popular,” he stated. “That said, high password usage without 2FA worryingly reflects how little consumers are still being offered alternatives like biometrics, resulting in lingering [password] usage.”
Customizing Security and Fraud Prevention
Recent updates at FIDO, PCI SSC, nexo, ISO, and other global standard bodies reflect new levels of maturity and self-regulation in payments and tech sectors. For example, PCI DSS v4.0 introduced the Customized Approach Objective, opening new pathways to validation.
Lauren Holloway, Director, Data Security Standards, PCI Security Standards Council, discussed how risk-mature organizations can design, implement and maintain controls to achieve PCI DSS 4.0 compliance. And Verizon prescribed an integrated approach to achieving PCI DSS compliance, using predictable outcomes and measurable performance models to assess control environments.
“The overall organizational goal of a PCI security compliance program is to develop, maintain and continually improve a mature control environment that offers reasonable assurance for the effective, ongoing protection of payment card data in a consistent, predictable and sustainable manner,” Verizon reported in their 2023 Payment Security Report insights.
The Borders of Commerce Crumble
Businesses face delays, complexities, fragmented customs and fluctuating exchange rates in cross-border ecommerce, according to Avalara. Despite these challenges, researchers projected $1 trillion in cross-border ecommerce revenues in 2023, led by Asia-Pacific, Latin America, Middle East and North Africa.
Avalara and Reuter’s survey of 732 supply chain professionals cited costs and compliance as top concerns, followed by documentation issues that compromise prompt, affordable service expectations. Technology solves these issues, researchers added, noting that most respondents agreed cross-border ecommerce is getting easier. Evan Wright, senior director of growth, cross-border, at Avalara, has also seen improvements, fueled by digitized international trade.
“Now, companies can draw on databases and automation to instantly understand the terms of trade, present these to the buyer and maintain a consistent pathway from seller to customer that [minimizes] the costs of crossing borders,” he said. “With this in mind, we are highly optimistic about the future, and you should be too.”
The Future of Payments is Embedded
In the B2B arena, next-generation payment facilitators and independent software vendors (ISVs) are delivering frictionless customer experiences that are similar to B2C commerce. These partnerships leverage APIs to meet growing demand for embedded payments and finance.
Juniper Research predicts embedded commerce will surpass $59 billion by 2027, with over a third of that revenue stemming from B2B ecommerce and software integrations.
“The research also forecasts that by 2027, 35% of embedded payments’ revenue will be from the B2B segment,” researchers wrote. “B2B payments have seen less implementation of new payment types to date, with complex accounts payable and receivable processes creating a difficult ecosystem to manage. Embedded finance vendors must focus on bolstering payment integration with key B2B access channels, such as B2B eCommerce marketplaces and accounting software, to [maximize] their appeal in this high-potential market.”
Closing out 2023
At the close of Q4, fintech, payments and financial services leaders may try to spin 2023 into an emblematic catchphrase. Was 2023 the year of small business, real-time borderless payments, regulatory clarity, mature security standards, or embedded finance and commerce? Perhaps the rearview mirror will display all of these and more, in a colorful collage of moving parts that play well together as they spiral forward to an ever-brighter future.
Dale S. Laszig is a payments industry journalist and guest columnist for Payfactory. Previous to her writing career, she managed business development for leading payments acquirers and POS manufacturers. Connect with her at [email protected], LinkedIn and Twitter.