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Can Payments Drive Growth in a Downturn?

Many economies are experiencing a downturn, and while a slowing economy feels uneasy, recessions are usually short with long periods of economic stability following. By examining current payment trends, we look at the opportunities for businesses to grow and how they can sow the seeds of prosperity while considering some of the obstacles that will be encountered.

Posted: 31st January 2023 by Katina Hristova
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Emerging markets and simplifying cross-border trade

Many businesses are looking to trade with customers in new, fast-growing and emerging markets to become less dependent on domestic markets that have either met full potential growth, are stagnant or are in decline.

As such, cross-border transactions are growing fast, with global transactions increasing from $29 trillion in 2019 to $39 trillion in 2022. Underpinning this surge were factors like global trade improvements, cross-border B2C payments, growth in online businesses and borderless e-commerce.

As an outcome, and to compete in the global marketplace, businesses around the world are turning to their banks and fintech partners for faster, securer and more transparent payment solutions.

Online payments allow merchants and consumers to conduct cross-border trade in goods in which they have a comparative advantage. At the click of a button, people can purchase products and services from across the world. In 2021, 2.14 billion people – almost a third of the world’s population – bought goods and services online. Another survey found that in the European Union (EU), 74% of internet users had shopped online.

Transactions in a global digital marketplace across countries depend on sellers and purchasers using compatible payment systems. In many parts of the world, this is tricky. Europe, for example, has differences in payment preferences across member states and is partly the inspiration behind a Single European Payments Area (SEPA) – whereby customers can make cashless payments via credit transfer and direct debit anywhere in the EU and in many non-EU countries, including the UK.

Here, using alternative payment systems designed to be compatible with widely used payment methods, like PayPal, improve interoperability and alleviate some of these issues.

Facilitating SME growth

Small and medium enterprises (SMEs) are as central to economic growth and employment as they are to innovation.

Access to more traditional online payments can be difficult for unproven enterprises, so alternative payment systems have emerged as the solution for many. In providing a single easy payment mechanism, merchants can circumvent banks and card companies and instead engage with a single service provider and ensure customers can have their preferred payment method – whether a debit or credit card, bank account or other.

According to the European Commission’s Annual Report on European SMEs 2021/22, SMEs constituted about 99.8% of all European enterprises and contributed about 65% of overall employment, highlighting their economic importance. Alternative online payments support the growth and further expansion of SMEs online, enabling them to enter new and emerging markets by harnessing online trade – and supporting the domestic economy.

Without access to alternative payment methods, many SMEs would be without the support to trade globally.

Artificial intelligence (AI) and Software-as-a-service (SaaS) expansion

AI has supported many enterprises’ efforts to bring in new revenue streams. Now, digital payment systems are increasingly looking to harness its possibilities. It can be applied to help with data storage capabilities, predictive models, and user experience and empowerment.

It can also support compliance, fraud detection, and cybersecurity. To protect a user’s financial security, AI-powered algorithms can analyse payments and transactions, gather data from different online payments and transactions, learn the patterns from former fraud cases, and determine a pass or fail verdict in near real-time.

AI minimises fraud for complex, high-volume transactions and human error in flagging suspicious transactions and will significantly impact the overall fraud resistance of digital payment systems. It can also be used by businesses to determine how best to pay suppliers or enhance customer service and expand market research.

With a talent shortage and a limited pool of graduates with specialist data skills impacting the ability of businesses to see through their digital transformation projects – AI can help here too. Taking on repetitive and time-consuming tasks so employees are free to handle more complex tasks where a human touch is needed.

Steered by the talent and skills conundrum, SaaS is of growing relevance for many businesses. Finding data engineers to build workflows and a skilled team to operate and manage the platforms the business uses is critical. As such, SaaS is becoming more appealing for businesses so that the only focus for business leaders is using the service while leaving the configuration, optimisation, fine-tuning, and performance management in the hands of an expert.

Digital adoption and its paperless, task-automated systems bring more environmentally friendly business practices. Today, customers, staff, and investors judge businesses by their approach to sustainability and make decisions based on environmental, social, and governance (ESG) criteria. As a result, every organisation must have a strategy with corporate social responsibility (CSR) measures at its core.

Sustainability

Digital adoption and its paperless, task-automated systems bring more environmentally friendly business practices. Today, customers, staff, and investors judge businesses by their approach to sustainability and make decisions based on environmental, social, and governance (ESG) criteria. As a result, every organisation must have a strategy with corporate social responsibility (CSR) measures at its core.

All industries are looking to adopt greener practices, and fintech and financial services providers are no exception. As with most sectors, banks and financial services providers rely increasingly on data centres. With greater scrutiny on sustainability, there’s a growing appetite for data centres that use sustainable energy. And the supply is there, with some even sporting carbon-negative credentials and the ability to provide energy back to the grid to support during spikes in demand.

The expectation for sustainable measures remains high for all businesses both front of house and behind the operational scenes – any organisations showcasing their CSR role in the market, and supporting sustainable initiatives and practices, will need to be authentic. Get it right and it could also contribute to attracting talent as you expand.

Powering growth in global markets for prosperity

Global payments make cross-border trade possible – opening businesses to emerging markets and facilitating SME growth, the backbone of a domestic economy. Having a provider with the right expertise in the regions you want to operate is critical to unlocking new markets. Complemented with AI to improve and streamline operations and SaaS expansion to help with the global skills shortage, even small businesses have the opportunity to bring in international custom.

The next few years will be rough for many businesses, but understanding past and present trends can help explain how best to weather them. And with this knowledge, you’ll be well placed to put your business in a position where, come the end of the recession, it’s ready to take advantage of the following stability.

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