Building A Profitable Payments System In 2023

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The payments ecosystem is changing, requiring more from online payment gateway service providers who want to generate new revenue in 2023 and beyond.

Traditional payment service providers are dealing with increasing payment commoditization, a fiercely competitive marketplace, and significantly lower margins. Add in the fact that customer needs have become increasingly complex, and it is clear that these organizations must adopt a new, customer-centric approach in order to find new growth opportunities.

In order to build a profitable payments strategy in 2023, businesses must leverage technological innovation to create value-added services on existing customer interfaces. These services may even go beyond payments and into payment-adjacent arenas that require customized services to meet specific demands. Payments organizations will need to be aware of several considerations in order to do this successfully.

Mounting Regulatory Pressure
Not only are regulatory requirements becoming more stringent, but they are also compelling service providers to consider options other than payments. One regulation, ...
... the Interchange Fee Regulation (IFR), is becoming costly for issuers while lowering the cost of payment card acceptance for merchants and lowering interchange fees for card payments. While the goal of this regulation was to pass on lower input costs to consumers through lower prices, it remains to be seen whether or not these effects will be realized.

Payments organizations must bear the cost of compliance in addition to the regulations themselves. This includes resources spent on reporting, compliance-related tasks, new systems, and necessary updates to existing systems. Each year, some large institutions spend upwards of $200 million on compliance measures.

Accelerating Digital Transformation
Incumbents face growing threats from astute new entrants and competitors who are better equipped technologically to innovate and compete. As payment organizations pursue strategic paths beyond payments, they face steep technological challenges that will necessitate a more robust IT knowledge and talent base to overcome. This means that an organization's ability to invest in cloud technology to support the increased use of application programming interfaces is critical to success (APIs).

APIs will be essential in rapidly developing new services that rely on interoperability and interconnectivity. For example, the technology behind digital wallets relies on interoperability to enable payment methods from different countries. Continued innovation relies on these features, particularly as global payments expand.

Cloud technology will remain essential for payments organizations that want to remain agile enough to survive in a highly disrupted market.

Shifting Markets
Payments consolidation is also picking up speed, fueled by increased competition and the emergence of new FinTechs and challengers. The best online payment gateway companies have an opportunity to develop value-added services, particularly for small-to-medium-sized enterprises (SMEs).

This increased pressure places an increased emphasis on existing payment players to improve product offerings and ensure that services are customer-centric, simple, convenient, and fast. Responding to market shifts will necessitate significant investments in technology in order to keep up with competitors, new entrants, and challengers.

Customers Demand Seamless Payments
Customers expect consistency, especially as payments expand across channels, products, and services. Extreme interoperability and compatibility are required to allow for the smooth flow of data in order to improve payment channels and services. While this increases the complexity for payment organizations, it can also increase revenue because customers are willing to pay more for additional functionality and convenience.

Those who serve merchants will discover that the expectation is for comprehensive, consolidated payment options that include everything from payments to fraud management and treasury services. This can result in higher margins, but it also allows providers to entice merchants to join a growing bundle of services.

Finding the best path to new revenue necessitates payment providers scrutinizing key segments and determining which services and products can add the most value to their most valuable customer segments. This data can be used to develop a strategic roadmap for new revenue growth. Alignment with customer needs will help payment providers protect themselves from declining revenues and find new ways to become profitable in 2023.