From network tokens to bolstered authentication, find out our predictions for the year ahead
Consumers don’t worry about payment transactions in their day-to-day life. Getting a taxi, listening to music, ordering food, buying theatre tickets and going to the gym all happen with background payments – one shot or recurrent, in-store or online. The checkout experience is fading away and becoming invisible…
The payment process for online shopping, however, continues to be tedious – particularly on desktops and laptops. Consumers still find themselves searching for bank cards, entering details, and verifying themselves.
Consumers expect better and this is an area ripe for innovation. Indeed, with 2.14 billion online shoppers, eCommerce has changed the world as we know it and the demand for online stores continues to increase exponentially. In 2021, retail e-commerce sales amounted to approximately 5.2 trillion U.S. dollars worldwide. This figure is forecasted to grow by 56 percent over the coming years, reaching about 8.1 trillion dollars by 2026.
There are of course challenges that come with this level of growth. As eCommerce transactions increase, so do fraud attempts.
So, how will eCommerce players, merchants and payment service providers (PSPs) respond to higher consumer demand for a frictionless customer experience, while also addressing payment challenges in 2023? How can they achieve the perfect balance between security, convenience, and compliance?
Here are three key predictions for the year ahead:
1. 2023 will be the year of network tokens
Tokenization protects sensitive data (such as a credit card number) by substituting non-sensitive data. It creates a low risk tokenized form of the data that maintains the format of the source data.
This technology has been available for some time. However, with regulation like RBI in India coming into force to protect consumers, and payment schemes like Visa and Mastercard pushing for tokenization (with better fee structures for tokenized transaction), the payment ecosystem is accelerating the shift to network tokenization. We have already seen considerable traction in this space, with Visa announcing in 2022 it had issued its five billion network token for e-commerce payments. It already surpassed the number of physical cards it has in circulation worldwide – but there is still a long way to go. Further actions are still needed like connecting remaining T1 merchant and PSP.
In 2023, as industry players try to address security concerns while also offering a smooth payment experience, we expect to see further adoption of the network tokenization and innovation.
2. We will see increased demand for new payment checkout options
Confirming payment is an important part of the shopping experience and high competition online means there is no room for error here. If people cannot pay the way they want, they will likely turn to an alternative site or competitor. Even though payment cards still remain a very popular way to pay representing 34% of payments in 2021, consumers are expecting new options at checkout.
In 2023, we will see an increase in checkout payment methods such as Buy Now Pay Later (BNPL) and Click-to-pay. Indeed, demand for BNPL has increased amongst all age groups according to the Centre for Financial Capability, and many consumers now expect this to be an option at check-out. Click-to-pay is also getting more popular as it significantly improve the guest checkout experience, removing the need to manually enter credit card number, reducing friction and abandonment.
eCommerce players, merchants and PSPs will need to provide maximum flexibility over how and, crucially, when people pay for their items.
3. Merchants will look to further reduce fraud, with reduced friction
As eCommerce transactions increase, so do fraud attempts. Juniper research shows that eCommerce fraud will exceed $48B globally in 2023, up 16% in just 12 months. It is hence paramount for eCommerce merchants to combat fraud.
Still, reducing friction is critical to increase conversion as we know that poor payment experiences will drive customers away. In fact, research shows that 62% of consumers avoid merchants that offer a ‘poor’ payment experience. Furthermore, of those aged 18-34, 38% would change their payment method for a faster transaction.
Finding the right balance between increased security and user experience is a delicate mix that can either lead to customer sales drop or fraud increase. Looking for the best trade off will remain a key focus in 2023.
4. An undisputable (r)evolution for Merchants
The biggest market shift over the next 12 months will be the accelerated adoption of tokenization – and the benefits for online retailers/eCommerce merchants are beyond question.
Tokenization is proven to, on average, increase approval rate by 3% and decrease fraud by 27% per payment network data. Some merchants will start to look for further increase in security and approval rate as the combination of tokenization and cardholder authentication emerge as a natural evolution – improving fraud reduction from frictionless authentication that protect against account takeover. It also provides a frictionless customer experience – helping eCommerce players to increase conversion rates and remain competitive.