The Eight Trends That Will Shape Payments, Retail, and the Digital Economy in 2023

The holiday ornaments have been put away, the resolutions have been made, the new year well wishes have been given. That means it’s time for predictions about the year to come.

This year, I’m going to share eight trends that provide business leaders and innovators across payments with a strategic framework for success.  These trends are based on PYMNTS data and frameworks, along with my reflections on the hundreds of conversations I had with executives in 2022 about their pain points, priorities and goals for the future. Knowing these trends and this strategic framework, you will be armed to make your own predictions — and I’ll also throw some of my own below.

1. Real-world problems force payments innovation back to basics.

Roughly 348 web3 startups got $7.5 billion in funding in 2022, an increase of $4.5 billion from 2021 to further the pipedream of a decentralized web for small number of use cases that will require decades, if ever, to reach scale.

Then there was the more than $120 billion invested in metaverse projects last year to explore how humans can live their best lives plugged into a virtual world. This, despite investors punishing Meta, the staunchest of metaverse believers — a combination of issues shaved 65 percent off its market cap.

Billions more VC dollars were invested into crypto and blockchain projects, even as the crypto winter got so frigid that it froze, cracked and collapsed under its own weight. And the highest-profile private blockchain projects — once touted as the next big thing in logistics, trading, food provenance — shut down.

Meanwhile, a whole $15 million was invested in 2022 in a startup dedicated to helping elderly people get in-home care, despite the fact that all 70 million Baby Boomers will be 65 or older by 2030 — and analysts say that 70% of those over the age of 65 will require in-home care at some point in their lives. Talk about a massive total addressable market. A paltry $2.5 billion was invested, overall, in this category in 2021 — only a third of that was doled out to startups in this sector last year.

Senior care is just one example of the many important problems that real people face and for which digital solutions and embedded finance can create better outcomes at scale. For tens of millions of people. Right now.

Many of these problems, like elder care, don’t seem “big enough” to spend time on simply because they are infrequent – something a consumer doesn’t do every day, or even every five or seven years like buying a house or a car. However, they are among the areas where there is incredible friction for nearly every single person at least one point in their lives, often with parents, spouses or elder siblings.

2. The refill economy expands to become traditional retail’s biggest threat.

Prescription refills are a part of everyday life, a convenient way for people to never run out of the medication they need to make or keep them well. More than 6.5 billion prescriptions were refilled in 2021.

Innovators using APIs and payments technology can now turn any consumer product in the medicine cabinet, kitchen pantry, refrigerator, mud room, garage, shed or basement into an auto-refill — including the items of clothing and accessories that consumers frequently refresh. Think white T-shirts, running shoes, underwear, socks and more.

And they will.

Brands will incent consumers to use this new way to buy and pay by offering discounts based on frequency of refill, as they do now, in exchange for the predictability of those sales over a long period of time. The data related to consumption patterns and usage will help brands expand into adjacent areas, bundle related products and manage their supply chains and delivery costs more effectively.

As this innovation happens, the refill economy will cause traditional retail to suffer death by a thousand cuts, particularly the department and grocery stores that are already under attack. A soon-to-be-released PYMNTS study of grocery store purchases finds that nearly a quarter of U.S. consumers buy at least one of the household products they once purchased at the grocery store somewhere else. More interesting is that this reflects post-pandemic behavior — nearly all consumers said they used to buy those household staples as part of their weekly grocery shopping.

Look no further than Amazon Subscribe & Save for proof, which, as PYMNTS research shows, now comprises nearly a third of all retail subscriptions.  We also find that at least some of the overall retail subscription purge has been to the advantage of Amazon, which counts almost ten percent of the U.S. population as Subscribe & Save subscribers. Prime Members are their target audience for turning consumables into refills.

3. The industrial sector will dominate innovation in the digital economy.

Conversations about digital transformation have largely covered two topics: digitizing the interactions that consumers have with retailers and service providers, and businesses automating their payables and receivables processes in the aftermath of the pandemic and the shift to a distributed workforce.

In 2023, we will see an acceleration in the shift to actually doing business online by companies operating in traditional sectors — the parts of the industrial economy that produce and distribute physical goods like manufacturing, farming, wholesale trade and construction, as well as the parts of the industrial economy that deliver services at scale, like healthcare and logistics/transportation providers. Many of these businesses have unfamiliar names, but collectively power roughly 35% of GDP in the U.S. and 47% of GDP globally.

Unlike the heavy lift that most consumer networks have in building networks from a cold start, traditional businesses have robust buyer and supplier relationships in place. But unlike consumer networks, the buying process is complex, paper-based and often exception-driven. Moving business online is more than just making a digital payment.

The pandemic started to chip away at those traditional buying practices as buyers were forced to find new sources of supply beyond their usual “go-tos.”

In 2023, the promise of a more predictable time to cash will force the industrial economy to get serious about doing business online as access to credit remains tight and becomes more expensive.

Innovations in payments, technology, AI and credit will make it possible for industrial marketplaces to embed payments and working capital solutions into their workflows. Data networks will explore the role of payments in creating commerce marketplaces. Innovators will use access to credit and working capital as the cornerstones to building these networks. New providers of credit and capital will emerge to underwrite and support the delivery of that at scale.

The challenge is building and operating networks that can support the edge cases, the exceptions that are more typically the rule in business-to-business interactions across complex supply chains. Proving that networks can make the exceptions into the rule is essential for creating the offline trust needed for meaningful digital change.

4. Commerce platforms become Super Apps as consumers seek ways to simplify everyday transactions — and platforms help them do that.

The appeal of the Super App is obvious: the chance to be the all-in-one, one-for-all, digital ecosystem where consumers start and end their day. Getting consumers habituated is the trick — and the secret to the success of Super App innovators WeChat and Alipay.

In 2023, they will no longer be the playbook for Super App success — even as PYMNTS research finds that consumers everywhere in the world are shifting more of their daily activities online.

The quarterly PYMNTS study of 15,000 consumers across 11 countries shows that 84% of those consumers did about four of the 37 activities we track every day online by the end of 2022. That’s up 17 percent from the start of that year. Consumers in the U.S. average nearly five digital activities every day — 21% more than consumers in other countries. Unsurprisingly, many of those daily activities are related to messaging friends and family — the starting point for the success of the Chinese Super Apps — and consuming digital content.

But nearly three quarters of consumers also transact more online every week, whether it is checking their bank statements, paying bills, sending money to other people or shopping for retail products and food. A remote and hybrid workforce in developed economies only increases the appeal of digital as an efficient alternative to physical world shopping and banking frictions.

There are a small number of players with the critical mass of consumers and businesses to play the role of this digital front door, to become the app that is “super” because it is a single place to manage most or many of the everyday interactions related to how consumers shop, pay and manage their money.  This type of app will get its superpowers by using data about banking and payments behaviors to align credit and payments options with purchases and give consumers a great deal while preserving their financial and savings goals.

In 2023 we will see new business models created as network effects inside of these everyday apps fuel new embedded payments opportunities. Traditional and tech players will make acquisitions to expand their scope and monetize new flows. These players will look more like commerce platforms than Big Tech mobile wallets. They will be trusted intermediaries already in the payments and banking flow who see opportunities to bring commerce inside of the ecosystems consumers already use and trust.

We will also see these platforms expand their reach into the non-transactional activities that represent most of the daily digital engagement today. Rather than starting with those activities and building a super app around it, these everyday apps will embed commerce inside of the high engagement activities that already capture the consumer’s attention.

5. AI becomes the service economy’s killer app.

Open AI made headlines last week when its valuation was reported to be twice what it was at the start of year. Microsoft is said to want to buy it — or at least use it to beef up Bing. Open AI’s ChatGPT “brain,” and the underlying technology, has the potential to change search by synthesizing billions of data points into curated snippets in a matter of milliseconds.

A few weeks before that, 2022 workforce studies reported 5.5 million more open retail positions in the U.S. than workers to fill them — something we probably didn’t need a study to tell us, judging by recent experiences when shopping instore.

The greying of the workforce, combined with pandemic-related burnout, will result in 124,000 fewer doctors than necessary to meet the country’s healthcare needs over the next ten years. Over just the next two, by 2025, there will be 195,000 fewer nurses, 446,000 fewer nursing assistants, and 98,000 fewer medical technicians, at the same time the demand for healthcare services will escalate.

Across all industries, the lack of skilled workers is cited as an impediment to business growth, something that becomes especially acute as innovations in technology require a different workforce.

That makes AI’s greatest potential creating the knowledge base needed to equip the workforce — any worker in any industry — with the tools to deliver a consistent, high-quality level of service. And quickly, and at scale.

Simply put, it takes about 40 years from birth through training to create an experienced doctor, and there’s a limited number of people born with the ability and the interest to become one.  It will take far less time to impart training via a bot with much of those skills and knowledge. Once that happens, it will be scalable.

That means that getting the best doctor will no longer depend on whether a patient in need lives within five miles of the best doctors in the world. Doctors, nurses and the healthcare ecosystem will be able to tap into data sources that inform better, more consistent and more timely diagnoses, treatments, and decisions. Practically every medical professional will be able to leverage this technology, saving the healthcare system money and providing a better outcome for the patient and a more satisfying experience for the doctor.

Similarly, getting the best service at a retailer won’t require access to an expert or a salesperson who’s known you for twenty years. Retail sales associates will have tools to build and deliver a highly personalized level of service, whether their encounter with a customer is their first or fiftieth. Stores will have the benefit of keeping that customer because sales delivery will be less about the salesperson and more about the data that provides a consistent service experience regardless of who is on the other end of that transaction.

Of course, AI and machine learning is already taking on the more manual and mundane tasks across many payments, banking, and financial activities. It is used to combat fraud, underwrite credit, and manage payables and receivables and cash flow, all with better and more precise outcomes. Those outcomes will get smarter, and those use cases will expand.

6. The burden of proof shifts to crypto and FinTechs to prove their businesses don’t harm consumers and impose systemic risk.

Legislators and regulators have approached regulation of crypto and FinTech tentatively, often believing claims that they shouldn’t do anything to jeopardize the innovations that are supposed to transform the world. They didn’t want to challenge visions expressed in language they couldn’t comprehend and were afraid to ask questions to further their understanding.

That was 2022. Following the collapse of FTX, the lawsuits against the fraudsters and celebrity spokespeople, and the collapse of the hype machine for crypto, the burden of proof is now on crypto — and probably FinTechs more generally — to prove they are legit.

That’s going to shape the regulatory debate, which is likely to result in a heavier hand on the crypto sector than on traditional banking, payments and finance.

Crypto players should be prepared to buckle up for more of the same scrutiny, including private stablecoin issuers whose primary purpose is to enable the efficient trading of crypto.

FinTechs will be under the microscope too, as the CFPB and OCC take a good hard look at the requirements for what it means to be a bank and provide banking-like services. And the CFPB will use rulemaking to affect more immediate and aggressive changes to innovations in credit and banking services.

All the alphabet soup of regulators will have their eyes wide open for backdoors and attempts to gain access to regulated payments and financial services privileges, particularly after the kerfuffle last year over rules related to accessing Fed Master Accounts.

7. Payments get smarter and faster without blockchains and crypto.

We have been hearing about the promise of smart contracts since the start of Ethereum in 2014. What’s not to love about the idea of sending a payment with instructions for its release only when specific conditions are met?  The problem is that after nearly ten years, it’s still just that — a promise, and an expensive one at that, when considering the processing or “gas” fees that are, ironically, often higher than traditional payments’ processing fees.

In 2023, we will see payments and financial networks get smarter without crypto and blockchains, including private ones. Traditional networks will get faster as innovators make it possible to embed instant into any payments workflow at scale and businesses create new use cases for instant payouts. Interoperable RTP networks will target key corridors and banks to create critical mass using fiat currencies. Business-to-business networks will use software and data to make money “programmable” based on conditions and rules established by the networks. Closed-loop, permission-based “on us” networks will clear and settle transactions for the banks and the businesses that are a part of it.

Traditional card networks,  acquirers and payments platforms will embed more capabilities into the payments flow to make them smarter and more efficient.

Time is the biggest threat to getting any innovation off the ground and igniting it at scale. In payments, it can be fatal. After 14 years, now immersed in financial collapse and contagion on top of deep-seated technical problems that prevent them from igniting, blockchains may have run out of time.

8. CEOs must find new ways to identify payments innovation that can drive value.

The last three years have seen the hype machine in overdrive, and often at the expense of the innovators and investments that quietly solve business problems for real people and businesses.  Market signals stopped working — if Sequoia bet on FTX, why shouldn’t you?

In 2022, innovators flush with cash kept the hype machine revved up, and flush corporate bank accounts funded projects that would have never seen the light of day absent investors’ fear of missing out on the next big thing.  This diverted time and resources away from projects with more potential to move the needle in a timeframe that was more relevant for the business.

In 2023, the corporate mantra has done a complete reversal. This year it’s profits over growth, whether you’re Amazon or the sit-down restaurant down the street.

When it comes to the ROI of any investment, “Prove it” will become the two most important and two most powerful words of 2023.

They could also become the corporate Achilles Heel.

Take the metaverse. The word has been coopted by those pushing a vision of humans living life in a virtual world, rather than the application of virtual technology to improve how humans interact in the physical world.

The risk going into 2023 is that all new ideas are dismissed as hype, that battening down the hatches will come at the expense of missing something meaningful as CEOs and CFOs hesitate to pull the trigger.

We saw a decade of massive innovation in the aftermath of the 2008 financial crisis as innovators used apps and smartphones to reimagine how people and businesses would interact.

We have the same opportunity in 2023 — and the platforms, tech and payments innovations business leaders and innovators can build on are even more evolved. Data and frameworks will be important guardrails.

Ten years from now I predict we will look back at the incredible payments innovations that happened in 2023 and say, “Wow.” Many of them may not register high on the hype meter, but they will significantly shape an ever-more connected and accessible digital economy.