Adjusting to a new financial landscape: Payment processors navigating post-pandemic economic restrictions
In the dynamic world of payment processors, trends and developments during FY 2023 and into 2024 have focused on e-commerce growth, AI integration, technological innovation, market consolidation, and specialization.
- E-commerce Expansion Driving Market Growth The surge in e-commerce was a primary driver in 2023, boosting demand for payment processors to handle diverse online payment methods seamlessly. This growth is projected to reach $58.25 billion in 2024 and $64.87 billion in 2025.
- Advanced Technology and AI Adoption Payment processors are increasingly integrating AI and real-time data to enhance fraud detection, improve transaction approval rates, and optimize payment routing dynamically. The adoption of AI-driven fraud detection could save merchants over $40 billion annually.
- Product Innovation and Sophisticated Payment Systems Firms are developing more specialized, technologically advanced systems tailored to vertical markets, offering features like flexible payment options and financial management tools. The focus is on enhancing merchant and customer convenience through fully integrated, multi-channel payment processing.
- Market Consolidation and Scale Advantages Large players have pursued acquisitions to expand scale, with deals like Global Payments acquiring Worldpay to gain combined access to millions of merchant locations. This consolidation drives operating leverage and market consolidation.
- Vertical and Geographic Specialization To combat commoditization, providers focus on industry-specific compliance and integration, such as HIPAA-compliant payment gateways in healthcare and payable-automation solutions in B2B trade. Geographic targeting is also key, with firms specializing in emerging market payout rails to capture niche segments.
- Emerging Payment Trends for 2024 and Beyond Continued growth of mobile payments, mobile wallets, and innovations like social commerce and central bank digital currencies are expected to shape future trends. Convenience, security, and flexible payment options remain top priorities to meet customer expectations and stay competitive.
In FY 2023, payment processors experienced a new post-pandemic normal. Every player saw revenue growth, with Adyen slightly ahead of Paysafe for the first time. Dlocal is closing the gap on both Adyen and Paysafe in terms of revenue. Fiserv has the second highest revenue among all players, and PayPal has the highest revenue. Square has overtaken Worldline and Worldpay in terms of revenue growth for the last two years, with Square now moving closer to Global Payments in terms of revenue.
However, most payment processors saw lower growth rates in FY 2023 compared to 2022. Widespread discussions of macroeconomic conditions during earnings calls have declined by Q4, as payment processors are expecting 2024 to be easier as macroeconomic conditions begin to turn a corner.
Lucy Ingham, Editor-in-Chief and Head of Content at the platform, stated that the platform can identify key trends and where some players are pulling ahead of the competition. The platform will be keeping a close eye on how pronounced the improvement in 2024 will be.
- Capitalizing on the Finance Sector's Growth Given the revenue growth trends among payment processors in FY 2023, many are poised to capitalize on the finance sector's growth, particularly in e-commerce, as highlighted by the increasing annual projections.
- Investment Opportunities in Business Innovation The confluence of market consolidation, technological innovation, and AI adoption in the payment processing industry presents compelling investment opportunities for those stakeholders interested in the advancement of business models and processes in the current and future digital marketplace.
