Last year was an eventful one for the banking and payments industry. The focus remained largely on digital transformation and payment innovation to compete against alternative digital banking providers and cater to a frictionless customer experience.  

2023 will be no different. 

Despite the ongoing economic uncertainty, one thing remains clear: demand for payment innovation will only charge forward and even faster. 

With that in mind, here are my top three banking and payments predictions for 2023. 

1. Banks will expand their spend management offerings for small and mid-market businesses (SMBs).

The industry's focus on delivering a high-quality payment experience will only become more prevalent in 2023. Due to the rapid rise of neobanks in recent years, traditional banks felt the pressure to innovate and found clever ways to do it. Suddenly, forging strategic partnerships with fintechs or even acquiring them outright became essential to gain the technology, talent, and core capabilities needed to keep up with the market.  

Now, banks are better equipped to challenge their startup competitors and speed up the availability of spend management solutions for SMBs – just as those startup providers are navigating tighter funding and constrained budgets. As a result of these enhanced offerings, stronger relationships will be built between SMBs and the established financial institutions they know, trust, and prefer. 

2. Virtual card use will skyrocket amid the growing acceptance of contactless payments.  

According to a Contrive Datum Insights report, the global contactless payment market was valued at $1.2T in 2022 and is projected to reach $5.4T by 2030, growing at a CAGR of 20.6% from 2023 to 2030. 

Many companies have already adopted business virtual cards to securely pay vendors, track and bill expenses, and gain control and visibility into spending. However, acceptance of generic mobile wallet payments at brick-and-mortar checkouts is not yet universal due to a few large holdouts, such as Home Depot and Walmart, and some technology or usage lags in hotels, restaurants, and remote areas. That remains an issue for small businesses. For example, if a painter runs to the hardware store today for more supplies in the middle of a job, it’s not unusual for them to face some hurdles at the register when they try to use the virtual card their boss provided. But as industry analysts say, this “last mile” challenge won’t last much longer. They predict the global number of virtual card transactions through mobile payment methods will grow from 5 billion in 2022 to 53 billion by 2027. 

3. Embedded payments will enter its 2.0 era as businesses finally connect their core software platforms and business credit cards.

Embedded finance will fully take root in 2023. As Bain notes in a recent report, embedded financial services accounted for $2.6 trillion of U.S. financial transactions in 2021, and by 2026, that number is expected to exceed $7 trillion. 

It’s easy to understand why; when you embed a payment process directly into a familiar experience, acceptance and usage go up. But a major roadblock remains for embedding B2B payments. Without a credit card-issuing standard or a single gateway to banks, software platforms have not been able to offer their business clients a way to embed existing credit card programs into the software users rely on every day. 

This will shift in 2023.

Years of partnership and integration work will yield connections between software providers and the complex payments ecosystem via a single access point, giving customers better spend management with their existing credit card and embedded into their business software of choice. With more “connected payments” on the horizon, we’ll quickly see an impact on the way payments are made, from software providers offering payment solutions over the top of card payment rails to banks strengthening relationships with their business clients to users reaping the benefits of additional payment functionality without the friction of adopting new software or toggling between applications.

Looking ahead to the new year.

Regardless of what challenges 2023 brings for the industry, one thing is for sure. Payment innovation will march on, and traditional financial institutions will meet customers where they are, with what they need at a more rapid rate. At the same time, customers will benefit from an even more seamless, high-quality, and integrated digital payment experience. 

Do you have any industry predictions of your own? Connect with me on LinkedIn; I’d love to hear them!

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