Which Factors Will Be Shaping Europe’s Payment Industry in 2023?

The past few years have been marked by rapid changes within Europe’s payment ecosystem. These developments have prompted businesses, FIs, and PSPs to significantly adjust their operations and keep up with the trends. As we enter 2023, it’s already clear as day that the pace of the European payment industry’s evolution is nowhere near slowing down.

Payneteasy reviewed the key factors that have recently transformed the EU payment landscape and had a direct impact on merchants' performance. What’s more, we used the insights from these observations to make a forecast of the key factors that are likely to be driving the payment industry this year.

Main Forces Driving Change in the EU Payments Landscape

Such progress is the result of a combination of factors that have been gradually reshaping the industry, including:

• Technological advancements. The rise of digital technologies such as mobile payments, e-wallets, and instant transactions is boosting innovation in the payments industry and changing consumer behavior.
• Regulatory environment. Recent regulations such as the Second Payment Services Directive (PSD2) and the General Data Protection Regulation (GDPR) have been driving change by introducing new compliance requirements for payment providers and merchants.
• Consumer preferences. Shoppers want faster, more convenient, and more secure payment options, which forces merchants to adjust.
• Competition. The entry of new players and the emergence of alternative payment methods are enhancing competition in the payment industry not only across the EU but also worldwide.
• Economic conditions. The European economy has been going through turbulent times, which impacted the local payment industry by affecting consumer spending and the demand for certain types of payment methods.
• International trade. The globalization of trade is driving demand for cross-border payments, real-time transactions, and the development of international payment systems. One of the long-standing initiatives in this sphere is the creation of a Single Euro Payments Area (SEPA) launched in 2008.

All these aspects have been playing a critical role in creating a future-ready payment ecosystem in Europe. But will they stay relevant in 2023?

5 Trends That Will Shape Europe’s Payment Ecosystem in 2023

While the factors listed above are sure to continue being influential for years to come, there are some emerging trends that are forecast to take the lead in transforming the European payment landscape in 2023 and beyond, namely:

1. Advanced Cybersecurity

Fraudulent activity is a continuous concern in the payment industry, as new scamming methods keep appearing all the time.

Some of the payment fraud risks that have been prominent in the EU in the past few years include:

• Business email compromise (BEC)
• Social engineering
• Card skimming
• Authorized push payment (APP) fraud
• Refund and chargeback fraud

The EU has implemented several initiatives to fight payment fraud, including:

• Regulatory action, including the implementation of the GDPR, PSD2, and the Strong Customer Authentication (SCA) protocol
• The introduction of fraud reporting schemes, such as The European Fraud Reporting System (EFRS) and The European Cybercrime Center (EC3)
• Creating an EU-wide system for fraud alerts managed by the European Banking Authority (EBA) and EC3.

These measures help to ensure a decent level of protection against CNP and CP fraud across Europe. However, as technology advances, EU-based organizations and local authorities begin to invest more in AI and machine learning cybersecurity solutions. Such software is used for:

• Fraud detection
• Risk assessment
• Behavioral biometrics
• Adaptive authentication

These solutions are in continuous development, and new applications are expected to go live in 2023 and onward.

2. Enhanced Transparency

One of the EU’s main focal points in the 2023 payment industry agenda will be to promote transparency, with the goal of creating a level playing field for all parties involved. A critical initiative in this regard is the development of open banking that enables third-party providers (TPPs) to access bank account data with the customer's consent, through APIs (Application Programming Interfaces).

The EU will also actively facilitate the use of instant payment services, which enable customers to have a better understanding of the status of their transactions.

What’s more, in June 2021, the Euro Retail Payments Board (ERPB) meeting established a set of guidelines on transparency for retail payment end-users. These recommendations must be implemented already by June 2024, which makes this year the perfect time for relevant stakeholder groups to take action.

3. Accessibility for New Market Players

One way in which the EU is trying to achieve this goal is by encouraging the use of regulatory sandboxes, which allow new market players to test and develop pioneering payment services in a controlled environment, with the support and guidance of lawmakers.

For instance, the first regulatory sandbox on Artificial Intelligence was introduced fairly recently - in June 2022, and the results of this initiative’s tests are scheduled to be published in the second half of 2023.

Additionally, the EU is working to reduce barriers to entry for novice market players by simplifying licensing requirements for payment services.

4. Further Diversification of Payment Methods

In 2022, 9% of Internet users reportedly abandoned their shopping carts at online stores due to their preferred payment methods not being available. This alarming figure is signaling merchants and PSPs to ensure they know their customer base and potential target audiences well enough to offer them the payment options they need.

While the top payment methods vary by country, the leading options across the EU include:

• Debit and credit cards
• Digital wallets
• BNPL services
• Bank transfers

5. A Focus on Speed and Convenience

Speed, security, convenience, and cost-effectiveness are gradually becoming commonplace consumer expectations toward payment services rather than just value-adding factors. This situation is enhanced by the SEPA initiative advancements and the fact that real-time payments became a hot topic after the pandemic.

Thus, 2023 is forecast to be a year when a growing number of EU merchants, PSPs, and FIs will continue trying to adjust to the shifting client expectations without compromising on either of the desired features.

Bottom Line: 2023 Is All About Striking a Balance

All in all, the key mission of the EU's payment industry for 2023 is to find a balance between such critical factors as fraud prevention, transparency, inclusivity, diversity, and convenience. However, it’s important to note that achieving this goal requires the harmonization of a variety of processes across member countries, so it cannot be done in the span of a single year.

Yet, the industry players that keep the factors listed above in mind and add them to their action plans will get at least one step closer to fully upgrading their payment processes and gaining long-term competitive advantages.