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Add Value or Go Home - why payments delivering customer value and helping merchants foster loyalty

The past 12 months have been tough for payment providers across the board, with market volatility and the end of cheap money leading to funding cuts, mass layoffs, and redundancies. Many firms have been struggling, and certain news stories demonstrate the ongoing challenges. Last year, Klarna laid off 10 per cent of its workforce, and its valuation dropped by 85 per cent, from a prior $46 billion valuation to a $6.7 billion. Meanwhile, Instacart’s valuation fell from $39 billion to $24 billion in the first half of last year before decreasing to $10 billion by December. In the UK, Railsr (known as Railsbank until mid-2022), which provides banking-as-a-service and embedded finance software, was thought to be near a unicorn valuation less than twelve months ago. Now it faces being sold as news emerges of fresh layoffs and funding issues. One of the most spectacular implosions was the fall of FTX. Previously boasting over a million users and a US$32 billion valuation, by November, the company had filed for bankruptcy with a class-action lawsuit pending. This challenging economic climate has seen venture capitalists tightening their purse strings with more fintechs shutting down. However, times like these can also invite forward-thinking innovators to break the mould – especially when delivering customer value. Over 80 per cent of customers now begin their journeys through digital channels rather than in-person interaction, and research from global advisory and digital services provider ICF reveals key trends for payment players in the year ahead. Namely, loyalty partnerships will play a crucial role in providing enhanced value to customers. During a cost of living crisis, customers’ expectations have evolved, with 39 per cent of consumers actively searching for more value from the products and services they buy. Customers crave offers and benefits relevant to their lives and easy to access, and brands need to look for payment players and loyalty partnerships that address this demand. As household budgets tighten, customers are less likely to make impulsive purchases and consciously seek more value for money – not just through loyalty programs but also via easy and seamless payment options. This is part of what is paving the way for the imminent explosion of embedded finance, with McKinsey estimating the market could double in size within the next three to five years. When powerful integrations with digital interfaces become more available, there are exciting new possibilities for customer loyalty apps, digital wallets, and shopping cart platforms. This is why banks are also ones to watch this year, as there is a real opportunity for them to invest heavily in customer loyalty and digital experiences that win the customer back from Fintechs in areas such as BNPL, credit score building and money management. 2023 will see banks looking at M&A in these areas, as well as embarking upon their own organic development and growth. With more focus on digital payments linking to super-apps, banks will finally start to understand that they have the right to play in this space if they can get building and partnering.

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