Financial news

Juniper Research, the fintech and payments analysts, has released a report and whitepaper towards the end of Q1’23 detailing the trends we’ve seen so far in AI, payments and CBDCs; in addition to what we should expect later this year.

The first of the two Juniper Research findings is its Top Fintech and Payments Trends 2023 Whitepaper. Analysing what opportunities are available in 2023, in addition to considering legislative changes, Juniper Research provides its predictions for the year. It spoke to industry movers and shakers across a wide variety of verticals to discuss their opinions on any upcoming announcements or expected developments over the coming year.

Its trends focus on the following areas of the digital sector:

• Product launches
• Planned legislation
• Showcase event

POS market to transition to soft POS, as Apple sets example for the market

The first major trend analysed by Juniper Research was the development of soft POS. An abbreviated version of software POS, the technology involves transforming your phone into a payment portal. This removes the need for costly hardware.

It has its drawbacks as it requires a totally cashless system – this is not the case yet. However, with Apple making soft POS more accessible, Juniper Research predicts an uptake in the tech. By 2027, it has forecasted that the total Soft POS user basewill reach 34 million. Over half of this number will be located in the Far East and China.

Synthetic identity to challenge ID verification systems, leading to fraud arms race

The next major trend discussed was the growing fraud problem. Synthetic fraud is on the rise and as such companies are doing more and more to prevent breaches. One of the most favoured solutions is the introduction of AI.

As such, Juniper Research forecasts that the global spend on AI-enabled financial fraud detection and prevention platforms will reach $10billion by 2027. However, in regard to regional spending, it has suggested there will be an even split between Western Europe, North America and the Far East and China: each equating to 30 per cent. The remaining 10 per cent will be spent by other regions.

EU Regulation and FedNow Launch to Catalyse Instant Payments Adoption

Despite its high demand, instant payments tend not to have a universal definition. Juniper Research definies it as: ‘Any payment scheme where funds are capable of being received in 10 seconds or under, outside card networks, and confirmation of the payment to the parties are available in one minute maximum.’

Combining the growth of real-time payments (RTPs) and open banking, Juniper Research compared how the EU and North American markets are growing. It has forcasted that the number of transactions in Western Europe alone will almost quintuple by 2027. Furthemore, the global market will reach a value of $38trillion by the same time.

Open banking to challenge role of card payments, shifting e-commerce landscape

“The practice of sharing, and to an extent control, personal financial information between FIs (financial institutions) and TPPs (third-party providers), mostly in the form of fintech developers, subject to customer consent via the use of APIs (application programming interfaces).” This is how Juniper Research has defined open banking.

As previously discussed, fraud remains a hot topic; even in the realm of open banking. One of the biggest challenges it must overcome in order to see widespread adoption is making sure fraudulent methods don’t evolve with technology. Not only this, but it must also ensure customer protection.

Perhaps most importantly for providers though, it must be able to generate revenue. Juniper Research has predicted that by 2027, Western Europe will be responsible for 80 per cent of the total value of open banking transactions, estimated to be around $332billion.

CBDC pilots to rapidly accelerate, as governments seek to control their own payment infrastructure

The final trend looked at by Juniper Research was towards central bank digital currencies (CBDCs). In the whitepaper, it focused on the UK’s development as well as that of Sweden.

The report states: “We will see over 2023 an intensification in terms of CBDC development and pilots,
including the initiatives mentioned above. This will lead to a greater penetration of CBDC payments, with a view to a more widespread role in payments by 2030.”

However, CBDC analysis did not stop there. Another study found the value of payments via CBDCs will reach $213billion annually by 2030. This is up from just $100million in 2023. This radical growth of over 260,000 per cent reflects the early stage of the sector; currently limited to pilot projects.

Adoption will be driven by governments leveraging CBDCs to boost financial inclusion and increase control over how digital payments are made. CBDCs will improve access to digital payments, particularly in emerging economies; where mobile penetration is significantly higher than banking penetration.

CBDC is a digital coin issued by a central bank, pegged to the country’s fiat currency (government-issued physical money).

Domestic payments to account for over 90 per cent of CBDCs by 2030

The research found by 2030, 92 per cent of the total value transacted via CBDCs will be paid domestically. This reflects a change from almost 100 per cent during current pilot stages, as of 2023. Since CBDCs are issued by central banks, they will be closely targeted to domestic payment challenges initially, with cross-border payments coming later, as systems become established and links are made between CBDCs used by individual countries.

Report author Nick Maynard explained: “While cross-border payments currently have high costs and slow transaction speeds, this area is not the focus of CBDC development. As CBDC adoption will be very country specific, it will be incumbent on cross-border payment networks to link schemes together; allowing the wider payments industry to benefit from CBDCs.”

High demand key for full-service CBDC platforms providers

The research identified lack of commercial product development around CBDCs as a key limiting factor for the current market, with few well-defined platforms for central banks to leverage. The research recommends prospective CBDC platform providers develop a full end-to-end solution, including wholesale capabilities, wallet provision and merchant acceptance, in order to enable the realisation of CBDCs’ potential.