Given the changing market landscape, issuers, acquirers, processors and PayTechs should consider investing in APMs as the following drivers become prominent:
1. Customers demand rich, frictionless experiences bundled with rewards
The pandemic greatly accelerated customer demand for frictionless digital payments, particularly when combined with differentiated offerings. BNPL and wallet players, for example, provide price drop notifications, targeted rewards and merchandise tracking as additional benefits beyond typical payment and lending services. Similarly, as customers are embracing new ways of paying that make their commerce journey simpler, J.P. Morgan Payments, as an example, is piloting biometrics payments, where a user can scan a palm or face for a secure and faster checkout experience.3 Merchant-owned apps are increasing digital engagement by including order-ahead and pick-up services, gamified loyalty points and seamless QR code-based checkouts.
2. Merchants are looking to simultaneously grow sales and reduce payment acceptance costs
Facing uncertain economic conditions and rising operating costs, merchants are increasingly looking to their payment providers to help them grow their top line and reduce costs of payment operations. In our merchant survey, over 70% of merchants recognized that failing to accept APMs could impact sales, putting pressure on acquirers to make them readily available. On the cost side, APMs, especially A2A or closed-loop payments, can offer a competitive edge by reducing typical payment processing costs associated with cards and supporting faster merchant funding via new instant-payment rails.
3. Payment providers are seeking opportunities to diversify payment revenue
APM payment volume reached $19t globally in 2022, meaning that processing fees alone may have approached up to $250b.⁴ While a portion of these fees are contributing to credit card interchange income since wallets can be funded via cards, that income could be at risk as A2A, BNPL and other payment methods grow in adoption. Further, as regulators continue to scrutinize late, overdraft and interchange income — with some recent regulatory proposals in the US seeking to cap swipe fees to increase competition — incumbents need to have a diversified payment revenue strategy while protecting existing income streams.