Business Today’s Economic Earthquake: How the Cost of Living Crisis is Reshaping Payment Services

New Research Reveals Drastic Impact on Payment Service Providers and Software Vendors

2 mins read

Key Takeaways:

  • Widespread Impact: 100% of Payment Service Providers (PSPs) and Independent Software Vendors (ISVs) report a negative impact due to the rising cost of living.
  • Extended Sales Cycles: Almost half of PSPs and 39% of ISVs are struggling with longer periods to acquire new customers.
  • Headcount Reductions: Significant numbers of PSPs and ISVs are considering or implementing staff reductions amidst financial pressures.

The global economic landscape is undergoing a seismic shift, with recent research illuminating the profound impacts of the cost of living crisis on the payment services sector. As businesses and consumers tighten their belts, the entire payment ecosystem feels the pinch, compelling Payment Service Providers (PSPs) and Independent Software Vendors (ISVs) to navigate uncharted waters.

A Slower Pace in a Fast-Moving World

The Challenge of Customer Conversion

Businesses in the payment services sector are facing elongated sales cycles, according to recent research findings. A staggering 49% of PSPs and 39% of ISVs have reported it now takes longer to bring new customers on board and generate fresh business. This slowdown in conversion rates is largely attributed to companies becoming increasingly cautious with their spending, aiming to safeguard their financial reserves amid economic uncertainties.

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Rising Costs: A Double-Edged Sword

Adding to the complexity, businesses are contending with escalating operational costs. Factors such as disruptions in supply chains, labor shortages, and soaring energy prices are putting additional financial strain on companies. This scenario is particularly troubling as it coincides with shrinking revenue streams, with noticeable declines in average transaction values and customer orders.

The Squeeze on Profit Margins

Reduced Revenue Meets Increased Expenses

The convergence of dwindling revenues and mounting expenses has placed an unprecedented strain on the profit margins of PSPs and ISVs. Nearly half of the PSPs and over a third of ISVs have acknowledged a drop in customer orders, further constricting their financial maneuverability.

Innovations at Risk

The Future of Payment Technologies

Amidst these challenges, there is growing concern over the future of payment innovations. PSPs and ISVs have been instrumental in developing and deploying cutting-edge payment technologies, crucial for sustaining digital economies. However, with the potential reduction in workforce and revenue, the momentum for innovation may wane, posing long-term risks to the industry’s growth and effectiveness.

Regulatory Complications

The Secure Customer Authentication (SCA) Conundrum

The introduction of Strong Customer Authentication (SCA) regulations intended to bolster e-commerce security has had unintended consequences. An alarming increase in checkout abandonment, ranging between 61% to 100%, has been reported by over a quarter of ISVs and nearly a quarter of PSPs since the implementation of SCA. This surge in abandoned transactions, combined with a reported rise in fraud attempts, underscores a growing disconnect between security measures and practical, user-friendly payment experiences.

The Human Cost

Potential Reduction in Workforce

The deteriorating financial situation is leading several PSPs and ISVs to contemplate painful decisions, including cutting down their workforce. With approximately 37% of PSPs considering staff reductions, the impact on employment within the industry is poised to be significant.

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Looking Ahead

Adapting to New Realities

As businesses in the payment services sector grapple with these multi-faceted challenges, adaptability and innovation become crucial. Organizations must strike a delicate balance between enhancing security, ensuring user convenience, and maintaining financial health.

The full report, detailing the in-depth analysis of these emerging trends and challenges, is accessible for interested parties. It serves as a crucial touchstone for understanding the evolving dynamics within the payment services industry and offers insights into potential strategic responses.

The depth and breadth of the economic challenges faced by PSPs and ISVs underscore the delicate balance required to navigate the current financial climate. The need for innovative solutions, sensitive to both security concerns and user experience, has never been more critical. As the industry looks forward, the choices made today will invariably shape the landscape of payment services in the years to come.

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