Change is afoot, yet again. If 2021 was about re-setting and re-focusing, we believe 2022 will be the year of sustainable growth powered by technology. When we think about this new digital ecosystem, three key components comes to mind:
- The ability to make goods and services available online
- Solid infrastructure to support these online goods and services, including connecting the online world to the physical world
- Flexible and integrated payment options so customers – individuals and businesses – can transact easily and at any time
This last point is especially important. Payments have always been a facilitator of progress and innovation, yet all too often dismissed as a mere back-office function. In 2022, payments will be recognised as a central driver of business and operational strategy, influenced by five major trends.
1. Digital as a culture
Digital transformation has accelerated during the past two years, partly due to the impact of the pandemic. But, as we move into in 2022, we are seeing a major shift in mindsets. Much of the low-hanging fruit has already been addressed. Now it is about companies really embedding digital as a core part of their DNA. Overall, we see three stages of digital maturity amongst our clients:
- Discovery stage – Companies are realizing that they need to digitalize and are moving away from a reliance on manual and paper-based functions. As a result, they are looking for gaps in their processes where they can plug-in digital or automation-based solutions.
- Transformation stage – Companies have a strong digital base and are now building on these structures to add flexibility, agility and superior functionality. For example, they may have an e-commerce platform and are now looking to add-in their own digital wallet. Or they may be looking to optimize processes by offering capabilities such as on-demand, real-time, 24/7 availability. APIs will be a key tool to help facilitate this.
- Visionary stage – Companies at this stage have a highly integrated and embedded digital ecosystem. They have different businesses and services that are closely linked together and use shared payments and logistics. Data is leveraged from across the organization to improve service and performance. These digital leaders are also deploying the applications of emerging technologies, such as AI, predictive decision-making or blockchain.
2. Anything as a service
Young digital-first businesses are continuing to disrupt major industries and are fuelling the rise of As-a-Service models – where a vast number of different goods and offerings are provided as a service. The trajectory is that digital challengers use an efficient as-a-service approach to dominate a niche area, e.g. remittances, before expanding into adjacent markets such as B2B payments. Meanwhile, traditional hardware-focussed companies are using anything-as-a-service to pivot into new areas and generate new revenue streams, including changing the way an industry has always operated. Automaker Porsche has effectively created Porsche as a Service (PaaS). It’s an app-based subscription service that allows customers to drive a Porsche on-demand each month without owning a vehicle, leading a shift to usership from ownership.
These as-a-service models are not only high-performing – growing 5 – 8x faster than their traditional counterparts according to Zuora’s Subscription Economy Index – but also lays the foundation for companies to pivot to ecosystem as these different as-a-service models are connected together onto a single platform. The growth of such ecosystems have already shown great success in Asia with their super-apps, and some of the world’s largest tech players are also pursuing this path.
3. Payments as a revenue driver
Companies need efficient payments systems to be able to transact the goods and services they put online. As a result, payments are no longer just a means to an end, they are a lever to drive business growth, while delivering a better experience for both customers and suppliers. For instance, a number of B2B companies are pivoting to direct-to-customer offerings. But this is only possible if they can accept consumer payments, such as credit cards. Meanwhile, platforms that focus on gig workers and the creator economy are using real-time pay-out functions as a recruiting and competitive advantage. By enabling instant payments for workers, on delivery of the service, they have emerged as key competitors to the incumbent brands.
4. Aligning working capital & liquidity
It is impossible to talk about the first three trends without also considering working capital and liquidity strategies. For example, giving suppliers or outsourced workers shorter payments terms may require new lending options, such as commercial cards, in order to manage cash flow. At the same time, as companies try to shift into new business areas, it will likely involve spin-outs and acquisitions. In 2022, we are expecting the continued increase in M&A activity, which will require optimization of working capital. Whatever the approach, it is crucial that organizations align their liquidity and working capital strategies and ensure they are designed to support the future direction of the business.
5. Addressing ESG agendas
We believe that sustainable growth is inclusive growth, and this trend will be heightened in 2022. The social factor in ESG is becoming increasingly important. Not only do companies have to take care of the communities in which they operate, but also their employees. And this is being reflected in the partners they choose to work with and also in their supplier agreements. Those companies that fail to demonstrate inclusivity will face getting penalized by both the market and consumers. With asset managers and indices increasingly factoring in ESG components, companies could also find it harder to raise capital.
J.P. Morgan Payments is hosting a series of global and regional webinars to share our perspectives on these trends and their implications for you and your peers.
Register to attend FastForward here.