PAY360 Industry Report: Navigating Payments Challenges and Growth
The payments industry is undergoing a critical period of change, with new threats emerging just as rapidly as new opportunities.
The latest PAY360 State of the Industry Survey, published earlier this week by the Payments Association, illuminates the challenges and possibilities that lie ahead for businesses in this sector. For senior managers and founders, the report serves as a vital guide to understanding the shifting landscape and the strategic decisions needed to stay ahead of the curve.
At Lagom Consulting, we specialise in helping payment services firms navigate the unique opportunities and challenges of this dynamic market. Whether you're aiming to enter the UK market or enhance your presence here, our expert team is ready to guide you every step of the way. Contact us today to book a free consultation call and explore how we can support your payment firm’s growth and success in the UK.
Below, you will find Lagom Consulting's detailed analysis of the PAY360 State of the Industry Survey.
The Rise of Financial Crime & Cybersecurity Concerns
One of the most striking findings from the survey is the growing concern around financial crime and cybersecurity threats.
With 28% of respondents identifying this as the biggest challenge, an increase from previous years, it is clear that cyber risks are evolving at a pace that demands immediate attention.
While digital payments bring convenience, they also expose new vulnerabilities. Fraudsters are finding innovative ways to exploit these systems, making robust security measures more critical than ever.
This year's survey emphasises the importance of tackling evolving threats rather than static risks. Businesses are no longer merely reacting to cybercrime; they are actively seeking ways to predict and prevent it.
For payment firms, this means significant investment in security technology, fraud detection systems, and ongoing compliance with regulatory standards.
The Persistent Pressure of Compliance
While compliance with new regulations has become a slightly lesser concern (falling from 25% to 18%), it remains a central issue for many in the industry.
Regulatory frameworks such as PSD2, PSD3, and other regional policies continue to shape the operational landscape. The decline in concern may suggest that businesses are becoming more accustomed to regulatory pressures, but the challenge lies in continually adapting to new and often complex compliance requirements.
Moreover, the ability to see a return on investment from compliance-driven initiatives remains a major concern. The push for digital identity regulations and other security protocols requires not just compliance but efficient implementation, contributing to long-term business success.
The report makes it clear: regulation is not a one-off hurdle but a continuous challenge for companies operating in this sector.
Opportunities Amidst the Challenges
Despite these daunting challenges, the PAY360 survey identifies several exciting opportunities within the payments space.
Among the most prominent are connected and embedded commerce (highlighted by 13% of respondents) and real-time payments (12%).
Both areas represent significant potential for businesses willing to invest in innovative, customer-centric solutions.
Embedded Finance
Embedded finance, in particular, offers non-financial companies the ability to seamlessly integrate payment solutions into their existing ecosystems. This can enhance customer experiences by reducing friction and offering more personalised financial services.
For payment firms, embedded finance represents a new frontier of collaboration with industries outside traditional finance, opening doors to entirely new revenue streams.
Real-Time Payments
Similarly, real-time payments are rapidly gaining traction as businesses seek to improve cash flow and provide consumers with faster, more efficient transaction experiences.
The potential here is enormous, particularly for enterprises that rely on streamlined operations and need to manage liquidity with greater precision.
The Double-Edged Sword of AI
The survey also highlights artificial intelligence (AI) as both a significant opportunity and a major challenge for the payments industry.
On the positive side, AI is set to revolutionise payment processing, fraud detection, and customer service, with 12% of respondents citing it as the biggest opportunity. The ability of AI to enhance operational efficiency and speed up transactions is undeniable. However, the same technology is also enabling new kinds of cybercrime, presenting a dual challenge for the industry.
AI’s potential to facilitate fraudulent activities is an area of growing concern. Criminals are leveraging machine learning and AI to create more sophisticated attacks, making it more difficult for businesses to defend against them. For senior managers and founders, the challenge is not only adopting AI but ensuring it is deployed responsibly and securely.
Shifting Investment Priorities
Budget allocations offer further insight into the current mindset of the payments industry.
Forty-nine per cent of respondents expect to increase their budgets over the next 12 months, while only 9% foresee cuts. This data points to a cautiously optimistic view of the future, with firms prepared to invest in the technologies and infrastructure needed to remain competitive.
The survey also indicates a shift in where these investments will be directed. While technological capabilities and digitalisation remain top priorities, customer experience and acquisition have grown in importance, rising from 11% in 2023 to 17% in 2024.
This shift suggests that businesses are recognising the need to go beyond simply upgrading systems—they must also focus on enhancing the overall consumer experience, which will be crucial in differentiating themselves in a crowded market.
Overcoming Barriers to Implementation
While the opportunities are clear, barriers to implementation remain significant.
Cost and budget concerns continue to top the list, with internal resources and legacy infrastructure also posing challenges. Interestingly, internal resources have risen in prominence as a barrier in 2024, highlighting talent shortages and operational capacity issues many firms face.
The report’s findings suggest that while innovation is necessary, implementation is complex. Developing a business case for new technologies, overcoming the constraints of legacy systems, and finding the right talent to drive these projects forward are all challenges requiring strategic planning and careful resource allocation.
Industry Outlook: Cautious Optimism
Despite the challenges, the overall outlook for the payments industry remains positive.
The survey shows that 60% of respondents have a positive view of the next 12 months, a slight increase from the previous year. However, the proportion of those who are "very positive" has decreased, indicating that while optimism prevails, there is an understanding that the industry must continue to evolve to address its most pressing issues.
This cautious optimism reflects an industry confident in its ability to innovate and grow, yet acutely aware of the obstacles ahead. For those working in the payments industry, the next 12 months will be critical for balancing innovation with the realities of security, compliance, and operational constraints.
Conclusion
The PAY360 State of the Industry Survey offers a comprehensive view of where the payments industry stands today—and where it is headed.
For industry leaders, the key takeaway is clear: success will depend on navigating a complex web of challenges, from rising cybersecurity threats to regulatory pressures, while seizing opportunities in AI, embedded finance, and real-time payments.
With strategic foresight and investment in the right areas, payment firms can not only survive but thrive in this dynamic and rapidly evolving landscape.
At Lagom Consulting, we understand the unique opportunities and challenges of this market. We are committed to helping payment firms expand their market share—not only within the UK but also globally. Whether you are looking to break into the UK market or strengthen your foothold here, our team possesses the expertise to guide you through every step of the process.
Speak to us today to discuss how we can help your payment services firm expand into the UK or grow its market share within the UK financial services industry.
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