Looking back upon the past 40 years of retail- and card-based payments the list of real innovations is not impressive. Introducing chip& PIN is probably one of the more notable ones. And the full potential of contactless is just being unlocked thanks to ApplePay & Co.
Last year, though, has certainly brought about quite fundamental changes (as did some of the previous years ever since fintech started to rock the industry).
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Cheap money and pressure on incumbents to diversify their portfolios has accelerated M&A activities with further industry consolidation (Vantif buying Worldpay, MasterCard buying VocaLink, ACI buying PayOn), and private equity driven transactions (Bain Capital buying Concardis, PE consortium buying NETS) – more of that to come in 2018 for sure.
Technology has brought about fundamental changes, for example: IT shops with a banking license (e.g. Solaris Bank, Fidor Bank) provide toolbox banking-solutions and distributed ledgers become reality with banks lining up to join consortiums like Ripple and R3. Cryptocurrencies arrive in mainstream with the major gap between real world and Blockchain – i.e. the payout problem – solved (e.g. by TenX).
Competition is heating up with Chinese payment giants WeChat Pay (600m user) and Alipay (450m user) heading west, where early QR-Code payment systems, e.g. Yapital, grounded – not least because of the cluncy user experience.
Talking about user experience: the biggest threat on incumbents comes from tech giants like Amazon, Apple, Google, and Facebook. They have unrivalled end-user reach and cool user experience is deeply rooted in their DNA. Remember: it doesn’t take a bank to do banking and no matter what you do, you better solve a customer problem.
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By GlobalDataAnd cost: the Worldbank estimates some 7.7% fees on cross-border remittances. So plenty of work still for remittance processors like WorldRemit, TransferWise etc.
In the past regulation had been considered a business inhibitor. Interestingly enough, though, it is the driver behind some of the most disruptive changes and innovations in the retail payment industry: open banking (PSD2) offers both opportunities and threats to banks where the ‘threat’-camp seems to reign. Indeed, without a forward strategy banks will become pipe providers. And instant payment poses a big threat on card schemes as it become a viable and inexpensive alternative to established card rails. So it is not a surprise that card schemes are heavily diversifying as their traditional core business comes under pressure also by alternative payments. And instant payment overlay services-layers will provide for greater user benefits and values. It will be interesting to see concrete value-adding service offerings materialise in 2018.
And 2018 is not going to be any less disruptive: for a previously cosy industry navigating comfortably in a ‘live-and-let-live’ four-party-world there is more change ahead. Customer-focussed regulation, technological progress and fintechs & tech-giants focussed on end-user benefits will continue to drive change.
One result is sure, though: the complexity of payment instruments and processes will further grow – as will the need for proper end-to-end process control.
What a great and innovative environment to live and work in after decades of ‘same old, same old’. It’s a wish rather than a curse: ‘may we continue to live in interesting times’!
Stefan Schnitzler from Corona Business Unit, SmartStream
