The world of payments has evolved
rapidly since the 1990s, driven in no small part by the emergence
of the payments institution as a major challenger to banks.
The likes of PayPal, Netella and
WorldPay came to market with innovative and flexible service
offerings which reflected the changing nature of consumer needs.
Banks have arguably struggled to keep pace with these younger, more
nimble and flexible competitors.
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Within the European market place
there are some key differentiators that mark the generalist bank
out from the payments specialist.
The impetus behind early pioneers in non-bank payments was
the rise in Business-to-consumer (B2C) e-commerce, coupled with new
and consumer-centric propositions to meet the need for fast and
convenient online payment methods.
Consumer payments institutions
broke the traditional payment model and kicked off a whole new
economic communication comprising payers and payees.
Paypal were seen to be at the
vanguard of B2C payments, armed with the concept of many-to-many
they played a significant part in redefining the traditional
payments model, circumventing the traditional card-to-bank
system.
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By GlobalDataFollowing the explosion of the B2C
market over the past decade, B2B payments processors cast their eye
over the various successes and failures of the B2C operators in
order to establish what was applicable to their own market.
As with their B2C cousins before
them, B2B institutions are characterised by flexible, innovative
and customer friendly models while they have galvanised the
consensus that the industry needs to move into the 21st century. It
is no longer acceptable for international payments to take days,
with exchange rates and final amount unknown.
And the limits placed on the amount
of remittance information which can be attached to each payment is
a continued source of irritation.
The payments landscape is a complex
one and the dynamics between the specialists and the banks cannot
be easily simplified.
For one, banks are often customers
as well as competitors to the payments specialists via the white
labelling of technology platforms, while a lot of banks are now
outsourcing payments.
Travelex, for example, manage the
payments for over 750 financial institutions and their customers.
Having said this, some key differentiators between the can be drawn
out within the context of the European market place.
Perhaps the first great claim
payments institutions have made is around their customer service
which they pride themselves on, and in the European market is
arguably one of the most important differentiators.
Specialist providers tend to
service the SME market in addition to corporate customers, a market
which has traditionally been neglected by the banks.
In many cases, SME customers are
serviced in a similar way to retail customers, in a call centre
mode with limited access to payment and FX management systems,
trading desks and quoting, or to structured risk management
products.
Most banks offer limited versions
of their payment and FX trading platforms to SMEs where bulk
upload, autoquoting and/or reporting systems have been reduced.
Meanwhile, direct access to a dedicated relationship
representative/trading desk is almost non-existent in many
cases.
Most are served on a call centre
basis, with no dedicated contact person. Finally, many SMEs have no
access to negotiate forwards or other risk management tools due to
very high entry volumes and deposits. In addition, currency
accounts are extremely expensive when deposit volumes are below
certain limits.
The specialist nature of the
payments institution can also be seen by the way they target
payments solutions to specific vertical markets.
In 2011, the payments industry
finds itself at a crossroads. Payments institutions have
established themselves as mainstream players and will continue to
innovate.
What will be interesting to see in
the coming months and years is how the major banks react to
this.
David Sears is managing
director of Travelex Global Business Payments
