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.
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.
Following 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