The dynamic payments industry continues to expand and evolve, with digital payment vehicles and transaction volumes growing across the globe. Over the past year, industry incumbents have been responding to numerous trends and drivers by:
- Modernising their organisations and infrastructure to support new service offerings and identify new revenue streams
- Investing in cloud computing and other digital technologies to more rapidly address evolving customer preferences and mitigate risk and regulatory obligations
- Engaging in targeted M&A to fill in adjacencies and add capabilities and talent to address challenging areas such as cross-border payments, an improved end-to-end payment experience, multi-payment integration, and business-to-business (B2B) payments
- Collaborating with financial technology (FinTech) players and other market entrants as strategies and playbooks for partnering continue to evolve
According to a Deloitte Payments trends 2020 perspectives paper, it anticipates that 2020 strategies will likely be about the formulation of “big bets.” This could take the shape of either going all-in on a targeted set of preferred partners and platforms or going broader in an attempt to service the ecosystem. It views five emerging trends as driving these strategies, presenting challenges, and creating opportunities in the 2020 payments ecosystem.
These trends could help shape strategies for organisations as they seek to master this dynamic market. What implications may these trends, collectively, have for payments companies over the next year? And what new strategies and actions might be taken in response?
Trend 1. Competition between closed and open payments platforms
What do consumers value more from a payment services provider? The convenience of being able to conduct the entire buying experience, including payment, on a closed, all-in-one platform (be it device centric or app-centric)? Or the choice of buying whatever they want, however they want, that is enabled by an open ecosystem? It expects to see increased competition between established providers of closed and open payments platforms in 2020 as they vie for a larger share of consumers’ and businesses’ dollars and loyalty.
Strategies are likely to include developing proprietary payment products that offer increased value within a platform or an extended financial infrastructure to facilitate commerce across platforms. It also anticipate that payments players will be deciding which of these types of platforms will be the most relevant to supporting their go-forward strategies and influencing product and service development, technology selections, integration approaches, and partnership models.
Trend 2. Evolving payments economics
Product commoditisation and the pursuit of post-M&A value are fuelling an evolution in payments economics. As value decreases for traditional competitive differentiators, such as transaction processing speed, convenience, and access, these offerings may become increasingly commoditised; this could reduce once-dependable payment processing fees and spur companies to establish alternative revenue streams.
It expects that recently consolidated scale players looking to drive revenue and shareholder value may leverage post-transaction synergies to offer new, differentiated, or enhanced customer experiences; expand into adjacent markets; and use data analytics to anticipate customers’ changing needs and expectations, drive increased “word-of-mouth,” and sell more profitable services.
Payments companies will also expand into adjacent or new markets by acquiring or collaborating with software-as-a-service (SaaS) companies focused on serving, for example, restaurants or college students. This software-enabled strategy aims to drive payment volume by integrating payment capabilities with SaaS solutions. Other companies are looking to diversify their portfolio with more profitable offerings to increase customer and merchant “stickiness” and to form collaborations that undo traditional economic tenets; for example, the way credit is being issued, serviced, and managed.
Finally, as some large banks refocus on providing core financial services, they are moving away from partnerships that have enabled them to provide payments-related capabilities such as merchant acquiring services. Payments companies—especially scale players born of recent industry consolidation—will take on more of these historically fragmented functions.
While this trend may create opportunities for new scale players to generate revenue and disintermediate competitors, it also may create a need for effective post-merger/post-acquisition integration to drive streamlined organisational responsibilities, update governance models, and enhance speed to market to deliver on these capabilities. This need is particularly relevant for ‘‘aquihire’’ models, in which organisations acquire organisations for their critical talent and skills they plan to deploy to enhance their organisational capabilities.
Trend 3. Development of new standards to govern the flow of money
The increasing globalisation of payment processing is highlighting the need for new standards to govern the flow of money and protect customer data. All companies that accept, process, store, or transmit credit card information already must comply with the Payment Card Industry Data Security Standard (PCI DSS), and payments transactions in the US and European Union are regulated by central authorities.
However, players facilitating inter-regional transactions may find it challenging when each country has its own domestic schemes and different ways in which money can be sent cross-border. Payments players will need to get their data houses in order, given that we anticipate the introduction of new payment rails and open solutions in 2020, as well as a sustained increase in cross-border transaction volume.
The report also expect public and private efforts to begin coalescing around the development of global industry standards, such as ISO 2022, to govern payments messaging, interoperability, interfaces, payment engines, and integration. Finally, there may be progress on developing stronger standards for assessing transaction riskiness, demonstrating traceability in a cross-border payment, and facilitating authentication across different forms of transactions.
The post Governance of payments industry a key trend for 2020 appeared first on Payments Cards & Mobile.