The Global Payments Innovation Jury report for 2017 exists because 70 senior industry executives were prepared to give their time to thinking through and setting out their views on many complex issues determining how payments innovation happens.
The 70 jurors come from 37 countries across 6 continents which is the highest participation ever; all the jurors are involved at a senior level with highly successful businesses ranging from payment service providers, card schemes, processors, merchant acquirers, technology providers to mobile money operators.
“Payments continues to experience continuous innovation worldwide, with established players trying to defend and grow their existing business and new market entrants aiming to grab a share of the market for themselves,” says John Chaplin Chairman, Global Payments Innovation Jury.
“Although operating margins are under pressure, the payments sector remains attractive because the market continues to expand and there is opportunity to secure a share of gross transaction value for many players. But the essential currency for payments now seems to be innovation, with the vast majority of players subscribing to the ‘innovate or die’ philosophy.
It is often impossible to get a clear and consistent view of how payments are evolving worldwide. The Global Payments Innovation Jury has provided a consistent view on this evolution every two years since 2008 when innovation was much less of a hot topic. The 2017 Jury, comprising 70 successful payments executives from 37 countries, has looked at many aspects of the worldwide industry and given its considered views on how innovation is occurring and bringing about change.”
The top findings of the Jury:
- Asia is the clear leader in payments innovation. This goes beyond a ‘China effect’, with many other countries in the region modernising their payments infrastructures and creating environments supportive of innovation. Europe has finally moved away from the bottom of the league table, largely based on the new regulatory environment but the Jury reserves judgement on whether the hoped-for changes will materialise.
- For venture capital backed companies, there is a shortage of growth stage finance globally mainly because the road to profitability in payments is more difficult than most business plans assume. Despite the growth capital shortage, direct investment by banks in payments companies is not seen by the Jury as a popular strategy. For companies that achieve profitability and growth, there is no shortage of private equity finance to fund an exit as well as IPO for the real stars.
- In developed markets, investment in B2B payments is generally preferred over B2C because of the major marketing investment required to build a substantial consumer user base and the difficulty in convincing users to pay for services in markets used to ‘free of charge’. However, in developing markets, the sheer size of the underbanked market still makes B2C and P2P investments more attractive.
- The Jury sees two main reasons why payments startups don’t succeed. ‘Fail to scale’ is a major issue with many business models not being adaptable to higher volumes. And many new market entrants don’t offer any significant advance on what is already available, instead offering ‘solutions in search of a problem’.
- Partnering between established firms, especially financial institutions and startups, is happening more often in all regions and is increasingly seen as a win-win. The jurors who have experience of creating such partnerships believe that the time and effort required is widely underestimated.
- At a time of great excitement about AI unlocking the power of data, this is still seen as an area of missed opportunity for the payments industry with lack of an overall data strategy being reported as the major reason for most firms missing the target.
- In terms of the disruption from new business models, the Jury sees traditional cross-border remittance providers at most risk, followed by established payment service providers for online commerce.
- With most payment regulators and central banks actively supporting an innovation agenda, it is disappointing that the Jury believes innovation is more likely to be impeded rather than encouraged, suggesting that regulators need to rethink their approach in some markets.
- The Jury see Open APIs as important enablers of innovation especially in a world of in-app payments and, in the future, transactions from Internet of Things devices. However, the Jury does not see this as risk-free and has concerns about who gets blamed by the consumers when things inevitably go wrong. The Jury makes the point that APIs are a business strategy that require proper management and not just a technology.
- As mobile technology becomes central to financial services and payments capability, the Jury believes that in developed economies, bank wallets and single merchant wallets are generally not going to do well. In developing economies, the Jury sees the top priority as interoperability between MNO provided wallets and the banking sector to avoid network duplication which raises costs for consumers and merchants.
- The current large investments in real-time ACH systems can become a significant factor in more credit-push transactions from mobile but the Jury believes that unless the user experience is slick and there is an effective mechanism for preventing and disputing fraudulent transactions, predictions of a major loss of market share for the card model are overdone.
- Previous juries have had a good track record in detecting hype. This time, the Jury has selected distributed ledger technology for the award, not because jurors don’t see the real potential for the technology but because the extent of the claims being made by its advocates seem to be too extreme.