19 August 2014
Payments 3.0: making the transition
The fast growth of e- and m-commerce is causing a fundamental change in the payments industry. Because the end-user is now the primary focus, payment transactions in themselves are becoming a ‘secondary priority’. Convenience and ease-of-use are the ultimate goal. This has led to a change in the traditional business model for the payments industry, where it is predominantly banks that offer payment services to consumers and merchants, and where there is a direct, one-on-one, ‘bank2client’ relationship. Disintermediation lies in ambush.
To meet this challenge, the traditional payments industry needs to change fundamentally. This implies that leading traditional service providers like Equens need to start thinking differently about innovation in order to turn threats into opportunities.
For the time being, the situation in the B2B segment – the wholesale business – is looking fairly stable. Here, the one-on-one relationships between corporate clients and banks remain strong. Naturally, however, there is increasing competition between banks that are striving to enhance their liquidity and cash management service offerings. Although SEPA is a key factor in this increased competition between banks in the wholesale business, to date it has not led to any fundamental innovations or widespread reconsideration of the number of banking relationships. Corporates have so far focused predominantly on compliance, but changes can be expected in the near future. Meanwhile, the ongoing standardisation will lead to further centralisation of financial activities and a reduction in the number of banking relationships.
Shopping via any channel
The main challenge lies in the B2C segment, the retail business. Here, use of mobile devices integrating shopping, loyalty, supply chains and payment functionality is clearly on the rise. Shopping can be done 24/7, via any channel. Thus far, the traditional service providers, namely the banks, have played a relatively modest role in e- and m-payments, thereby exposing themselves to the risk of disintermediation. Meanwhile, payment service providers (PSPs) like Adyen, Amazon Payments, eBay’s PayPal, Ingenico’s Ogone and Deutsche Telekom’s ClickandBuy have shot up like mushrooms and are expanding their client base rapidly. In doing so, they have been breaking up the traditional direct banking relationships and offering their services directly to the banks’ clients: consumers and merchants.
Unburdened by extensive legacy, new players in this virtual world can afford to apply completely new ways of thinking to innovations. This trend is reinforced by regulatory developments like the upcoming legal requirement for ’access to account’, under which banks will have to deliver specific client information to third parties such as PSPs, making the service offering of PSPs even more attractive.
Sensitivity of security issues
PSPs are well aware of the fact that payments in themselves have become a ‘second priority’, and that offering value is now imperative. In terms of where to shop and make their purchases, virtual consumers don’t look for a particular payment scheme; they pick the shop, web portal or website which is the most convenient and easy to use. The payment itself is made at the end of the process, and consumers expect their payments to be processed securely and reliably – at no extra cost! Accordingly, this needs to be a standard part of the service offering. The sensitivity of the security issue always emerges in the event of attempted fraud, when it immediately becomes major news, publically known within seconds via social media. This is a strong point of departure for the traditional service providers – banks and payment processors alike – who securely and reliably process billions of transactions.
After all, notwithstanding the various criticisms, banks are widely considered to be the most reliable parties when it comes to money.
3.0 way of thinking
The secret to sustained success as a service provider – which is what a bank is, after all – is to understand both the manifest and the hidden needs of the new world. Demand for convenience and ease-of-use, and the need for a secure and reliable environment, have changed how banks and Equens do their business, making the transition from the traditional to the new, virtual world. At Equens, we want to continue to fulfil our supportive role in the payments value chain, and thereby maintain our professional way of working. We also want to broaden our scope to meet the demands of the virtual world and, in addition to the more general side of our processing activities, investigate areas not directly or solely related to payments. For instance, we are already actively involved in non-payment activities like e-identity. In our role as a processor and integrator, we are open to new ideas and ready to collaborate on initiatives.
Accordingly, our new Payments 3.0 way of thinking covers both the payments and the non-payments value chain. At the same time, as an established card and payment processor, we are still part of the traditional trusted, well-regulated financial infrastructure.