03 June 2016
The payments industry needs to close the gap between user experience and payment options
Even if you’re number one, you have to think like number two. Market leaders simply can’t stop and enjoy their lead, because the competition is keen to take their spot at the top. This also applies to companies in the payments industry: market leaders must continue to innovate in order to maintain the largest market share and to remain relevant. We see a distinct difference in business models emerging nowadays: companies either choose to focus on payments or they focus on the user experience. In the era of rapid digitalisation, what is the best strategy for financial companies to get and remain relevant?
Especially now that technological developments succeed each other more rapidly than ever before and consumers have become more demanding, traditional stakeholders need to modernise their services. In the modern payments landscape and the 24/7 economy the payment itself is no longer key, but the experience of that payment has become equally important. Consumers want to be able to pay around the clock, at any location, from any device. This means that suppliers need to respond to that demand.
Traditional stakeholders have to adapt their services and systems, because they are usually not equipped for this. The chances are real that consumers switch to the competitor when organisations do not adapt sufficient or fast enough. And there are plenty of competitors to choose from now that the payments market is expanding with new players. Big companies such as Amazon, Google, Alibaba and Apple stir the payments up by offering payments. The business model of the new companies is much more focused on user experience where the actual payment is just a small part of the chain. Next to these big companies there are a lot of new fintech companies that focus on a specific part of the payments chain, for example PSP’s such as Adyen and Ogone. Those companies are disintermediating the relationship between banks and consumers.
Traditional players should be alarmed by the offerings of these developments of disintermediation. They see that these PSP’s and other fintechs can act faster and more agile, because they focus on a specific part of the chain. This is a completely different business model than the big banks are using, because banks offer services based on scalability and reach. These banks therefor have difficulties adapting to fast market changes because their systems are not designed for flexibility, because they are built on legacy systems that are often quite complex and changes are expensive and slow.
The battle with newcomers on the technological front is just one side of the story for banks. At the top new regulations such as PSD2 and XS2A creates even more pressure. This legislation obliges banks to open up their systems to third parties to share client account information. This means the banks lose the exclusivity to client account information and that is the main issue.
A bridge too far
The combination of these factors implies that traditional players see that their place in the chain is threatened if they do not respond adequately to all new developments. It is quite difficult to compete against companies that have user experience incorporated in their DNA, such as the companies mentioned above. The traditional stakeholders should keep a focus on the payments and on the seamless integration of those payments, because that is usually a bridge too far for fintechs. There is a big chance that the fintechs will stay on their own turf and keep focussing on the user experience of payment technology and not on the actual payments.
But, in my opinion, that is not the best option to bridge the gap between the old and the new world. How should that be done then? You can try to fight the battle against fintechs, but that is not possible for traditional players. Banks are not organised for it and it is just too expensive. One piece of the puzzle are white label services for banks to support them in following the changing market demands, without having to adapt their own IT-backbone. The real answer though lies in strategic partnerships; this will turn competition into cooperation. It may sound like a cliché, but if you can’t beat them, join them. This will put them both on number one.