Transformation in Payments: A Misconception or a Reality?
In 2016, the payments landscape underwent significant changes, driven by technological advancements, shifting customer expectations, and the emergence of FinTech companies. The industry, once a stable and profitable business for many, is now being radically altered towards digital services.
The payments value chain is being pressured by regulations, mobile technology, new entrants, and cheaper, more powerful hardware. This transformation is leading to the rise of instant and digital payments, increasing demand for seamless and secure payment experiences, and the emergence of new payment methods such as Pay-by-Bank and open banking solutions.
Technologically, digital infrastructure modernization is underway, with innovation focused on faster, real-time payments and more interconnected ecosystems enabling seamless transactions. Although open banking and Pay-by-Bank adoption levels were low at that time, these innovations laid the groundwork for future growth by offering potential cost savings to merchants and providing customers more choice beyond traditional card networks.
Customer expectations are shifting towards frictionless, instant, and secure payment options, particularly among younger, tech-savvy demographics. This trend is pressuring banks and payment providers to innovate rapidly and improve digital payment experiences to retain clientele and remain competitive.
Competition from FinTech startups is fuelling innovation and pushing incumbents to adopt more flexible, customer-centric payment systems. FinTechs are driving progress in areas like mobile wallets, peer-to-peer payments, and alternative payment rails. This competitive environment is accelerating the adoption of open banking APIs and instant payment infrastructures, fostering a more diverse and dynamic payments ecosystem.
Data from 2016, such as Fedwire funds transfer statistics, indicate growing volumes of electronic transfers, reflecting increased overall payments activity and gradual shifts to faster payment channels.
The way we connect is changing due to new devices and the increasing reality of IoT. Legislation in the European Union is forcing banks to open up their technology to new providers through APIs. The winners in the payments industry will be those that provide superior customer service with products available all the time, through any device.
The shifting balance of power and influence in the payments industry has resulted in an unprecedented change. Historically, banks and intermediaries held significant pricing power and influence, but this power has been eroded due to new competitors and legislation across the globe.
The core needs of consumers and businesses in the payments industry have not changed, but they require faster execution from any device. Businesses will still need a way to pay and get paid, FX services, cross-border payments, debt, equity, and general financial advice. Consumers will still need loans for vehicles, mortgages, the ability to send money, and a place to hold deposits.
In the forthcoming posts in this series, we will closely look at key players in the value chain, how their roles have changed, and what to expect in five years. Commerce is being disrupted as consumers and corporates demand speed, convenience, and simplicity. Stay tuned for more insights into this rapidly evolving industry.
- The payments industry is experiencing a transformation driven by technology, resulting in increased demand for instant and digital payments, seamless and secure payment experiences, and the emergence of new payment methods such as Pay-by-Bank and open banking solutions.
- The competition from FinTech startups is driving innovation in the payments industry, with rapid advancements in areas like mobile wallets, peer-to-peer payments, and alternative payment rails, fostering a more diverse and dynamic payments ecosystem.
