We’ve heard it all before- it’s incredibly tough to differentiate and be successful in today’s PSP payments market. And yet there are boundless opportunities to cut through the noise and right to the chase in terms of what customers want and what merchants and banks need.
To start with Open Banking, this concept and the regulatory framework that facilitates it continues to yield untapped benefits for all players in the form of business opportunities for savvy payments bods.
The advent of APIs since the European Open Banking framework was ushered in has really spawned much of the opportunity and innovation.
Not that APIs are anything new- they had been used historically in banks’ internal systems to enable the communication of data and information to inform operating software.
With Open Banking, a step change redefinition took place to use APIs to connect to external systems. This then led to the development of standardising certain sets of APIs and the growth of marketplaces and connected ecosystems.
Stay ahead of the curve; exceed expectation
Those who are getting it right are spotting direction of demand and getting ahead of it. Diversification of services is a key trend.
Tangibly adding value to the customer payment experience, tools for budgeting, account keeping and business advisory services represent clear new revenue streams for PSPs.
Anything that bypasses the clog of cross-border transactions is a definite winner too, reducing time and expense in a market that is not going to shrink any time soon.
For PSPs, this opens up huge potential within a retail consumer base as well as business and banking.
Traderoot, a South African fintech company providing payments and issuing services and solutions for banks and PSPs worldwide, says among the biggest payment trends for 2024 are contactless, P2P payments, card controls and personalisation and “white box” fraud monitoring, which uses individual behavioural analytics to intercept fraudulent activity.
In terms of the P2P market size, it expects to see this grow to $9 trillion by 2030. PCM would expect a healthy cut of the cross-border payments market to help reach this figure.
Standing on the shoulders of giants
Correspondent banking is a dust-gathering mainstay of global transaction banking that isn’t going anywhere fast, excuse the pun.
It is those P2P players that are able to expand and leverage the technologies and regulatory frameworks that might be able to help revolutionise this beloved behemoth and bring it up to speed with retail cross border payments- cutting the time and cost associated- through novel rails or otherwise.
Wise, having come from humble roots in the last decade or so, is one such player, having recently collaborated with SWIFT to create cross-border options for bigger, traditional banks.
The hook here being, these incumbents can still be challenged by plugging into ‘external’ APIs.
As we’ve explored in the analysis piece on real-time payments, any proposition that enables fast, simple, seamless adoption will drive expansion into underserved or altogether outright unserved banking populations.
The use of QR codes in services such as UPI in India and PIX in Brazil have given new meaning to the term gateway in extending these payment service to the masses, putting them well and truly on the map.
Adoption is everything.
Given the ever-increasing complexity of the payments world, as Michel Leger, CTO, Ingenico put it recently at the firm’s Paytech event in Madrid, “What’s driving everything is merchant and consumer adoption. Until we’ve got the adoption, we’ve got nothing.”
Leger explained that amid fervent growth and complexification of payments (including wallets, crypto, A2A payments, terminal software, digitalisation, authentication), “the name of the game will be orchestration, platform play- how we can make it easy to use and orchestrate in real time everything we do, to adjust to any single use case and create the experience. And also how we make it sustainable.”
Putting them to bed
Back to diversification, overlay services and proliferated use cases are the next order of the day, facilitating all manner of bill payments for customers, for example, and add-on business services for merchants.
Lending is one area in which PSPs can create great value for themselves and their merchant clients. Depending on the mettle and make-up of the PSP, an embedded finance capability can either be cultivated or partnered in.
The result is the realisation of value of the merchant data to inform, for example, revenue-based lending among other things, as Rob Straathof, CEO of Liberis, set out in a recent blog.
Now, his position is for a PSP to partner with an embedded finance provider and he would say that, wouldn’t he?
However, the point here is what can be achieved with data and the recognition of everybody to play to their strengths and partner where most apposite for the best overall outcome.
Where the revolution potential sits in this scenario is in the wielding of data to enable better credit decisioning, which for small businesses without much data in the bank, so to speak, if they’ve only been operating a few years, can be crippling.
All hail, Point-of-Sale
On a parallel note, from payment processors to payment gateways and everything in between, some of the most innovative moves in the last few years have been brought about by the revolution of the humble POS machine.
I say machine, it is more about the evolution of POS software into softPOS and ePOS systems.
The former is a payment application on a device of the merchant’s choosing, e.g. a handheld ordering device in a restaurant or a parcel delivery device.
The latter can mean a whole digital system collecting and analysing business data, and dashboarding these insights to merchants to inform their strategies, offer financial services, you name it.
Marc Pettican, of Barclaycard, says this is where it’s at in terms of success in the B2B payments space.
“Accounting software, ERP systems, and supply chain management tools. This will enable organisations to leverage technology and streamline processes, reduce complexity and create efficiencies.”
Future perfect
Furthermore, he summarises how payments will evolve and their purpose and position in the world of commerce.
“Payments are increasingly just the start of a much wider relationship. The payment options and solutions merchants adopt will be influenced by the way consumers interact with brands,” he continued.
One further area, a whole story in itself (stay tuned) is the shifting of traditional constructs of liability in the anti-fraud and system resilience space.
Two regulations are coming into play, which will impact some PSPs massively and enable others to carve out new businesses niches or partnerships to support the impacted players.
The UK’s PSR has moved to make both sending and receiving institution equally liable for the cost in cases of APP fraud.
And DORA will see third parties bearing responsibility for their part in a shared system to uphold the resilience thereof.
What kind of innovation could this yield? Answers on a postcard…
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