Payments: What will change in the coming months
Panagiotis Kriaris is Commercial Director - Head Of Business Development at Unzer, an innovative and modular platform for international payment transactions. He shared with Qorus his vision on the disruptive world of payments.
Panagiotis Kriaris is Head of Business Development at Unzer, an innovative and modular platform for international payment transactions. He shared with Qorus his vision on the disruptive world of payments.
During the past two decades, payments have changed like no other business in financial services. And yet the most disruptive part is still ahead of us.
To understand the magnitude of change, think of the following: 20 years ago, a 3-year-old company named Confinity had just changed its name to PayPal, Alipay and WeChat would launch 3 and 10 years later respectively, mobile payments did not even exist (the iPhone was first released in 2007), and Amazon had finally turned its first profit in Q4 – $0.01 on revenues of more than $1 billion.
Fast forward to today and technology has drastically transformed how payments are conducted with strong regional flavours: mobile payments in Europe, superapps in Asia and QR codes in Latin America. What’s more, an outbreak of a rare coronavirus in 2019 led to a global pandemic that has, in effect, accelerated major behavioral shifts: adoption of instant payments, contactless payments becoming a norm, drastic decline of cash and a huge boom of e-commerce.
Payments have evolved from a traditional, static model with limited, pre-defined payment options, i.e. cash, card or check, to a dynamic, all-digital environment. Cashless, mobile-first, omnichannel payments powered by multiple interconnected devices are the new norm.
Technological advancements like biometrics, the Internet-of-Things, tokenization and cloud computing have been at the forefront of this transformation, affecting not only the consumer interaction but also the underlying set-up, i.e. biometrics gradually replacing traditional credentials as an authentication and authorization tool.
In terms of impact and reach, two things stand out in particular: the emergence of real-time and the transition to an open banking approach. Changes brought about as a result include on the retail side concepts such as digital payments, P2P, bill pay, scheduled payments or deposit capture, whereas on the corporate side topics like payroll, sweeps, positive pay, treasury, cash forecasting, liquidity and integrated payables dominate the agenda.
All these have had profound repercussions on the competitive landscape: as incumbents struggle to adjust to the new reality, fintechs, bigtechs and other market disruptors have found the opportunity to challenge the status quo by introducing novel payment methods on the basis of convenience, speed and flexibility, powered often by a platform approach.
Ever-changing customer requirements, new service offerings, innovative propositions, new entrants, consolidation, novel business models and shifting dynamics create a mix that makes it especially challenging to predict what’s coming next. However, if I would have to bet on a number of future plays, most of my money would be placed on the following trends and developments:
• The platform-based, ecosystem model will be further dominating the new reality by means of offering solid competitive advantages – network effects, control of the customer experience, reduced disintermediation and new revenue streams.
• The more payments take an increasingly central-stage role in diverse offerings by means of embedded financial services – and here is the great paradox in the next phase of the evolutionary journey – the more they will be moving in the background and become invisible. In this set-up the most promising revenue pools will evolve around holistic, end-to-end offerings.
• Future payments will look much more versatile, open and seamless and will be dominated by specialized players that rely on economies of scale, but at the same time are agile enough to swiftly adapt their business model to evolving customer requirements.
• The rise of alternative payments will continue: from virtual mobile wallets to PayLater (BNPL) schemes to P2P money transfers to account-to-account transfers and cash payment models, there will be an increasingly diverse number of payment methods beyond cards and cash, boosted by the ascent of e-commerce, technologies like 5G and IoT, more mature open banking use cases and the emergence of new payment platforms.
• The B2B segment will be one of the main growth drivers going forward. Estimates converge that B2B payments constitute on a global scale a $120 trillion market and have significantly more potential compared with B2C.
• The quest for the next wave of payment infrastructure will intensify but the outcome is likely to consist of a mix of new and old capabilities in a multi-rail set-up where cards will co-exist with real-time, account-to-account payments facilitated by open banking technology. In such an environment, traditional incumbents like Visa and Mastercard will be fighting to re-define their role in the industry alongside an increasingly versatile array of players (fintechs, new payment champions, bigtechs and e-commerce giants).
• The Internet-of-Things (IoT) will redefine disruption in the industry. From watches to light bulbs, to thermostats, to cars and to trains, the number of connected devices is projected to reach 41.6 billion globally by 2025 (data source: IDC). Payments triggered from such devices are expected to reach $5.4 trillion by 2028 from an estimated $155 billion in 2021, growing at a CAGR of 66% (data source: Introspective Market Research).
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