The fierce battle that is unfolding around the evolution of the payments rails is at the center of a massive transformation
The fierce battle that is unfolding around the evolution of the #payments rails is at the center of a massive transformation that will redefine how the industry will look like in the years to come. Let’s take a look.
The unbundling of financial services has brought about a huge surge in terms of available payment methods (mostly on the B2C side) by means of novel, innovative offerings from FinTechs such as Venmo, Klarna or PayPal.
However, the vast majority of these new offerings were built based on existing infrastructure by mostly focusing on the front-end and by optimizing legacy processes. The resulting #innovation was therefore an outcome of a clever decoupling of product and service offerings from outdated account rails and #banking infrastructure rather than the offspring of a full-blown end-to-end disruption.
At the same time a new breed of payment providers – the likes of Square, Adyen and Stripe – have found success by helping merchants navigate the complex world of payments by means of state-of-the-art, API-first, technology offerings. With the huge digital shift accelerated by the pandemic, the focus on #ecommerce and merchant relationships has further strengthened the position of these players in a business where scale, efficiency and #technology increasingly define what success looks like.
On top, several other developments are adding even more complexity to an already intricate mix:
— Open banking is re-defining the entire game by not only connecting merchants with consumers in a direct way, but also by allowing the initiation of payments directly from bank accounts
— Real-time A2A schemes (A2A and OB payments are not the same: whereas OB Payments are A2A payments, A2A payments are not necessarily OB payments) are proliferating across the globe with many showcasing considerable success (i.e. iDEAL in the Netherlands, BLIK in Poland, Pix in Brazil)
— Super Apps are already dominant in Asia, whereas the race for a western SuperApp is wide open
— BigTechs like Apple have been gradually but steadily building a closed-loop financial services ecosystem around their wallet and payment capabilities
— Crypto has not revolutionized payments, but it will not go away
— CBDCs have seen a dramatical rise over the past years with over 90% of central banks globally working on developing one
The next wave of payment infrastructure is being redefined right now, and it will be very different and much more complex from what it used to be.
Two main evolutionary developments stand out: 1) For the first time in years, new payments infrastructure is actually being built 2) The transition to a next-gen set-up will be a rather gradual one with new and old capabilities coexisting in a multi-rail mix and with incumbent and challenger players fighting for a redefined role in the new value chain.