New players, new practices and new technologies in an evolving payments landscape
Several key themes emerged amidst the many discussions by global leaders in payments, including QR code, blockchain, credit card schemes, fintech and data consolidation
Payments are a key battleground in financial services, and rightly so. “On the banking side,” PayU CEO Laurent le Moal observed, “banks have disregarded payments. Now, they’re starting to realise, because of the importance of data, that it’s a strategic asset. Payments is a stepping stone into financial services.”
Several key themes emerged amidst the many discussions by global leaders in payments. First, the QR codes that are driving acceptance of these new payments players are likely only an interim innovation Then, card schemes are trying to fight back. And finally, key trends driving payments are likely to be data and consolidation.
Insights from these leaders can help existing payments providers tremendously in developing their own strategies so that they stay relevant, avoid getting out-manoeuvred and continue to power their payments business ahead.
QR is Just an Interim Step for Acceptance
QR codes have played a key role in the recent growth of electronic acceptance, and they’ve started to transform acceptance in developing markets across other parts of Asia as well.
“In developing markets,” said YeePay co-founder Chen Yu, “there is a good chance of success. QR code acceptance is huge in China and will grow next in Southeast Asia. It’s not as popular in the US. In the developed markets, you have solutions like cards.”
A key advantage of QR, Yu said, is that it has a low entry barrier for merchant adoption and is independent of smartphones. QR codes are also easier to integrate with merchants’ backend systems and can be used for payments as well as for rewards. While NFC Is easier to use, as UnPay co-founder Jenny Zhao also noted, NFC standards are driven by the phone manufactures and have incompatible ecosystems.
A growing trend, OCBC head of digital payments Milind Sanghavi said, is a unified interface, such as the one that has been rolled out in Singapore. The single QR code enhances the user experience, which benefits the merchant and the consumer.
Asked whether she would invest in QR or NFC, Zhao said “if I choose one, it depends on destination. In Southeast Asia, I would choose QR. It has a low entry barrier. Merchants print QR, accept cross-border payments.” In Africa and Latin America, she added, QR will also have a good chance.
NFC adoption is much more difficult, Yu commented. “You need POS terminals, integration. You have different phone ecosystems. QR code is independent of smartphone systems.” Sanghavi agreed, saying that “the cost of building tap-to-phone solutions is still very high compared to QR. It has to come down for tap.”
That said, QR codes may not last long. The challenge QR code overcame, Yu said, is infrastructure. The lack of existing infrastructure in China was the reason QR became successful there, because the adoption cost was low for merchants. South Asia is the next market, not the US, not Europe. In most markets, however, QR code is going to be an interim solution. “In the long run,” Yu said, “it may be replaced by biometrics.”
Zhao agreed, saying that she believes QR in its current state will last 3-5 years and that there will be new technology that replaces it before long.
Card Schemes Innovate to Expand
Faced with these new entrants, domestic and global card schemes are taking steps to adapt to a new reality.
Consumer behaviour has changed, said Jocelyn Ang, COO of the NETS domestic platform in Singapore. To meet consumers’ needs, banks are evolving to use apps, which enable them to interact with and engage the consumer. On the merchant side, she said, NETS has enabled apps and digital cards, supported QR codes and NFC acceptance, and also partnered with Alipay and WeChat Pay.
What Mastercard has done, said executive vice president Rama Sridhar, is to give itself permission to “do stuff that other players will be doing.” It has focused on enabling the transaction, regardless of the form factor, to facilitate transactions. “Consumers, merchants, governments, new players - we will work with whoever want to enter commerce, with as many client segments as possible.” While the players have changed, however, she said Mastercard still acts as a central force that knits players together, provides a rule book, and offers a body of trust.
Discover has taken a different approach, Discover vice president Jonathon Gould explained. As Discover expanded globally, it made the decision to offer players a business model that enables them to operate the way they want in their home country and still expand globally. Domestically, he said, Discover allows partners such as BC Card and RuPay the ability to retain control of their business. When they want to expand beyond their domestic market, Discover gives them the opportunity to expand beyond borders. “Merchants don’t care who we are. They care that your card has a recognised brand on it. We’re the glue that makes that work,” he said.
Banks may need to create partnerships, platforms or other highly innovative solutions to compete effectively
Fig 1 Payment players entering or expanding globally their markets
Tech Companies enter Payments in New Ways
While big tech companies such as Amazon and Google have been getting into payments with innovations such as Amazon Pay and Google Pay, pure tech companies have not taken quite as large a role.
Taking a new tack, IBM head of blockchain and digital currencies Jesse Lund announced that IBM is “open for payments” with World Wire, a new blockchain-based global payment network for banks and non-banks. “It allows them to come together, transact in real time,” Lund said. “It’s a new payment network, launching in 72 countries, with pay-in and pay-out locations all over the world.”
The scalability of the network and enabling many concurrent transactions were key entry points, Lund said. World Wire is creating an ecosystem of digital assets to settle transactions in real time, with full payment data for participants.
“We built this network for financial institutions,” Lund explained. “It’s a way for financial institutions to come together, to transact. There’s no cost to join the network. We’re inviting regulated financial institutions to join. It provides an equalizer across financial services across the world. IBM’s interest is to be the network operator. We can bring value further, even if there’s not a tangible e-banking experience. That’s what’s making the payments industry grow.”
The Future of Global Payments is Consolidation and Data
As they looked at the future of payments globally, CEOs of payments companies from around the world said they expect the industry to change significantly.
A key challenge, said PayPal SVP Rohan Mahadevan, is that “the movement of money will be commoditised, The real question is the service, protection, added value. Who’s protecting me - that’s where you see value being added, and why you can charge.”
The expectations of the users of Instagram, WhatsApp, said At PayPal, said Mahadevan, is different from the trust in putting it into a payments company. “Instagram is about how do you get peoples’ time. You want to provide commerce in a place where people spend their time. Platforms want to partner with you, they have so many other times to focus on. That’s why they partner with us, to solve problems.”
What payments need to do in developing markets, said Go-Pay CEO Aidi Haryopratomo, is indeed to solve real problems. “The problems people face are the same. They need to go somewhere, eat something. By being present, you make life easier. You can capture (the customer) by providing the service that no one else can. Other times, you partner. We’re at a time in world history we can give payments to people who never had them.”
In mature markets, said Worldpay chairman Ron Kalifa, “payments link things together. We provide lending, we work with others, facilities for merchants because they can’t get them from banks. We’re (also) doing account management. Payments give access to other services.”
What Worldpay is trying to do, Kalifa said, is to scale, find ways to get distribution, and have greater technology capabilities. “We’re partnering with people, so we have access. We’ve got to find ways to provide a niche service. We take fulfilment risk. If you paid through a card, the risk is with us.”
The key strategic asset of payments, PayU CEO Laurent le Moal believes, is data. “To be successful, the ability to have different sources of data, that’s where the value comes from,” he said. “The data is enormous,” Kalifa added.
Another key trend, le Moal said, is consolidation. In five years, he believes there may be only one payments company in Europe. “It’s about scale, gaining connectivity in other markets. The game we’re playing is using this as a stepping stone into the data.” The consolidation is going to continue,” Kalifa added, “because scale matters.”
Keywords: Financial Services, Digital Payments, Cross-border, Technology, Blockchain, Qr Codes, Biometrics, Fintech, User Experience, Credit Card, Payments
Institution: PayU, YeePay, NFC, UnPay, OCBC, NETS, Alipay, WeChat Pay, Mastercard, BC Card, RuPay, Discover, Amazon, Google, IBM, World Wire, Paypal, Go-pay, Whatsapp, Instagram, WorldPay
People: Laurent Le Moal, Chen Yu, Jenny Zhao, Milind Sanghavi, Rama Sridhar, Jonathon Gould, Jesse Lund, Rohan Mahadevan, Aidi Haryopratomo, Ron Kalifa