To say that the emergence of the Payment industry has changed ‘everything’ would still be an understatement – a bit like calling the Olympic Games a neighbourhood tournament. In today’s world, people are willing to pay for an attractive online offer instantly. Even a few years ago, this would have been surprising, given that all they have seen is a 2D picture, a technical description, and information on pricing. The Payment industry (Payment Service Providers, Banks and Acquirers) is about much more than transfering, collecting, and storing money. They enable us to buy everything we want around the globe in ways that would have been impossible just a decade ago, when we were using bank transfers, very often facing tedious and time-consuming currency exchange issues. In addition, electronic payments have become the catalyst for the next phase of innovation in our own households, for our time management, and for changes across all the business transactions we undertake. Before I show you some of the most interesting trends that are currently happening I will briefly describe the current German market as well as practical developments in Payment. This outline will take into account both global and European financial trends with an impact on the national economy, in as much as they are driven by the Payment industry.
Current ePayment Market in Germany
Germany has a strong online consumer presence. Most e-commerce is fuelled by online banking solutions, particularly ELV, SOFORT, Giropay, and newcomer, PAYDIREKT. E-wallets account for 31% of transactions online, and most of these are PayPal. On the other hand, local e-wallets struggle to get much traction in Germany. This is evidenced by the recent failure of Yapital, an initiative launched by Otto Group. One viable local e-wallet seems to be PAYBACK, a loyalty scheme owned by American Express which has enjoyed some success in Germany, placing a strong emphasis on the largest merchants in a vertical including Ebay, ARAL, and Expedia. PAYBACK has also launched a smartphone app with payment functionality.
Practical ePayment Trends
Payments will become increasingly invisible, with e-wallets certain to dominate the marketplace of the future. In the world of e-commerce, convenience rules supreme. Huge advances have already been made to make the purchasing process as effortless and smooth as possible. So here are 5 trends that will make buying even easier:
- Mobile momentum: The mobile share of global payments, currently at 37%, will continue its relentless rise, soon to exceed 50%. This is mostly driven by the growth of mobile e-wallets offered by market leader Apple Pay, Samsung Pay, and increasingly also Android. These e-wallets are being rolled out globally, and banks are starting to compete with them by developing their own e-wallets in collaboration with merchants and fintechs.
- European P2P payment apps and messaging apps: Another interesting area to watch is the growth of European P2P payment apps such as Bunq, MobilePay, and Swish, which may follow the route of WeChat Pay and evolve into B2C mobile wallets when the Second Payment Services Directive take effect on 13th January 2018. This new piece of regulation will have an enormous impact on the European payments industry, including in the following areas:
- More payments will be made via regular SCT and SDD (SEPA Direct Debit) infrastructures as it will become easier for merchants and their customers to initiate payments online, including via mobile;
- One key part of PSDII are the Guidelines for Strong Customer Authentication (SCA). They will lead to more authentication in all online payments (cards, SCT, SDD, e-wallets etc) so as to minimise fraud. As far as changes in the payment landscape is concerned, we expect WeChatPay to continue to dominate, although Facebook is investing heavily in its chatbot API to make it easy for businesses to process payments from inside Facebook Messenger.
- Recurring revenue: Business offering subscription schemes (think Netflix, razorblades, socks, groceries) have been growing an estimated nine times faster than sales of other well known e-commerce companies.
- Customer recognition, with one-click payments being a key element of customer recognition.
- Data consolidation: The rationale behing data consolidation is simple: For a vendor to recognize shoppers across sales channels, enable easy one-click and zero-click payments, and identify and track fraud trends, they need a unified view of customer data.
Global and European financial trends that are driven by Payment
Merchant banks and acquirers are boxed in, literally. Card terminals are essentially isolated within a walled garden tightly controlled by the hardware vendor, offering little more than basic payment functionality. Acquirers need to think outside of these boxes in order to consolidate the best available payment options, especially because vendors are becoming more and more demanding. What merchants need is not just cost-effective payment solutions but also the complete business functionality that is made available via an open ecosystem of additional apps and services. Other technological developments to watch include Amazon’s cashier-free stores. If they work, expect the industry to follow. Expect Peer-to-Peer (P2P) payments to start becoming accepted in Western European markets. And I would be very surprised if blockchain (cryptocurrency) didn’t carry on popping up in new and unexpected places, as the payment industry – which is behind most of the Blockchain initiatives anyway – continues to find more and more ways of using it. Various central banks like those of the BRICS countries are currently negotiating with blockchain companies such as Ripple, Omise GO, and NEO. Regulating cryptocurrency is on everybody’s agenda, even at the United Nations. Burger King in Russia now accepts cryptopayments. Given that so many online software vendors already accept crypto payments I would not be surprised if Apple and Google were to create their own currency by 2020. The scale of profits generated with Bitcoin will continue to challenge traditional financial markets. The Fifth Anti Money-laundering Directive (5AMLD) is likely to also have a massive impact on the Payment industry. Euro Retail Payments Board (ERPB) will carry on pushing for the development of instant payments in order to make sure that the EU does not miss the boat. And then, of course, there’s Brexit, which is already beginning to spark a fintech exodus from London to Frankfurt and to the Dutch capital Amsterdam which could remake the local payment landscape altogether.