With the arrival of the FinTech, the online payments industry has changed massively over the past decade. This has meant huge digital disruption within the banking and payments industries. The global online payments industry now accounts for a greater percentage of all banking revenues and that percentage is increasing by around 7% year-on-year. Here, we examine the key drivers powering this growth and what can we expect to see in the future.
Banks want a piece of the pie
By mostly relying on older slow and costly payment mechanisms, banks have been slow to react in the growing online payments industry. It’s only now, as they lose market share, that these old giants are sitting up and taking notice.
Although late to the party, we can expect these traditional financial establishments to start investing in online payment technology to try to win back customers. That won’t be easy. Many of the Payment Service Providers (PSPs) are securing banking licences, so this means they will be able to offer the very same banking services themselves (most likely at lower fees), meaning the ‘real’ banks will have to work harder to retake market share. Remaining profitable certainly won’t be easy for those with branches in high street locations.
Furthermore, it won’t be straightforward for these institutions to integrate new technologies into their antiquated systems. One solution may be for these long-established institutions to ingest some of the newer players in order to remain relevant themselves. Buying a smaller company with the infrastructure already in place may be one solution, but, some of the bigger players won’t be consigned to history without a fight.
Specialisation vs Consolidation
Which brings us along to the next trend. With so many new entrants, the online payments landscape is becoming increasingly crowded. To stand out firms need to differentiate, or specialise. It’s likely that we’ll see companies focusing on different markets, or a particular customer base, such as customers in the gig economy, or SMEs.
An alternative to this is that we’ll see consolidation. Revenue per transaction has been falling. To remain competitive, companies have to focus on volume. As the market stabilises, it’s likely we’ll see many firms joining forces.
New technologies will be driven by consumer demand
The online payments revolution is not quite complete yet. The technology is still evolving so it’s difficult to predict what will happen next. To a large extent this will be driven by customer expectation and demand. The ways customers buy and the technology they adopt will guide online payment providers when it comes to their own offerings. Right now, for instance, it’s mobile usage that is driving innovation within the industry, but voice shopping looks to be the next big thing.
Moving past two-stage authorisation
Security is another area where we will see disruption. However, it’s crucially important that the technology here remains as frictionless as possible in order not to become a barrier to impulse purchases. As it stands, biometric authorisation requires second step authorisation, so this isn’t ideal. One answer here could be the use of ultrasonic authorisation. This has been proven to avoid compatibility issues, as already demonstrated in Denmark where older vending machines have been re-equipped to enable them to accept payments from an approaching customer with a mobile app.
Will digital wallets replace credit cards?
Credit card firms will come under pressure as digital wallet momentum continues in 2020. This has already happened in China with Alipay, which grew out of the Alibaba marketplace. The platform now has one billion users. More high profile examples are appearing around the world, such as Uber, WeChat pay, WhatsApp Pay and HSBC’s PayMe in Hong Kong.
Cross-border payments will grow
What this all points to is that payments are becoming more invisible and, as a result, customers and businesses alike are benefiting form a more frictionless, seamless experience. This trend will inevitably continue as companies realise that making it easy for their customers to buy from them wherever they are in the world – in multiple currencies – will mean they do more business in return.
This is something we’re already seeing at KoalaPays. Our digital wallets are making these overseas transactions just as simple as local transactions. Customers with our online business accounts are seeing the benefits in the bottom line. And we’re committed to developing our services further to make online payments faster and more convenient throughout the world.
Online payments are coming of age. They’re becoming more efficient and more functional for users, as well as businesses. Here, at KoalaPays, we will continue to strive to stay at the forefront of the technology to make sure our customers see all the benefits now and in the future.