Nonbanks players are entering into the payments market to capture a share of new opportunities
04/15/2020

Financial institutions and providers of all sizes are challenged to modernize their payments infrastructure and provide enhanced capabilities

Online PR News – 15-April-2020 – London – Payments as a Service - PaaS

Several payments as a service (PaaS) players are already active in the arena, with a wide array of business models. Some are developing payments solutions and delivering these services to their end customers, while others market their solutions on a white-label basis to financial institutions, which in turn design wraparound services catering to the needs of their consumer and business customers.

PaaS is not a mere matter of migrating legacy software, payments processes, or product offerings to the cloud. PaaS providers offer their customers a cloud-native platform, into which customers can integrate via advanced and developer-friendly APIs. The PaaS platform typically includes a modular service offering, giving the customer optimal flexibility to choose which products and services they want to use at any given time.

Therefore, leading PaaS players invest in developing secure and resilient platforms, directly addressing their customers’ growing concerns for cybersecurity and data safety and privacy

Players using this model offer services that go well beyond payments and integrate deeper into their customers’ operations. The most successful of these players focus on helping customers grow their business, improve the experience of their customers’ end customers, and/or improve operating efficiency. For PaaS providers looking to optimize the value of their platforms, the key will be adding customer services to existing payments solutions offered on the platform, thereby creating a more holistic and attractive service offering.

With the PaaS model, banks and other financial institutions have an attractive option for offering customers cutting-edge products and services without committing undue resources to develop these offerings internally. Building in-house payments technology is associated with heavy upfront investment, long development lead times, and execution risk.

Platform efficient, and scalable products for nonfinancial companies

Another direction to take with integrated offerings is to become a platform by manufacturing best-in-class, efficient, and scalable products for nonfinancial companies. This approach may provide an opportunity for payments providers without unique distribution capabilities.

So far, some small banks and payments providers have taken this route, and we expect that interest in this strategy will markedly increase in the coming years. In the future, we might even see several payments services being offered as either a free value-add (in the case of nonfinancial companies) or a loss leader (in the case of payments-driven attachment integrators).

Niche players with a compelling offer for a specific vertical—encompassing payments and likely beyond—also stand to disrupt the banking market. They will dominate a segment by offering a few world-class integrated products that are hyper focused on the segment’s needs.

Three factors, in particular, are poised to reshape the retail payments space over the coming decade:

Money movement makes a comeback.
For the first time in years, we are seeing massive innovation in the way money changes hands and in the infrastructure that enables that movement, with a number of new real-time payments rails being launched around the world. Person-to-person (P2P) apps are quickly displacing cash as a means of paying friends and family

Increasing competitive intensity fuels mergers and blurs boundaries.
In an effort to gain critical capabilities and scale, issuers and merchant acquirers are looking for partners.

Data use cases move beyond risk assessment.
Payments players have long used data to improve underwriting and fraud prevention, but now leaders are beginning to shift their focus to the customer experience.

Future

Banks will have to work smarter and harder to maintain their strong competitive position against such nonbank entrants as enterprise resource planning (ERP) and treasury management system (TMS) providers, card networks, and specialized fintechs that are competing in the wholesale payments segment in cash management, e-invoicing, working capital, and supply chain financing. The changing landscape will exert pressure on incumbent banks to improve their product and service offerings, as well as their digital and data analytics capabilities. Banks that can provide their customers with simple, convenient connections—whether through the bank’s portal, an ERP system, or a TMS— will put themselves in a position to reap the largest rewards.

Cross-Border Payments.
As competition intensifies, global trade flows and the global payments standard, SWIFT gpi, will make processing large international payments easier, faster, and more transparent.
Trade Finance
Leading banks and nonbanks are investing substantial sums in digital trade finance ecosystems and consortia, especially those supported by blockchain and distributed ledger technologies.
Working Capital and Supply Chain Finance
E-invoicing, supply chain finance, dynamic discounting, and factoring will give buyers more payments flexibility and allow sellers to get paid faster.
Real-time data and payments
As customers begin to expect their payments to mimic their digital usage — everything now and on-demand — real-time data and payments are increasingly being adopted around the globe as more countries and regions invest in the real-time infrastructure.

While all the above factors will contribute to an acceleration of the real-time payments, if banks do not fill the void, then other white labeled solutions by FinTechs will capture and cater to use cases such as consumer P2P payments, on-demand wages for the gig economy, revitalized bill payment experiences and push payments. Payment service providers will look to offer faster payments to corporates as they will look for predictability, transparency, and cost efficiency — all supported by RTPs.