The final straight of 2019 is upon us and most would agree it has been a transformative year for the payments industry – with PSD2 and SCA yet to come.
The industry has lay witness to game-changing acquisitions such as FIS’ takeover of Worldpay and Global Payments merge with TSYS in multi-billion dollar deals, further adoption of crypto-based assets and the continuation of the push towards a cashless society.
Furthermore, many ‘mainstream tech giants’ are beginning to seriously impose themselves into the payments ecosystem, such as Apple (in collaboration with Goldman Sachs) launching its own branded credit card and Facebook’s controversial Libra development.
As the payment landscape undergoes a period of widespread innovation and change, it begs the question – will the ecosystem one day be dominated by big tech companies?
By 2030, 80% of heritage financial services firms will go out of business, become commoditised or exist only formally but not competing effectively, according to Gartner.
PaymentExpert reached out to industry figures, who shared their expertise on what they believe the future holds for the payment landscape and whether traditional banks may one day become obsolete…
Tony DeSanctis, senior director at banking consultancy Cornerstone Advisors, believes the potential of big tech and fintech to disrupt banking is “significant but not insurmountable.”
He explained: “With the migration of the banking relationship to the mobile platform, tech companies are in a unique position to disrupt and potentially steal market share from traditional financial institutions.
“There are two primary ways we see these companies disrupting today. First is very much about the digital experience.
“The UI/UX and targeted data analytics and overall customer experience is much more mobile-centric for a specific segment of the population (younger demographics specifically) and are critical table stakes.
“The second, much more traditional way they are disrupting, is by offering outsized interest rates.”
DeSanctis, who co-leads Cornerstone’s payments practice and is the primary educator at Cornerstone’s Payments School, continued labelling both as “disruptive” to the traditional banking institutions but UX in particular is “much more concerning than the second.”
“Companies have competed on price for years, and the race to the bottom rarely leads to true disruption. The customer experience has greater potential to be disruptive if companies can create a long-term, sustainable advantage in customer experience,” continued DeSanctis.
“That being said, large tech has a bigger opportunity to disrupt – especially if they can integrate accounts into the overall ecosystems. Apple and Amazon are the best examples of this.”
He believes this disruption from fintech and big tech companies are pushing financial institutions to deliver better value, services and customer experience.
“Whether through data analytics, improved digital experience or more aggressive pricing, financial institutions are aware of the threats, and many are moving quickly to make sure they stay competitive,” concluded DeSanctis.
Per Bylund is a fellow of the Mises Institute, assistant professor of entrepreneurship & records-johnston professor of free enterprise in the school of entrepreneurship at Oklahoma State University and an associate fellow of the Ratio Institute, Stockholm.
He echoes much of DeSanctis’ thoughts in that modern tech giants can make “partial moves” into finance by leveraging what they already know and can do well – using information technology to reduce transaction costs and increase access and usability.
“We have already seen this to a limited extent with the tech giants partnering with payment companies like Visa and MasterCard to offer Apple Pay, Google Pay, Microsoft Pay,” elaborated Bylund.
“In a similar but more far-reaching move, Walmart has moved into this space by offering banking-like services in their stores. Banking and finance is a highly regulated market with almost no opportunity for disruption from the inside.”
Bylund emphasised the opportunity tech companies have now to leverage its skills and knowledge with information technology to force financial institutions into upping their game.
“The low-hanging fruit would be to use their skills to reduce transaction costs and increase access and convenience as well as, perhaps, online security through encryption,” noted Bylund.
“In the next step they should leverage their tech competency by competing for specific market segments currently served by banks.
“The stifling regulations and government oversight suggests such solutions would happen by creation of alternative institutions rather than compete head to head with existing banks, much like Uber and Lyft indirectly competed with taxi companies by creating a new market space – a type of service that was unlike the traditional taxi and therefore sidestepped existing regulations.”