Over the past ten years or so, Fintechs (or financial technology firms) have begun springing up all over the world, bringing digital disruption with them. Payments is one industry in which Fintechs have facilitated drastic changes to the landscape. 

“In 2016, the global payments industry accounted for 34 percent of overall banking revenues—up from 27 percent just five years earlier. For the next five years, annual growth will average 7 percent, making payments a $2-trillion-dollar-industry by 2020.” 

This massive industry has many different faces, ranging from real-time online transactions to biometric authentication methods to peer-to-peer lending. In this article, we will speak to four experts with different backgrounds in payments about their experiences and opinions about varying aspects of the industry. We will examine past and present trends within the payments industry that offer the possibility for interesting developments in the future. Keep reading to learn more about insights into the payments industry!

Tom van Wees, Managing Partner at Ginger

Ginger, founded in 2014 by a team of industry-experts in Amsterdam, is a Payments as a Service (PaaS) platform that helps banks, financial institutions, and Fintechs to build improve, reroute, or replace their payment technology systems with a wide range of payment solutions.

While relatively new to the payments industry, Tom has a strong background in fast-growing startups and investment banking. He had some interesting insights into the pressure banks are facing due to growing competition in the payments industry: 

In your opinion, what are the most interesting trends happening in the payments industry right now?

With the continuing boom in e-commerce transactions, we see that banks are afraid to miss out on this global increase in online transaction volume. They are currently in the process of discovering whether they should build the e-commerce business in-house or refer their merchants to third parties. Our business model [at Ginger] is focused on the banks that want to do the payments business themselves. Currently, a lot of PSPs are getting banking licenses throughout Europe, so what we see is that banks are losing their SME or corporate clients to them. Banks are now in the process of winning those clients back by offering new services.

What is also interesting on the PSP side, is that it is a transaction business. They get a percentage of every transaction, a fixed fee per payment, as well as a fee on every merchant that joins their platform. However, we see that the revenue margins on these transactions are getting thinner and thinner. In 2014, it was possible to ask €1 for every iDeal transaction, but now the prices are around €0.05 per transaction. This gives a bit of an insight on how competition is changing the landscape. 

How well are banks able to respond to new emerging competitors in the payments industry?

What I think is really interesting is that it is not just Fintechs who are competing with banks, but also the BigTechs. I think banks should be even more afraid of BigTech moving into payments than just Fintech competition. As you've probably noticed, Google, Facebook, Uber and Amazon all are getting payment, e-money or even banking licenses, so they are on the verge of competing with banks. 

Banks should be even more afraid of BigTech moving into payments than just Fintech competition

The challenge for banks is that they don't have updated legacy systems, they don't have the knowledge internally or the expertise on the technical side of payments to compete with these big players. So I think that is where we come in as Ginger; we are not competing with the banks but rather working with them to help them be more competitive against these new players. 

Challenger banks like N26 and Revolut are growing very rapidly, but if the traditional banks can update their legacy systems or partner with Fintechs I think they have a chance to survive. I also believe it will take more time before banks become obsolete because they still have the trust and loyalty from the consumers. So, the incumbents still have the advantage, but if they don't act on it soon they will become obsolete in the coming years. 

Are there any insights, trends or developments within this industry that have surprised you?

What we find very interesting here [at Ginger] is that more and more companies are specializing in one specific thing and having a hyper-focus on one part of the value chain. A few of them are making waves, but most of them are still having a hard time attracting large customers. 

Why? Because banks or other large institutions don't want to deal with just one small part of a complete solution. They then have to set up multiple partnerships including integrating multiple platforms. At Ginger, we connect with the best specialized partners on one platform, on the back end, so the customers just have to deal with one party. We believe in bringing together the best Fintech partners in one ecosystem, because no single party can provide market-leading elements for every module of a complete end-to-end payment infrastructure.

Tony Bach Christensen, Director of Strategic Partnerships and Corporate Strategy at Nets Group

Established in 1967, Nets is today one of Europe's largest payment service providers serving hundreds of financial institutions and hundreds of thousands of merchants. 

Tony has been with Nets Group for a little over three years. His background is in international commerce and business and has many years of experience working within technology companies. Below, you can find more information about his insights into what has changed over the last 10-15 years. 

In your opinion, what are the most interesting trends happening in the payments industry right now?

When you look at it on a macro level, there is an interesting movement where large players are consolidating. The idea is to have a platform working across multiple industry verticals across multiple countries. It is quite clear to see that a lot of the incumbents are merging in order to get footholds in new markets and with new customer groups, taking ownership in a larger share of the value chain. 

The underlying reasoning behind this is that payments is a volumes game. You need volume to stay cost-competitive, and you also need a lot of different services to stay relevant to your customers. Consumers are increasingly engaging with payments in more and more different ways, and are looking for increased convenience even in the business space. This means that you have to have a wider portfolio, meaning you have to be present in more areas of your customers’ business. Businesses are starting to think and act like consumers- convenience, being smart and trendy are increasingly playing a role. 

When you look at the fact that so many of the big players are increasingly reaching out to startups, it is a sign that incumbents realize they have to do something they haven't done before: consumerize themselves. They have to be convenient in a different way than previously. Technologies are enabling companies to bring convenience to businesses and consumers.

Looking into the future, how do you see banks being able to remain competitive?

Banks, both big and small, increasingly see the value of partnerships, especially with the Fintechs to drive differentiation and exploit new technologies faster. We already see banks making investments in many Fintechs. This trend will gain further momentum and (especially the big) banks will also acquire key Fintechs. I do think they will be able to, at least for the next 10-20 years, remain competitive. 

Are there any insights, trends or developments within this industry that have surprised you?

The most surprising development has been the steady dis-intermediation of the well-established business models and products. For example, as global schemes invest in issuer centric services, their relations with processors has come under stress. We also see many bank-led P2P payment ecosystems which challenge both the global card schemes and local processors who served these banks for decades. The "loosening up" of these well-oiled and well-established business models will create space for new players, innovations and also disruptions.

At the same time, the resilience of the existing banking and payments platforms is also noteworthy. The resilience of these old structures has really surprised me. No one has really been able to create that disruption that we are talking about: we haven't really seen the Uber of the banking space yet.

The way that the shift has gone in the payments industry, you see the big players taking a larger interest in the wider ecosystem of their customers. Banks are building services for the benefit of their customers. 

You see the big players taking a larger interest in the wider ecosystem of their customers. Banks are building services for the benefit of their customers. 

For example: how do you help an e-commerce merchant sell more to his clients, how do you help him improve his website, how do you help him with his collections of outstanding payments, how do you help him connect to his suppliers in a more efficient manner, how do you help consumers across their life cycles with their different investment and lending needs? You not only present them to the services that you offer but also connect them to others. 

This extension of the value chain- that has really changed. These are things that were far away from what a bank or a payment service provider thought about just 3 years ago. 

Benny Saban, CEO at Sonarax

Based in Haifa, Israel, Sonarax is a startup that enables two devices to transfer data via ultrasonic sound waves. The technology is used for mobile nearby communication applications by banks and payments providers. This allows for transactions, positioning, triggering, identification and authentication to occur even when other networks are not available. 

Their CEO, Benny Saban, has over 20 years of experience in the payments industry. Currently he is the CEO of Sonarax, but has an impressive background working with a variety of payment startups and Fintech corporations. Read more for a macro-level look at insights into the industry.

In your opinion, what are the most interesting trends happening in the payments industry right now?

There are a lot of things that are happening right now in terms of allowing people to use their mobile devices or other types of devices, as a payment instrument and this goes beyond simply purchasing on an e-commerce site. The current trend demonstrates a rising use of mobile use for money transfers, peer-to-peer payments, peer-to-group payments, person to SMBs and micro-merchants where the payee wishes to remain anonymous and or when the merchant does not have a credit card processing device, and using a smartphone for unattended POS such as vending machines. Customers and providers wish to be able to connect or what we call ‘pair’ their mobile with any other device on an occasional basis for ad-hoc payments by using a unique, one-time sonic token.

I clearly see the persistence of a tradeoff balancing act between the desire for a fantastic frictionless user experience and industry security requirements. Strong authentication can reduce repudiation and friendly fraud, but at the same time it can also kill all impulsive purchases. So there is a trade-off between a smooth, easy to use experience, and keeping security and assurance as a part of the transaction.  I believe that sonic data transfer solves this without compromise.

Many of the authentication schemes are moving towards easy but secure systems, all of which require strong authentication scheme. For example, biometrics as a first factor is a popular solution. However, this still leaves the need for the second authentication to verify the device being used. One technology solves this, using an ultrasonic authentication. 

We were able to do this with The Nets Group in Denmark for example. What we did with Nets, was to equip their old vending machines with the ability to have mobile payments. Customers were able to approach the machine and pay at the machine without touching it, using a mobile app.  

What is the best way for financial institutions to enter the payment scheme?

For banks and financial institutions, their basic systems have been around forever and are very complex, based on old technologies that in most cases have been combined with new technologies, so their overall systems are very sensitive. It can be extremely difficult to integrate new technologies. Hence, any technology that eases implementation without forcing the financial institutions to change their business policies nor their operation methods, will have an advantage, otherwise, it will just take financial institutions forever to change. 

Are there any insights, trends or developments within this industry that have surprised you?

Looking back, one of the biggest changes that really took everybody by surprise, is the fact that China was able to leap over the credit card world and directly adopt mobile wallets like AliPay and such. And this was absolutely astounding to the credit card industry, as Asia just skipped right over them. This was a great unexpected phenomenon. Alipay was able to close the loop and offer customers the services of a bank, without first having to go through the traditional processes.

Craig Ramsey, Head of Real-Time Payments at ACI Worldwide

ACI Worldwide is a real-time Software as a Service (SaaS) payments solution provider, to large financial institutions and merchants, powering payments for more than 5,100 organizations around the world. ACI delivers real-time, any-to-any payment capabilities through an extensive suite of software, enabling a global omni-channel payments experience.  

With over 30 years of experience in the payments industry, Craig is a well-known and recognized expert in the industry. Based in London, he has been with ACI Worldwide for almost 20 years. Read more to find out what he considers to be the most interesting trends and developments in the industry.  

In your opinion, what are the most interesting trends happening in the payments industry right now? 

Real-time payments involve not just instant payments for consumers, but also high-value payment, such as cross border payments, also known as transaction banking. The move towards instant payments is a big trend around the world and represents one of the biggest shifts in payments in the last 30 years.

If you think about how companies and consumers have sent account-to-account transfers, this really hasn't changed in about 30 years. You've got high-value schemes which tend to be fast but expensive and are typically only open to financial institutions with banking licenses. Then you've got ACH (Automated Clearing House) payments, which are typically slow but cheap. Finally, for sending money internationally the way you typically did that was with your bank over the SWIFT (Society for Worldwide Interbank Financial Telecommunication) network.  

With the introduction of real-time payments around the world, the payments landscape has started to change drastically. When you understand that real-time payments are fast, 24/7 available (whereas a lot of other payment schemes are only open during traditional business hours), and cheap - you realize that they combine the best of all the different payment schemes.  

How do you see that changing the role of these big financial institutions?  

On the one side, you've got real-time payments, but you also see a lot more competition for financial services in the market now. There are more ways now to send payments internationally, not relying on just the SWIFT network, so banks need to balance the different products and services available in the market with their own offering.

Sometimes the banks are finding themselves in a position of weakness in comparison to some of the new fintech-based propositions that are out there. Other propositions for moving money around the world may not solve every use case, but they certainly have successes that they can sell and are very competitive within the traditional bank propositions that may have been available previously. 

Sometimes the banks are finding themselves in a position of weakness in comparison to some of the new fintech-based propositions that are out there

So certainly, the banks are having to juggle all their investments to understand how best to prepare themselves for the future. This is sometimes called digitalization. It is about the modernization of banking infrastructures. If we think about what the future looks like for the payments industry, it is never going to get any slower than it is now, it's only going to speed up. The expectation of the customer will always be that it gets faster and faster until it is possible to send money anywhere in the world instantly. 

However, you have to balance that because there are local and international laws that have to be followed. Regulatory compliance needs to ensure that banks and financial institutions are doing business properly. Banks have to protect their customers against fraud, money laundering, and the criminal networks that exist. Although technically it is very easy to move money all over the world, it has to be done with the correct governance to ensure that we are not simply creating a lawless society and money movements.  

Are there any insights, trends or developments within this industry that have surprised you?

If we think about the shift to real-time that did come along really quickly, thankfully it didn't take us [at ACI Worldwide] by surprise, we were ready for it. The sudden conversation about real-time changed the payments landscape very quickly.

For example, the original implementation of SEPA (Single Payments Euro Area) implementation took 13 years. And yet it took only 13 months to get instant payments rolled out. In the time that it took to get SEPA set up, the market had moved on to talking about real-time. The industry adapted to that trend really quickly, which is a testimony to the speed of change we see today.  

Real-time is a seismic shift. To move a bank from its traditional batch processes to the modern 24/7 availability transactions of real-time, is a big change. 

Once a bank has got that real-time back office, that core backbone in real-time, then it can actually start developing its services for the next couple of decades. What we are going to see in the next couple of years are new products and services being offered by banks and Fintechs to consumers and corporates that we call digital overlay services. These are built on top of the real-time backbone and will take advantage of real-time payments infrastructure.