The evolving financial ecosystem
In recent years we’ve seen more and more businesses look to B2B fintechs to support them on their digital transformation journey.
Looking at the payments processing space, in particular, legacy systems and infrastructure have historically hindered innovation. However, the emergence of tech-savvy disruptors like Stripe, Square, and the latest Buy Now Pay Later (BNPL) platforms, coupled with the changing dynamics of e-commerce and mobile payments, has highlighted a real need for modernisation.
Traditional financial institutions, burdened by tech debt and complex legacy infrastructure, are struggling to keep pace, while agile next-gen players are leveraging their clean slate to create more innovative and efficient solutions.
The incumbents within the industry therefore need to rethink and overhaul their infrastructure to compete effectively in the evolving financial ecosystem.
What are the table stakes?
To stay relevant, companies need to offer exceptional user experience services, with a strong emphasis on mobile and web capabilities to meet the demands of today's digitally native businesses and consumers.
They should be prioritising enabling frictionless money movement, including person-to-person transactions and emerging payment methods like BNPL.
Cross-border capabilities are also critical. With the internet flattening the world, companies must be able to operate seamlessly across international markets, supporting diverse payment methods – which differ hugely from market to market.
It’s also vital to consider the importance of faster payment rails, tokens, and virtual cards, as well as the increasing control end-users now have over their payment devices through digital means.
The impact of instant and real-time payments, such as Fast ACH and Instant SCT, is expected to be significant in both Europe and the US. While there may be some nuanced differences in their approaches and regulatory frameworks, both regions are adapting to the changing financial landscape and client demands.
And the adoption of instant and real-time payments offers several advantages. Firstly, it provides users with faster and more convenient payment options, eliminating the need for traditional batch processing and settlement delays. This speed and efficiency enhances the overall client experience and can further drive up satisfaction levels. It also boosts financial inclusivity, and creates new opportunities for small businesses.
Looking to the future
I would now say convergence is inevitable across the Payments Infrastructure-as-a-Service (PaaS) space - just as we have seen over the last 30 years amongst other payments and financial services providers around the world.
There are a few reasons for this consolidation. Initially, PaaS offerings were the commercialised offshoot of banks as well as legacy issuing and acquiring payments providers. Historically, these firms served one part of the buying journey - on either the issuer or acquirer side of the purchase - and then extended their core offering into adjacent services.
As the payment space continues to evolve, most buyers will now be looking to address the overarching issue of cash flow – whether it's the consumer or corporate payments space. With this shift from an acquirer- or issuer-centric world, successful providers will look to align their services to the entire buying spectrum. As this occurs, consolidation is the natural result.
While this convergence has not taken place yet, it will be a necessity to deliver the essentials - seamless and secure payment transactions, supporting various payment methods, and ensuring efficient settlement - on a modern, scalable, and comprehensive platform that can encompass multiple aspects of banking and payments.
