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Payment Banks - Landscape And Disruptions Worldwide

The digital payment landscape is changing both online and offline at a brisk pace. Brick-and-mortar consumers are pushing retailers for an easier and more seamless way to pay using NFC and magnetic communication and online consumers are looking at alternative payment options including emerging payment services and cryptocurrencies.

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Definition / Scope

The Worldwide Payment Bank Market has been witnessing steady growth for the past decade due to its rise in applications in the banking and finance sector. The product is being actively used worldwide resulting in the quantitative increase in demand which is in-turn pushed the revenue generation every year. With the events of use growing, the global Payment Bank Solutions market is projected to be on the up in near future. 2017 has witnessed steady spurt of growth over 2016, while 2018 followed the same trajectory as well.

Payment services are typically of three types: those involving payments on the web, payments and receipts using the cell phone as a payment device and person-to-person (P2P) payments. Payment instruments can be debit or credit cards, stored value cards or other variant.

Over time as mobile payments become more ubiquitous, it is possible that they will include other services, including direct benefit transfers from the government, remittances, bill payments, etc.

Market Overview

The introduction of mobile banking through payment banks threatens to be disruptive to the payments industry. Card companies - Visa, MasterCard, American Express - are all trying to work out ways to offer mobile payment solutions using their own payment backbones. In addition, there are cloud-based solutions such as PayPal in the US or its clones in India. As more purchases are made electronically, data on consumer behavior becomes available to consumer companies, allowing more targeted advertising and promotion. Product selling is likely to be customized like never before.

The figure below shows the digital payment solution market share currently by the top vendors in the banking and financial segment. Various banks and also non banking institutions such as paytm, google money, amazon pay also are already in the race. The market seems to be growing and quite disruptive currently with lot of competition already present globally.

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Key Metrics

Metrics Value Explanation
Base Year 2018 Researched through internet


Market Risks

  • The issue of consumer deposit safety often arises in discussion of risks in digital money or other payment instruments that allow users to store value.
  • A second issue frequently discussed in the context of both digital money and agent banking is agent liquidity. Agents may not have sufficient cash or “e-float”on hand to meet consumer needs for depositing or withdrawing cash.
  • A third issue that gets significant attention in digital payments discussions is the presence of anti-money laundering (AML) rules and regulations.

Top Market Opportunities

  • Tapping into the untapped market – Though many users rely on payment banks, still there is large population which still forms the untapped market. This is typically in remote locations or the not so tech savvy group of users.
  • A Focus on providing merchants with Multichannel Payment Services.
  • Payment through wallets using NFC, tokenization, biometrics – Because Mobile devices will be a mainstream option for person-to-person or person-to-business payments.
  • Developing solutions that are not payment solutions, but are touch payments – solutions for merchant, gift, loyalty, data analytics etc.
  • Analytics solutions – Payments Transaction Data Analytics will be a major source of payments-related revenue.
  • Cryptocurrencies. E.g. – Bitcoin, Litecoin etc.(Total Market Cap : $3,880,950,327)

Market Drivers

  • Banks becoming platform players to aid collaboration, retain payments role.
  • Infrastructure rationalization is likely as payments intermediaries come together or evolve.
  • Payment vendors and banks are expected to consolidate their operations to form larger groups.
  • Alternate payment channels such as contactless and wearables gain acceptance.
  • Payment firms continue to invest in advanced authentication technologies to fight fraud and data breaches.

Market Restraints

  • Fraud and chargebacks - Digital transactions are “card-not-present” transactions. As e-commerce expands, opportunities for fraudulent misuse of payment networks and data theft grow right alongside.
  • Cross-border transactions - Cross-border payments can be slow, inefficient, and expensive, but they play an important role in global trade. Typically, national banking infrastructures can’t handle cross-border payments, resulting in independent and non-uniform development in technologies and software platforms that complicate or stall cross-border transactions.
  • Multi-currency and payment methods - Global ecommerce means accepting a variety of payment methods and currencies. Electronic payments such as e-wallets, mobile payments, and credit/debit cards help online merchants compete in international markets by allowing their customers to pay in their native currencies.
  • Technical integration - Added to the expense is the lack of interface between processing systems—it may be difficult or impossible for a PSP to link with other systems, resulting in processing and payment delays, lost transactions, and expensive fees.

Industry Challenges

Local Payment methods remain popular -

Despite the apparent hegemony of these global giants, some countries inside Europe and out, like the Netherlands and China, have very strong attachment to local companies and payment methods.

A lot of countries are still very attached to local means of payment. This is why, despite the rise of cross-border digital payments goliaths, local solutions are faring well.

Each country has online payment solutions grown locally, seizing an important share of national markets and resisted the intensifying international competition very well.

Recent research on software purchases shows local payments held their share of the market from 2017 to 2018:

  • France: Carte Bancaire: 12%
  • Netherlands: iDEAL: 43% / Direct Debit: 7%
  • China: AliPay: 42% / WeChat Pay: 3.5% / UnionPay: 2.5%
  • Japan: Konbini: 5.5%
  • Brazil: Local credit card with instalments: 28% / Boleto Bancario: 12%
  • Russia: Qiwi wallet: 3% / WebMoney: 2%

Technology Trends

NFC technology is connecting businesses and consumers - NFC tech allows for a secure two-way exchange between electronic devices. The technology enables "consumers to perform contactless transactions, access digital content and connect electronic devices with a single tap"

Wearable devices increasingly transforming contactless payment processes - The key drivers of wearables as a payment device include the increased processing power in smart devices, smartphones and tablets. Also fueling the wearables market has been the general availability of high-speed internet, the increased focus on IoT-enabled payments (IoP) and increased demand for a seamless banking experience, driving banks to develop digitally-driven solutions with enhanced security features such as biometrics and cryptography.

mPOS is transforming business performance - The mPOS market is now projected to be worth more than $55bn by 2024. The use of mobile devices in stores means that staff can roam the aisles and engage proactively with shoppers. They can better respond to queries, look up product details on their devices, exploit the immediacy of the payment function if the customers decide to buy and potentially provide instant offers, discounts or loyalty-based promotions.

Pricing Trends

The global digital payment via mobile shows a continuous growth as per below trend. This shows the end users are keen to use simple mechanism for payments and the market will be competitive and growing ahead as well.

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Market Size and Forecast

The global Digital Payment Market size is predicted to reach USD 87 billion by 2023, growing at a CAGR of over 15% during the forecast period. The growing usage of smartphones, various initiatives taken to promote digital payment and the growing e-commerce industry are the major drivers of the global digital payment market. In terms of type, the market for digital payment is categorized into solutions and services.

The solutions category is further categorized in terms of payment gateway solutions, payment processing solutions, payment wallet solutions, payment security & fraud management solutions and POS solutions. Owing to the growth of the e-commerce industry, the payment gateway solutions category is projected to witness the fastest growth during the forecast period.

Taking into an account of the geographical landscape, the North American digital payment market is projected to hold the largest share in the global market throughout the forecast period. The market for digital payment in North America is growing due to the presence of a large number of digital payment solution providers in the region and the expansion of mobile commerce industry in the region.

The Asia-Pacific market for digital payment is projected to witness the fastest growth during the forecast period. The complications associated with legacy payment services in the Asia-Pacific region have propelled the demand for consulting services and thereby bolstering the digital payment industry growth in the region.

The key players in the market are ACI Worldwide Inc., PayU, PayPal Holdings Inc., Global Payments Inc., Fiserv Inc., Paytm and others.

Market Outlook

Big Corp: There’s Apple Pay, Google bank, PayPal and Amazon Pay which are all on board with digital wallet technology. If you are loyal to any of these companies in any way it is in your best interest to stay on top of their digital wallet advancements. Square: For small businesses, Square is a smartphone appendage that plugs in to the headphone jack allowing merchants that do not have a digital setup to accept all types of card payment on their device.

Bitcoin and friends: Bitcoin is the grandfather of cryptocurrency, a fluctuating Wild West of digital wallet money. Using this technology allows people to surpass government regulated banks. Perfect for libertarians and off-the-grid wannabes wary of the continued broad clench of Big Brother’s hand. NFC: This is Near Field Communication which, with a free downloaded app, allows the user to ‘tap-n-go’ their payment directly from their phone. The Coin Card: This is a one card fits all, capable of storing credit, debit and even loyalty card info all in one place.

Competitive Landscape

The below trend shows the market fragmentation currently for the digital payment options available. Paypal still remains the leader while google trying its best to overcome regulators in few regions to match the competition.

In future likely there would be more competitors across the market with new trends of NFC enabled payment options, IoT and advanced technology to shape in and result best for the consumers.

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Competitive Factors

Emerging markets are spearheading some of the key developments in payments. Here we set out some of the technological advances and solutions that serve the competitive factors if they turn out to be scalable, resource efficient and sustainable:

  • Social payments – Payments through social media
  • NFC technology
  • Bluetooth Low Energy
  • Blockchain technology

Key Market Players

Based on the geography, North America governs the overall payment gateways market with more than 1/3rd share of the total revenue generated worldwide. Asia Pacific is expected to register the highest growth rate during the forecast period. The market here is mainly backed by Japan, China, India and Southeast Asia.

Leading Digital Payment Market Players: PayPal, Google Pay, GoCardless, Transferwise, Stripe, Venmo, Adyen, Tipalti, Razorpay and Square.

Global Digital Payment Market was estimated at USD 479.48 billion in 2016 and is projected to reach USD 1215.63 billion by 2025, growing at a CAGR of 10.89% from 2017 to 2025.

Strategic Conclusion

The introduction of mobile banking through payment banks threatens to be disruptive to the payments industry. Card companies - Visa, MasterCard, American Express - are all trying to work out ways to offer mobile payment solutions using their own payment backbones. In addition, there are cloud-based solutions such as PayPal in the US or its clones in India. As more purchases are made electronically, data on consumer behaviour becomes available to consumer companies, allowing more targeted advertising and promotion. Product selling is likely to be customised like never before.

These scenarios need a system that users can trust, requiring country-wide and then perhaps global standards for security and inter-operability. Current rules are different for credit and debit cards. Similarly, banks and non-banks have different rules. The regulatory environment for the payment industry is currently complex. Besides security of transactions, fraud and money laundering regulations will now have to cover software application developers and mobile operators as well.

Further Reading

Appendix

  • P2P: Peer-to-Peer
  • CAGR: Compound Annual Growth Rate


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