Yes, the payments industry is in the throes of a perfect storm as we speak. The conventional payment industry is now imminently at great risk due to its exorbitant, rising costs and disruptions, which require a radical overhaul. Advances in technology have made it feasible for the emergence of a new and expanding field of alternative payment options and services. This trend has begun to gain momentum both in localized and global transactions. Some of the most notable of these alternative payment options include mobile payment services like Google Wallet. Not to mention cryptocurrencies such as BitCoin.
All these services are geared to deliver optimal flexibility and convenience in making payments. They are also designed to guarantee enhanced security and integrity when it comes to managing payments and confidential financial data. They also do away with the fees associated with global wire transfers as well as credit cards. Well, here is some evidence that financial institutions and payments firms ought to evaluate as they formulate their business models and future roadmaps.
To begin with, in mature economies checks and ATM volumes are drastically decreasing as their costs escalate, which will lead to much exorbitant unit costs. Secondly, 3rd rails that support newer, quicker or instantaneous payment options will heighten overall payment costs even further. They will also fast track a sharp decline in preexisting payments channels.
Wire transfers and SWIFT services will become threatened by the low costs of B2B alternatives. Additionally, corporations will be forced to reflect on the value and costs of conventional payment channels. Indeed, why should you pay $35 for a bank transfer when you can pay $1 for a B2B transaction? At the same time, ACH and SEPA expansion will be insignificant due to newer alternatives. On the other hand, conventional credit card volumes may decline because newer C2B options address the exorbitant costs associated with conventional interchange.
Also, newer blockchain technologies and the productivity enhancements they offer will have a great influence on cross-border payments transactions. While the proactive and continuing regulatory changes will also fast track this growing shift to newer and much better payment options. The PSD2 efforts that have been undertaken in Europe are bound to present consumers with newer payment options, which will threaten preexisting revenue streams. In the US, debit interchange rates are now regulated. Also, the better part of Europe and Australia have begun to witness regulatory measures to reduce interchange revenue.
On a parting shot, the shocking disruptions that have been attributed to FinTechs is also another vital factor in the decline of traditional payment options. FinTechs are now the wild card that is bound to disrupt retail transactions at the front end. Some excellent instances are PayPal, Square, AliPay to mention but a few that have already successfully lured consumers. Maybe sometime in the foreseeable future, financial institutions like banks will be using FinTechs in order to attract new accounts and financial transactions.
Now the big question which comes to mind is how these financial institutions will respond to these emerging trends in the payment industry to enable them to overhaul their business models? Or will they just ignore them and lose their influence in the financial sphere?
