Deloitte has released key considerations for payments companies as they determine what role they want to play in the future of the industry. Deloitte is the brand under which tens of thousands of dedicated professionals in independent firms throughout the world collaborate to provide audit & assurance, consulting, risk and financial advisory, risk management, tax, and related services to select clients.
A trends-driven industry
The payments industry, already one of the most dynamic sectors in financial services, continues to evolve, propelled by technological and operational innovations from established players and FinTech firms. A number of individual, near-term trends are disrupting and reshaping the payments landscape.
They include differentiated services or experiences; technology- and data-driven options for how to pay and receive payment; infrastructure modernization; incumbent-FinTech collaborations; targeted M&A; and workforce evolution.
What’s often more difficult—and more important—is to discern what implications these trends, collectively, may have for payments companies over the next year or two. One outcome we expect to see is trends-driven product commoditization and convergence, which should encourage payments companies and FinTechs to consider where they are in the industry today and how they can get where they want to be.
Specifically, organizations need to determine how to effectively organize around, operate within, and benefit from six industry trends, and which business model(s) to adopt, to help reach their desired future state
Where are you today? In our view, four business model archetypes capture how the majority of payments providers play today. Depending on their capabilities and market positioning, they may be one or more of the following:
Basically, do it all. Consolidate and survive based on massive scale. Grow revenues by emphasizing transaction volume, cutting costs, and performing functions on behalf of smaller, less-wellfunded players. They provide lower-margin features to retain customers as well as emphasizing ubiquity and a common, consistent experience. Many universal banks and large credit card providers will serve as scale players.
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White label supplier
An institution that provides scaled capabilities in a critical function like servicing, underwriting, or processing. These capabilities are delivered as a service or an overall platform with predefined integration points and an “out of the box” servicing model. Another entity can design its own front end, branding, or experience that uses this service.
An institution that would offer its customers the ability to send/receive money and pay bills but has effectively outsourced the processing, authorization, and settlement. They create the front end, managing the overall buying experience, presentation of offers, and the ability to onboard or enroll a customer and then use APIs or other interfaces to send information to another entity (i.e., a white label supplier) to handle operations. These entities focus on rapid application development and frequent rollouts of updates to the customer experience
Arbiters provide “trusted” services that support the entire ecosystem, enabling more efficient and less risky processing. Arbiters may develop and enforce standards in areas such as messaging, integration, allocation of risk, identity, and authentication. Their presence in a payments transaction enables other institutions (traditional and FinTechs) to participate more easily within the payments ecosystem and allows consumers to have greater control over how their identity and data is shared. An arbiter usually provides these services at scale with defined integration points.