Traditional revenue models are coming under pressure as the payments market evolves, and value-added benefits will prove increasingly critical to both its revenue streams and its long-term evolution. Although economies of scale are still possible, those who can tie a broader range of value-added benefits to payments, such as cost-reduction and cross-selling opportunities, will gain the most in the long run.
Payments today are about more than the transaction itself
As banks know, margins in the payments space have always been tight, and they continue to shrink due to a range of regulatory and competitive pressures. For the latest wave of market entrants, gaining the economies of scale seen in the past is simply not possible. Furthermore, in many markets, consumers expect payments to be free, and this expectation is almost impossible to reverse once it is entrenched. As a result, the struggles faced by new payment technologies have been primarily business model issues, not technology issues.
Across all areas of payments innovation ranging from immediate payments to P2P and mobile commerce services, the most successful deployments have been those where value-added benefits can be built around the transaction. Even where there is the potential for revenue to be gained directly from payments innovation, providers are also focusing on expanding the capabilities and benefits of payments across the enterprise to maximize the advantages that the new technologies can bring.
Growing investment in payments across the value chain will of course require some form of ROI, and costs will always be critical. However, the form that this ROI takes is more open to debate than it has ever been before, and it relies increasingly on harnessing these value-added benefits. Payments are now tied directly to areas such analytics, omnichannel strategies, and even enterprise resource planning (ERP). Payment providers that are able to tie a range of value-added services to payments will ultimately prove the most successful.
Mobile Proximity Payments, IT0003-000632 (January 2015)
Ovum Decision Matrix: Selecting a White Label Mobile Wallet Platform, IT0003-000633 (December 2014)
“Apple Pay takes a conservative approach to the mobile payments revolution,” IT0003-000624 (September 2014)
Gilles Ubaghs, Senior Analyst, Financial Services Technology