As all eyes focus on financial services as the next epicenter of disruption by the tech community, many are expecting that new global behemoths will dominate the industry. The growth of payments players depends on gaining the support of the existing payments value chain and building momentum through rapid global development. Too much focus on the US is hurting the potentially biggest disruptors, such as Apple and Google. Without being able to rapidly expand globally while catering to local market considerations, these disruptive plays are losing traction, and they are ultimately likely to flounder.
Truly disruptive players need to merge the global with the local
Companies such as Uber, Facebook, LinkedIn, YouTube, Twitter, Amazon, AirBnB, Spotify, TripAdvisor, and Google have quickly emerged as globally dominant players in their specific niches (or across many segments simultaneously), making billions of dollars in the process. Through their global availability and easy access to connected consumers, these players have come to dominate their respective spaces, in many instances becoming the go-to providers for their particular services. Given the sector’s huge levels of investment and hype, many are now looking at financial services and payments in particular as ripe for disruption and as the industry where the next globally dominant online super brand is likely to emerge.
New payment players are emerging, and many will see considerable growth. But despite best intentions and a loud plea for disruption, it looks unlikely that in the near term, payments will go the same way as areas such as search and video streaming, with one player becoming a globally dominant brand.
Emerging global players have so far been characterized by their ability to work with existing stakeholders in the value chain and, perhaps even more critically, their pursuit of rapid global expansion. The most notable of these is of course PayPal, which launched in many markets before gaining regulatory approval and uses a model now followed by Uber. Even in the B2B payments space, the latest breed of online payment gateways, which includes Stripe and Braintree, has focused on rapidly gaining global presence, which has proven critical to success.
However, the most high-profile potential disruptors of payments are not focusing on working with the existing ecosystem and gaining global ubiquity. Instead, the likes of Google, Apple, and now Samsung are getting bogged down in the intricacies of the US market and limiting their global expansion. The world is watching these developments: other markets are noticing the long, tortuous experience of going to market in the US, and merchants, consumers, and payment providers are losing interest. A strategy of cracking the US market and then going global is not working.
Unlike other sectors that are experiencing technology disruption, the payments sector poses a particularly complex catch-22: it is a very global market that is extremely driven by regional considerations. Until a disruptor can bridge this local/global dichotomy and gain global momentum, in the eyes of consumers, merchants, and banks, payments will remain a fragmented space.
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"Apple Pay takes a conservative approach to the mobile payments revolution," IT0003-000624 (September 2014)
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Gilles Ubaghs, Senior Analyst, Financial Services Technology