The Effect Of Covid-19 On The Payment Processing Industry.
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Since 2019, the global payment as a service (PaaS) market has grown exponentially and is anticipated to grow at a CAGR of over 25% from 2020 to 2029, from its last valuation of $6,2 billion in 2019.
However, the pandemic hit very hard, especially in specific industries such as Tourism/Travel, Airlines, as well as some parts of the retail industry (excluding FMCG) have already been hit hard by the current crisis, with reduced consumer spending caused by weeks of lockdown in countries around the world. (i.e. there have been 73% fewer hotel bookings in the last week of March 2020 compared to the same period of 2019 and a 65 % decline in global airline passengers during the first nine months of 2020.
According to Roland Berger, the expected drop in global GDP in 2020 is 4,6 trillion EUR.
As Covid19 continues to change consumers’ shopping behavior, many businesses that fail to adapt to the “new normal” will soon be on the brink of bankruptcy.
eCommerce has become a must, no matter the size and type of business.
And this is where proactive payment players came into play to seize the opportunity.
Traditional payment methods are already being replaced by new inter-connected SaaS Financial Technology companies that are enabling merchants to sell their products and services online, servicing 1-click-flow transactions via e-wallets, alternative payment methods, integrated marketplaces, and other FinTech developments.
The fact is, consumer behavior is changing and adapting to health regulations, restrictions, and lockdowns all around the world.
Items that were traditionally bought offline are now frequently and seamlessly ordered online.
In-store payments have also adapted, either in economies that were mostly cash-heavy in such as Germany, Italy, and Spain where merchants have been forced to quickly acquire POS terminals.
Just as many businesses acquired POS terminals for the first time, eCommerce capability became crucial, especially on the first day of lockdowns, where the only way for small businesses to survive was to accept payments for their products and services online.
Payment Service Providers thus became the “solution to the problem”, by positioning themselves as the helping hand for SMEs, providing easy, quick, and affordable payment online payment integrations, complemented with additional support and services, such as included technical support and lower processing fees targeting small businesses for merchants accounts.
Furthermore, Financial Institutions across Europe responded to the Covid19 crisis with short-term measures to support services especially for SMEs by adjusting product offerings such as increasing the limit for contactless transactions to reduce physical contact at the POS and payment processors offering mobile terminals at zero cost and micropayments at zero transaction fees.
The huge demand for aiding online payments affected also the value chain of the actors involved in the Payments Industry. With merchants showing more and more interest in offering clients more flexibility and a seamless checkout process, many payment gateways and acquiring banks fail to provide merchants direct integration with alternative payment methods such as Google Pay, Apple Pay, timely support and assistance, and diversity in processed currencies.
This is where international payment facilitators come into play, grabbing more and more market share from each domestic region, thanks to their ability to provide direct integration with the most popular eCommerce platforms such as Shopify, fully digital KYC process, and a plethora of alternative payment methods to choose from.
Some of the vital favorite players in the global payment processing market are Adyen, AliPay, BlueSnap, CCBill, Paypal, PaySafe, PayU, Stripe, and more.
As a result, local Financial institutions and banks are shifting towards implementing technologies that enhance customer experience, by entering strategic partnerships with other players that have an enhanced solutions portfolio or by acquiring Start-up FinTech companies to evolve and grow.
Remaining competitive in this constantly changing environment is crucial for banks.
The fast evolution of FinTech has forced issuing banks and card acquirers to face a new reality. Products and services that have worked for decades are no longer a fit for the “new digital world”. Merchants expect more from their payment service providers.
Besides tailor-made products and services, merchants begin to opt for financial institutions that have implemented faster and more efficient merchant onboarding flows and that respond quickly to their needs.
That is not an easy task for financial institutions, with many of them still using the same legacy infrastructure they have been using for decades. They continue to spend time and resources, adapting to both global consumer requirements, while at the same time, remaining in compliance with changing industry regulations, such as the Payment Service Directive 2 (PSD2) in Europe or the New Payments Platform in Australia.
However, competition doesn’t only come from FinTechs.
Large tech giants and retailers already are looking for ways to provide the financial services customers want.
Nowadays, when retail products can be ordered and delivered in the same day, merchants want their financial transactions to occur in real-time, faster access to settlements, transparency, and complex financial matters explained to them in clear, relevant terms that make sense within their day-to-day lives and that align with their financial goals.
Most financial institutions are on a transformational path that might last years and require costly investments in order to align with the market requirements. Given the current speed of change, financial institutions will have to compromise and make incremental changes rapidly while having an overall transformation stream overview for the long term that will foster improvements in the interim.
What does all this mean for SMEs?
Covid19 induced a level of disruption never experienced before, changing consumer behavior and forcing financial institutions to evolve and adopt customer-centered innovations and solutions.
If before, financial institutions only had a lookout on local competition, new competitors (FinTech Startups as well as Technology giants) are already taking advantage of the opportunity, acquiring market share at an alarming rate.
Enhancing the customer experience is definitely the most important objective financial institutions should focus on. With no shortage of opportunities when it comes to FinTechs, understanding the current state of existing operations is a key starting point for financial institutions to identify opportunities for change, as well as the operational challenges, inefficiencies, and possible roadblocks.
Financial Institutions that currently monitor consumer habit signals and their use of new tech developments and are defining a strategy that aligns with merchant requirements will be best positioned to capitalize on the increasing demand, forging the future of financial services in the coming years.
Dokalink.com dedicates an entire vertical in our directory for Financial Services where merchants can find relevant, up to date information on the products and services offered by providers, from local card acceptance banks, card issuers, financial asset management companies, global payment gateways, and the technology capabilities they offer, plus a huge variety of FinTech companies, from e-wallets to custom retail payment acceptance services to fit any need.
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