As part of our latest white paper, ‘Missing the Opportunity’, Banking Circle has identified five key trends impacting the global payments market.
The payments landscape, once dominated by incumbents, has become more fragmented as new entrants, driven by digitisation, shake up the status quo. More agile and focused than their established counterparts, third party payment providers are able to address pain points in niche areas, enabling them to offer solutions that provide faster, cheaper and more efficient ways of making payments.
While some new entrants are working with incumbents to fulfil the demands of global businesses, some are actively attempting to disintermediate banks – removing them from the process altogether and owning the client relationship.
In an effort to counter the burden of increased compliance and keep stakeholders happy at a time when interest rates are also low, major global banks have scaled back activities in certain markets. With PSD2 looming in Europe, as well as Basel III and tighter regulations around KYC and AML, incumbents are finding themselves at the mercy of rising costs to handle compliance and other regulatory costs.
These new regulations are challenging traditional bank-business relationships, making it difficult for banks to support international businesses in less secure jurisdictions. This results in lengthy account opening processes and limits on payment values, stifling growth into new markets.
New market opportunities
According to a report by Boston Consulting Group, emerging economies, particularly in Asia, will contribute an estimated 55% of expected transaction growth in the next decade.
Europe is currently the largest ‘inbound’ transaction market, but uncertainty around the future of the EU could see this change. Additionally, SMEs and mid-market clients in mature domestic and mature markets are seeking new opportunities abroad, driving growth in international cross border transactions.
As the world has become more digitised, the way in which businesses engage with their customers has had to evolve rapidly to meet expectations. Many incumbents have struggled to keep pace with challengers, who are able to offer an improved experience thanks to their more flexible and focussed digital capabilities.
Industry disruptors have created seismic shifts in the payments ecosystem. But it’s not all about disruption and competition. Collaboration between FinTechs and more established financial institutions has become commonplace, but there can be barriers to overcome, with FinTechs agile solutions not always being suited to the rigid and robust infrastructures found within banks. This has resulted in the emergence of a new trend – the payments utility.
The utility does not work in competition – it is a supporter and an enabler, underpinning the foundation that delivers a seamless experience for both the business and the end client. Tier two and three banks, and payment service providers are aware that developing utilities in house is expensive and time consuming; working in partnerships with utilities allows them to move faster, reduce costs, and focus on their customer relationship.
By partnering with a utility who is able to optimise a niche part of their overall offering, more established payment institutions and challenger banks can become more digitised, relationship driven and profitable.
What are the biggest concerns for FX and Payments Businesses?
In a rapidly evolving payments ecosystem, the FX payments landscape is still very much dominated by banks. Our latest research, ‘Missing the Opportunity’ revealed that 64% of FX and payments businesses are still using banks to conduct cross border payment services, despite delays in settlement times, high costs, and poor rates.
However, traditional banks are starting to see challenge from FinTechs with over a quarter (27%) of FX and payments businesses using a specialist FX provider, and 13% a financial technology company. This shift demonstrates that many businesses are becoming more comfortable with utilising alternative providers, such as FinTechs, to conduct core business functions.
Cost, speed and process were cited as major issues by respondents to our research, who were asked to rank their top three concerns in order of importance. Perhaps unsurprisingly, cost was identified as a the primary pain point, accounting for 50% of the votes. Speed of transaction ranked as the second biggest concern, taking 32%, with the manual nature of FX payment processing coming in third at 31.5%.