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The biggest threat to the future of your payments business

I read a couple of articles this week which reinforced my belief that the biggest threat to most payments businesses is their inability to adapt quickly enough to the changing landscape. The first one was by John Seely Brown, the Co-Chairman for Deloitte’s ‘Centre for the Edge’, a body which develops research on new corporate growth.  In their Tech Trends 2017 report he had this to say:

“The exponential pace of technological advancement is, if anything, accelerating. Look back at the amazing changes that have taken place during the last 15 years. At the beginning of the noughties, the holy grail of competitive advantage was scalable efficiency—a goal that had remained mostly unchanged since the industrial revolution.

Then the Big Shift happened. Fuelled in part by macro advances in cloud, mobile, and analytics, exponential advances across technology disciplines spawned new competitors, rewired industries, and made obsolete many institutional architectures.

Rather than thinking of our business models as a 200,000-ton cargo ship sailing on calm open waters, we suddenly needed to mimic a skilled kayaker navigating white water. Today, we must read contextual currents and disturbances, divining what lies beneath the surface, and use these insights to drive accelerated action.”

If companies don’t act now they face a rapid decline, as they slowly try to turn the cargo ship while armies of kayakers speed past them.


Consumer trends

Take a look at these numbers from Nasdaq’s 2017 Payments Processing Trends:

  • Between 2015-2020, mobile payment volume is expected to rise by a compound annual growth rate (CAGR) of 80%.
  • The number of in-store mobile payment users will rise at a five-year CAGR of 40% to reach 150 million by the end of 2020. This growth would represent 56% of the consumer population during that year.
  • There will be 51 million mPOS devices by 2019, that is 46% of all POS systems.

Retailers will use mobile wallet and connected technology to help meet the insatiable demand for instant access to products and services. According to Deloitte’s Tech Trends report, people will be using their smartphones to “make an ‘order ahead’ purchase online”.  Location tracking will notify a store when you’ve arrived to collect your goods, and the whole process will bypass the need for long queues and credit cards.

Shopping as we know it is in for a big shake-up.


Regulating the landscape

These changes will undoubtedly have an impact on fraud. The kayakers will be surrounded by great whites that are aggressively looking to take advantage of any weakness in their boat. To fight this, advances in fraud technology will need to connect to various parts of the payment and non-payment ecosystem. Fraud detection systems will need to take a far closer look at consumer behaviour and act like Brody in Jaws. The technology will be increasingly sophisticated, with greater use of biometrics, and will aim to blow fraudsters out of the water.

Governance of this developing and dynamic state of affairs will require yet more legislation.


The largest threat and how to mitigate risk

The largest threat to all payment businesses will be failure to innovate speedily. As I wrote in one of my previous Finextra articles, APIs are going to be the key differentiators between the true innovators in the payments community and those too cumbersome to adapt.

The only way to manage this innovation is through a different approach to your development plans. Successful evolution will occur by shifting from manual testing to automation. This not only increases the speed you can launch to market, but reduces the cost of delivery and risks of failure. According to Capgemini, QA and test budgets have grown steadily every year since 2012. On average, the industry is spending 31% of its IT budgets on testing and they predict that this will rise to 40% over the next two years. Capgemini believes a reasonable level should be 25%. I believe it should be lower still; our experience suggests that 20% is sufficient for anyone testing payment technology.

Capgemini offers the following reasons for the increase in test budgets (part of their global survey of industry executives):

  1. Increased amounts of developments and releases – 52% (of respondents)
  2. A shift to Agile and DevOps causing more test iterations – 41%
  3. Increased challenges with test environments – 36%
  4. Businesses demanding higher quality IT – 33%
  5. Detection of more defects which leads to more/longer test cycles – 31%

Again, the trends are there to see: more releases caused by a shift to Agile and DevOps from businesses demanding higher quality IT. The question however is this:

Will you be watching all of this from a capsizing cargo ship or patting yourself on the back as you kayak through the rapids?

The smug kayakers will be those who have changed their approach to innovation. They will be testing new payment systems and rapidly launching technology in a secure and inexpensive way. 



Comments: (4)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 09 May, 2017, 18:55Be the first to give this comment the thumbs up 0 likes

Apple Pay Transaction Value:

- Forecast: $207B.

- Actual: $36B.

Easy to forecast all kinds of threats to your payments business. The better course of action is to follow what Steve Jobs advised "Success comes more from saying NO than YES".

Anthony Walton
Anthony Walton - Iliad Solutions - Leeds 10 May, 2017, 13:49Be the first to give this comment the thumbs up 0 likes

You are always in good company saying NO :)

Nokia CEO ended his speech saying this “we didn’t do anything wrong, but somehow, we lost”

January 19, 2012: Kodak filed for Chapter 11 Bankruptcy Protection.[13][14][88] The company's stock was delisted from NYSE and moved to OTC exchange.

In March 1998, JTS sold the Atari name and assets to Hasbro Interactive for $5 million

Competition from NetflixRedbox, and other video on demand services were major factors that led to the company's eventual demise. Blockbuster began to lose significant revenue in the mid-to-late 2000s, and in 2010, the company filed for bankruptcy protection.


I'm not personally convinced that the Payments Industry can't be disrupted, I was a "happy" customer of all of the four above.  They didn't do a whole lot wrong, the world just moved on.



Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 10 May, 2017, 15:25Be the first to give this comment the thumbs up 0 likes

These are all examples of individual companies being killed, not of an industry. It'd have been somewhat interesting had they at least belonged to the industry that's under discussion, namely, payments. Meanwhile, let's look at wannabe disruptors in the payments industry. They all probably read articles like this and thought they can disrupt incumbents. Let's see what happened to them: MCX (Retail): Dead and gone. ISIS (Telecom) Ditto. Apple Pay (Tech): Lacklustre performance. If there's really any major threat of disruption in the payments industry, we should've seen at least a couple of dominant nonbank alternative providers by now. Instead, what we're seeing is retailers running to the regulator complaining that they're being fleeced by the payment duopoly and seeking regulatory intervention for reducing interchange fees. If there was really a threat of disruption, market forces should've ensured reduced interchange rates; there shouldn't be any need for regulatory intervention.

Anthony Pickup
Anthony Pickup - MYRECS LTD - Manchester 15 May, 2017, 16:57Be the first to give this comment the thumbs up 0 likes


Some interesting thoughts here:

1. These cargo ships evolved as there was no calm sea to sail in i.e. card schemes developed as there was no reguation to calm the sea and the ships had to manage these issues.

This is now less of an issue and with PSD2 and other develoments in the identification of payers these large ships in some environments may be now hindering innovation.

2. The challenge for the card schemes will be to deal with the challenges across the various channels.  The goal of others will be create new payment methods or reuse existing methods such as direct account billing or card on file in a way that can mitigate the shark attacks from fraudsters in a way that mitigates these payment risks.

3. Interesting developments in always online connectivity between banks, merchants and consumers should make this feasible.  Other innovations I see that could support the Kayakers are transaction notifications that could be used to potentially to alter payments to be more interactive and potentially more secure.

The question I see is will the card schemes understand how to help merchants and consumers interact more closely or will new payment methods and services deliver this outside of the card schemes.

Interestingly not being in the Generation y or Z my wife finds a notifcation of her AMEX payment on her phone as reassuring and real technology innovation.




Anthony Walton

Anthony Walton


Iliad Solutions

Member since

16 Oct 2007



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