The global payments and processing industry is heating up.
Following the recent all-stock “merger of equals” deal between Global Payments and Total System Services, which created a $40 billion company, the fintech industry is poised for further growth and consolidation as consumers, vendors, brands and suppliers search for more payment options, flexibility and choice.
In the retail and fashion space, the explosive growth of e-commerce coupled with a push by direct-to-consumer brands is fueling a fintech frenzy. At every possible point of transaction, there seems to be a payments and/or solutions platform or app ready to help. At one tier are consumer apps and solutions (Apple Pay, Alipay, Samsung Pay, Google Wallet, etc.) focused on transactions and which are supported by payment methods (Visa, Mastercard, PayPal, American Express, etc.).
There’s also a tier of business-to-business-to-consumer platforms that offer a selling option for brands and payment flexibility for consumers (Klarna, Affirm, Afterpay, PayPal Credit etc.). Then there are b-to-b solutions that are helping to drive global commerce and facilitate cross-border transactions (Payoneer, Adyen, etc.). And there are also peer-to-peer apps and platforms to send cash to friends and family (and the plumber who just fixed your sink) such as Venmo, PayPal, Square Cash, Zelle, Google Wallet and even Facebook Messenger.
Peeking under the hood of these platforms reveals a variety of technologies, including those used in blockchain and cryptocurrency, along with artificial intelligence, machine-learning, chatbots and good old-fashioned data analytics. The playing field is as broad as it is deep and fintech solutions are popping up like mushrooms after a heavy rain. According to CB Insights, fintech investments in the U.S. alone totaled $11.9 billion last year. Driving that growth is a global payments industry experiencing double-digit growth.
According to a recent report from McKinsey & Co., global payments generated 11 percent growth in 2017, topping $1.9 trillion in annual global revenue, making it the best single year of growth in the past five years within McKinsey’s decades-long research. Within five years, global revenues are expected to approach the $3 trillion threshold.
Largely driven by the Asia Pacific corridor and China’s fast-growing market, global payments is a force accelerated by growing electronic transactions, increasing mobile, web and social commerce scraping at consumer wallets, as well as increasing cross-border commerce activity. Even traditional financial institutions are looking into ways to refresh their brand identities and services with hopes to attract the next generation of consumers while staying competitive with the crop of new fintech stars.
Steering the wheel toward the global digitization of payments and financial technology services, leaders are merging and playing (or rather paying) up their strengths, alongside the growth trajectory of the payments category.
Some established payment technology players are acquiring fintech start-ups at a blistering pace. The main players include Apple, Samsung, Google, Mastercard, Visa and PayPal Holdings Inc. (which acquired fintech start-up iZettle for about $2.2 billion last fall), as well as Ingenico Group (the French-based global payment leader with more than 30 years in the industry).
Other notables include First Data Corp. (the Atlanta-based POS and merchant services provider that merged with 35-year-old technology services provider Fiserv in January in a $22 billion transaction); Cayan (ranked as one of the largest merchant acquirers in the U.S., purchased by TSYS in December 2017 for around $1 billion), and Worldpay Inc. (Fidelity National Information Services Inc., a global player in financial services technology, revealed in March it would acquire Worldpay for around $33.5 billion).
But while many of these titans are digging their enterprise heels into the ground and joining forces, fintech start-ups are a legion so intrepid that it’s impossible to ignore (and sometimes to differentiate them).
The Impact of Mobile
By 2022, mobile commerce is expected to account for 70 percent of digital commerce sales, according to McKinsey’s report. Digital commerce covers all consumer remote point-of-sale transactions, including online or mobile (apps and web sites) channels as well as in-store digital wallets, wherein China leads at the storefront with 40 percent of in-person spending already occurring on mobile digital wallets such as Alipay and WeChat Pay. Globally, top providers include Android Pay, Apple Pay and Samsung Pay.
Consumer-facing payment apps include the Millennial-friendly, PayPal-owned Venmo, which was founded in 2009, as well as PayPal, Square Cash and competitors such as Zelle.
At the POS, San Francisco-based Square (founded by Twitter’s Jack Dorsey) is a financial and merchant services aggregator and mobile payment provider (often easily recognized by its “square” card reader that plugs into mobile devices and allows even small independent vendors to transact seamlessly), while Verifone is another omnichannel solution with POS devices aimed at streamlining the checkout.
The world is getting smaller, as cross-border commerce continues on a strong growth trajectory, with a concentration in the b-to-b category of $127 billion in cross-border revenue in 2018. Companies such as Payoneer enable cross-border commerce for e-commerce businesses, with a focus on marketplace sellers.
Within their own supply chains, apparel brands are no strangers to facilitating payments to and from overseas vendors. But the payment architecture is also changing. According to Pymnts.com’s Global Payments Architecture report, 90 percent of Americas-based businesses polled cited a late payment from an overseas partner.
“Companies entering the global trade arena quickly learn the risks that can arise when collaborating with international trading partners,” authors of the report noted. “Among the most concerning are delays and, in worst cases, receiving no payments for their services.”
Despite the risk, cross-border commerce is expected to grow. The Pymnts.com report noted that while cross-border payments lag domestic payments in terms of efficiency and transparency, retail cross-border e-commerce sales are expected to reach $900 billion by 2020, up from $300 billion in 2015.
Hedging their bets on Millennial and Gen Z-ers seeking to pay in new ways, fintech start-ups and traditional banks are muscling in for market share with digital checkout solutions as well as new payment solutions such as installment plans, credit financing and other attractive options. According to recent data from Bankrate.com, only 33 percent of adults aged 18 to 29 cited having a credit card, thus the crux for payments change.
Viewing payments as a component, rather than as a business is how many are attempting to own the checkout experience. Friction-free Amazon touts one-day Prime shipping, one-click ordering and more to contribute to the overall checkout experience, while enterprises such as Walmart focus on lowering acceptance cost.
Players such as Adyen (unified commerce solution), Klarna (alternative payment provider), Shopify (e-commerce platform) and Stripe (online payment provider for companies such as Lyft, Glossier and Missguided) approach payments as a platform business and aim to supplement it with value-added services. Legacy payments providers such as PayPal, too, are offering this Next-Gen payment flexibility for consumers.
Bolstering E-commerce Support
Adyen is an all-in-one payment solution that delivers complementary and unified payment gateways, receiving gold-level certification from Oracle and servicing tech’s golden children such as Facebook and Uber; DTC brands such as Casper and Bonobos, and traditional retailers such as Gap, among others.
Digital solutions from traditional banking systems such as Mastercard, which in May revealed plans to acquire Transactis, an electronic bill payment service provider, means improved flexibility. Also in the business of bill collecting, Go Cardless is a recurring payments platform for businesses to collect recurring revenue, with more than 30,000 existing merchants.
PayPal Credit, a digital reusable line of credit available in the PayPal wallet, services 2.5 million Millennial customers with open-ended credit financing, culminating in $2.65 billion spent by the demographic cohort in 2018. PayPal also partners with Instagram to help with buyer and seller transactions for their new checkout experience for shopping.
Newcomers to global payment solutions include Checkout, which recently raised $230 million in a Series A funding round in Europe, which globally was the third largest fintech series A round of all time.
Installment Plans to Section Spend
Installment plan payments providers often negotiate value-added attributes such as zero-interest, four-equal installments and other methods of increasing choice and payment flexibility.
In February, PayPal Credit announced that it reached $50 billion in transaction volume since 2008. With PayPal Credit, consumers enjoy no interest if paid in full in 6 months, on purchases of $99 or more.
Hitting one million U.S. consumers in March, Afterpay is an installment payment service based in Australia that works with more than 2,800 retailers and brands in the U.S., including Forever 21, Morphe, Reformation, Sunglass Hut and True Religion.
The Swedish global payment provider Klarna edges in on the installment payment space, offering consumers up to 30 days to pay and the option to slice into four equal payments, without any interest charged. In May, Klarna became the only alternative payment provider to offer U.S. consumers the convenience of installment payments, unrestricted to the merchant, in the release of its proprietary app.
The news coincided with RuPaul’s DragCon in Los Angeles, boasting a message of inclusivity, whereby cross-platform wish lists, app notifications and fashion, beauty and lifestyle content are at the hand of its increasing Millennial-minded user base. Its in-network merchants include a 130,000-strong merchant portfolio with names including Adidas, Sephora, Asos, Nike, H&M, Ikea and Daniel Wellington and others, while expanding access for retailers in the U.S., the U.K. and Germany in its Shopify Plus Technology Partner Program.
Others in the b-to-b installment payments race include Affirm (used by The RealReal, StockX, etc.), QuadPay (used by The Greats, Uggs, etc.) and Splitit (used by Vestiaire Collective, Nectar, etc.) and PayPal (boasting the largest, most extensive merchant network and credit financing options to ignite the space).
Meanwhile, another task of payment technology today is designed for increasing loyalty and conversion. For example, Dosh is a card-linked offer platform that nudges fintech’s seamless value-driven proposition for merchants, but is more squarely aimed at consumers.
Given all the activity, the pace of fintech start-up growth is only likely to continue — not to mention billion-dollar mergers.