It is undeniable that the payments industry as a whole has failed to keep up with the pace of change in technology, lifestyles and customer expectations. We live in a ‘now’ society where transactions and communication are instantaneous, yet the payments industry has continued to drag its feet and avoid embracing the fundamental changes which are necessary to live up to the new ‘norm’. It is true, however, that the evolution of the business-to-business (B2B) payments industry is gathering pace and we are reaching a tipping point of realising a much-needed payments revolution.
Many businesses and social networking websites are increasingly looking to monetise, through advertising, subscriptions, credits and virtual awards. Despite the obvious potential for a robust, secure and global payments infrastructure to support this trend – the reality is that the industry continues to be inhibited by the ageing, siloed payments infrastructure.
Payments innovation can be traced back to 1999 when the first breed of payment providers such as Paypal, Netella and WorldPay were launched. The impetus behind these payments platforms was the rise in business-to-consumer (B2C) online ecommerce, coupled with new and consumer-centric propositions to meet the need for fast and convenient online payment methods. Consumer payments institutions broke the traditional payment model and kicked off a whole new economic communication comprising payers and payees, person-to-person (P2P). Paypal, an organisation that has been at the vanguard of B2C payments, has embraced the communal aspect of social networking to full effect. Armed with the concept of ‘many-to-many’, Paypal redefined the traditional payments model, circumventing the traditional card to bank system. Now, with over 150 million users worldwide handling US$29.5bn annually, Paypal’s success facilitated the meteoric rise of the B2C payment institution.
Momentum was reinforced in the 2000s by further innovation and the launch of platforms such as Google Checkout and Bill Me Later. Meanwhile, the rise of social networking played a significant role in the rise of the consumer payment institution, as social networking sites such as Facebook and Twitter spawned their own payments platforms: Facebook Credits and Twit Pay.
It is the growth of internet-based communication, rather than traditional face-to-face, over-the-counter style communication and transactions that have provided this opportunity for social media. This has facilitated the development of the ‘many-to-many’ paradigm, as people increasingly input and share information to and from the internet, and change the way they communicate on both a business and personal level. Currently, two-thirds of the world’s internet population visit social networking sites each month, accounting for almost 10% of all internet time, according to new research.1 It is against this background of popularity that social media has been able to shape the emerging payments industry.
Moving from B2C to B2B
The huge potential that is being demonstrated in the B2C marketplace has led innovators to explore technology that joins payments and social networks on an online B2B platform. This would allow millions to access a new payment channel separate to bank accounts, credit or debit cards facilitating cheaper, faster and more accurate payments. The opportunities to harness the revenue potential of social networking in the B2B arena would appear significant. For example, LinkedIn.com, the B2B networking site that has over 58 million members, has an impressive speed of adoption, taking just 16 months to reach its first 16 million users and a further 11 days to reach another million.2 LinkedIn.com has shown that online networking can be extremely valuable in a business environment, demonstrating a very plausible way to target key decision-makers, use as a prospect tool and also as a highly effective recruitment mechanism.
Indeed, we are already witnessing the growth of social networking in the business world, with companies using B2B sites for research, recruitment, product information and opinions on brands, and embracing Web 2.0, as well as the rapid growth of mobile payment providers such as Paymo, BOKU, and More Magic. These are often linked to B2B ecommerce markets, for example Alibaba. This B2B ecommerce giant has developed a marketplace for merchants and suppliers to interact through its site, while others, such as Japanese internet shopping site Rakuten, charge sales commission plus ‘real estate’ fees for displaying other products and services.
Banks Need to Wake Up
But what of the banks – the traditional powerhouses of the payments industry? How are they adapting and innovating as the marketplace evolves? The truth is that they have been caught napping and other payments institutions have stolen a march on them. They have been overwhelmed by the biggest financial downturn in decades and perhaps their ability and drive to deliver new and improved services to their customers has been dented. While they have floundered, smaller, nimbler and more innovative customer-focused payment providers, such as Paypal, have used the infrastructure created by the banks to develop new products. They now boast a far superior service that includes real-time clearing, currency conversion and settlement. It will be interesting to see how, or if, the banks can recover the ground lost to such companies in the payments arena.
In an effort to gauge market opinion on what the future may hold, and whether Paypal would remain the market leader in this space, Travelex Global Business Payments produced a survey in March 2010 which asked 200 key decision-makers within the financial services sector whether they thought Paypal would retain its majority market share over the next five years. Only a third believed it would, indicating that many believe other players may come to the forefront, seeking to capitalise on this burgeoning marketplace. It remains to be seen just who gains ground as Paypal looks to maintain its dominance in the vital B2C payments market. It is widely acknowledged, however, that while having a very different business model to the banks, Paypal continues to eat into what the banks could be doing.
However, the race is far from won – while B2B social networking is steadily monetising, a trusted and robust global payment infrastructure is required to add real commercial value and this does not, as yet, exist. B2B payments institutions are, however, investing heavily in developing secure environments where businesses can connect with payers and payees, and so it is only a matter of time before we move to an age where these institutions provide commerce with secure, trusted networks and a global infrastructure to offer the real time availability, simplicity and convenience of the B2C world.
There is no doubt that the payments landscape of the future will look very different to how it does now and that life is ebbing away from the outdated payments models of yesterday. The new model of B2B payments will be characterised by the many-to-many environment, on demand services, real-time payments via secure networks, with transparency of pricing and improved service levels throughout the supply chain.
The evolution already witnessed in the B2C payments market provides the B2B world with somewhat of a blueprint for progress, a world driven by growth in global ecommerce and the rise of the social networking phenomenon. The winners will need to have trusted, secure and global industrial strength of the traditional payment methods, coupled with the simple, convenient and multi-choice aspects of the B2C payments world.
In order to take advantage of the opportunities described, banks need to adapt to the convenience, simplicity, multi-access channel world, and use outsourcing opportunities and partnering for technology expertise, something which may require them to adopt a culture change of some degree. For now, it’s payment institutions that are the drivers of innovation capitalising on these new markets, creating ‘many-to-many’ and P2P flexible payment solutions that embrace converging technologies.
Collaboration is key for payment institutions and banks to co-exist and capitalise on the evolving payments landscape, leading to partnerships and technology innovations in the B2B and B2C space. Banks cannot think about payments as they used to, and instead will have to approach payments through the eyes of a consumer or risk being left behind. The meteoric rise of social networking will surely shift the payments landscapes, as payment institutions and banks seek to facilitate faster and more accurate payments to keep up with the next generation.
1 Chris Skinner, ‘The Financial Services Club Blog – social media and banks‘.
2Chris Skinner, ‘The Financial Services Club Blog – social connectivity‘.
When Mark Cuban declared that "Data is the new gold" he highlighted why information is possibly the most valuable asset a business has. APIs are the unsung heroes that make it possible to extract that value.
How treasury stands to benefit from blockchain: Ripple’s goal to revolutionise cross-border transactions
Imagine a world where cross-border transactions can occur in real-time, at a few cents per transaction, to and from any bank, in any ... read more
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.