5 Challenges For Payment Processors
As we see such a surge of growth in the fintech industry and the payments sector, due to advances in technology and growing demand for flexible ways to pay, we also start to see new challenges for payment processors.
In the past few years we have seen many new firms enter the payments sector, increasing competition for the incumbent firms. Strong competition, changing consumer attitudes and global security concerns are pushing all payment processors to perform at their best and provide products and services which stand out.
This blog post looks at some of the challenges for payment processors, which will test fintech firms looking to grow and come out on top of the competition.
1. Mobile Payments and Wallets
A rather obvious disruption to the payments industry this year is Apple Pay. Mobile payments and wallets have been at the top of many payment processors’ priority lists for a while and this year is set to see consumers demand even more from the payments sector.
The internet of things is the driving force for this demand. Cisco estimates that the number of devices connected to the Internet will skyrocket from 10 billion in 2014 to 50 billion by 2020.
We’re moving towards a “cashless society” and mobile payments were projected to increase from $12.8 billion in 2012 to $90 billion in 2017, according to Forrester Research. The Payments Authority CEO Amy Smith says financial institutions will have to make some critical decisions if they want to avoid being left behind.
Consumers (and retailers indirectly) want to be able to make purchases for goods and services anywhere; payments also have to be easy to use, secure and consider a new area of use: messaging.
A big concern for anything involving consumers’ hard earned cash is trust. Following on from the financial crisis of 2008, many members of the public are unwilling to trust banks due to holding them responsible for a large amount of what happened. A 2014 Global Consumer Banking Survey revealed that 37% of British respondents had less trust in banks than previously.
This is a critical challenge for payment processors to overcome. Many in the payments sector partner with banks in order to provide their services and many are even seen as a financial institution similar to a bank.
One of the challenges for payment processors is building a rapport and trust with consumers. Payment firms need to reassure customers that their money will get to the bank account that it’s supposed to and, where necessary, that there is insurance for any account balances that consumers hold. Without doing this, growing in a competitive market will be almost impossible.
Linked to trust is security. Security is always a concern when it comes to personal data and consumers’ and businesses’ money. With consumers demanding access to their money and payments systems in more places (through their smartphones for example) there are of course concerns that go with this.
Although consumers want new technology, it is possible for them to see it as a new way for hackers and fraudsters to steal their information. A number of credit card thefts in the US, such as at Home Depot recently, has increased the need for card security across the nation.
Payment processors and financial institutions have the challenge of implementing fail-safes which bestow consumer confidence so that they can increase uptake of their new technologies.
It’s no surprise that consumers and businesses want to transfer their money and make payments for free (or at least a really low price), so providing low fees is pretty much a given for all payment processors.
The challenge for payments firms then is providing a product or service which differentiates them from the rest. With most in the industry providing low prices, to remain competitive means providing an innovative piece of technology or customer service which is out of this world.
In every industry customer experience is beginning to overtake price and product as a key brand differentiator, in B2B and B2C. And the payments sector will be no exception this year; both businesses and consumers want better ways to communicate with those that handle their money.
5. New Regulation
With new technology and new security concerns come new regulations. Another of the challenges for payment processors is the introduction of new regulations in emerging markets which fintech firms must overcome should they wish to expand to these markets.
Russia for example has new regulations for those companies storing Russian citizens’ personal data. The new amendment of the data protection statute requires domestic data storage of personal data – meaning many foreign firms must set-up new servers in the country should they wish to do business there.
Payment processors must decide how they will overcome this potentially costly challenge, which could become a more common occurrence in emerging markets, if they wish to continue to expand their businesses and compete on an international scale.
This represents just a few of the challenges facing payment processors; there are plenty more challenges which those in the industry will be facing should they wish to expand and compete. Do you know of any crucial challenges facing the industry this year? Perhaps you don’t think the ones which we have highlighted are as crucial as we think.