Welcome to our blog series in which we will describe five payment trends in the Dutch payments market. In this first blog post, discussing the current changes in the Dutch payments markets, we will start with the Payments-as-a-Service trend.
|1. Payments-as-a-Service||2. One-click payments||3. Invisible payments||4. Cross-border payments||5. Spread Payments|
What is happening in the payments market?
Last year, Uber applied for a payment processing license from the Dutch Central Bank. This will enable them to streamline payment processes in their ride hailing-app and food delivery businesses. Innovative payment models are being developed by GAFA (Google, Apple, Facebook, Amazon), which make use of the advantage they have because of their advanced customer insights. These examples illustrate how new non-bank players move towards a direction that focuses on the changing way consumers experience payments. A new generation of consumers expect the same convenience and seamlessness in payments as offered by Dutch supermarket company Albert Heijn in its “Tap to Go” concept, which allows customers to tap product shelves to pay for their products.
Nowadays, new players challenge traditional banks in every area in which traditional banks previously held strong positions. Regulations, such as the Payment Service Directive (PSD2), should bring even more competition and innovation to the payments industry. PSD2 is changing the banks’ monopoly on customers’ financial data by requiring banks to share data with third parties at the customers’ request. For traditional banks, the strategic risks are profound, as they risk losing direct contact with their customers when they use third-parties for financial services.
A good example of this is the payment process for online shopping. If we shop online, the payment is performed by facilitators that get the payment out of the bank account (image 1). For this service, the facilitators ask for a fee from the merchants, which can be included in the retail price. This process can be simplified in an open banking setting in which the merchant is given permission to directly access the bank account (image 2). In that case, there are typically no additional fees. This is not the standard yet, but this will ultimately have its effects on intermediaries in the payment process because they must change their position within the payment value chain. In anticipation of these changes, payment service providers (PSPs) should position themselves in the payments market in such a way so that they create additional value for their customer, both B2B and B2C.
The payments market is growing significantly, and global mobile payments are expected to rise to 726 billion US dollars in 2020. GAFA has an interest in monetarizing payments further, leveraging their large customer base and specific customer data. With GAFA involved, and to take advantage of open banking opportunities, we will describe five payment trends in the Dutch market, starting with Payment-as-a-Service.
Trend I: Payment-as-a-Service
Executing payments is not a core business for many e-commerce companies, and for many of them, it will not become one in the short run. Therefore, service providers that provide payment platform services and integrate with online stores will remain an important factor for e-commerce companies. However, these PSPs should bring additional value to their customers to stay relevant. Some PSPs leverage international e-commerce growth through collaborations with payment methods such as Alipay and WeChat Pay. In 2017, 40% of Dutch online shoppers purchased at least once abroad. Nowadays this has become even easier thanks to the new EU regulation that came into force in December 2018 to remove geo-blocking in online payments. Geo-blocking is a discriminatory practice that prevents online customers from accessing and purchasing products or services from a website based in another country.
Also, PSPs are using artificial intelligence and machine learning to build fraud prevention and risk management into their service. Technical standardization of API designs, such as has been executed by Open Banking UK Ltd (initiated by the UK’s Competition and Markets Authority), will reduce time to market for Payment-as-a-Service even further, as all parties work with the same rules. In an open banking context, this trend will increasingly support co-creation and move parties to expend and identify sources of value and revenue in cooperation with traditional players.
So, what is ahead of us?
In this blog post, we described the first payment trend and the current payments market, Payment-as-a-Service, and in our next post, we will focus on two other trends: one-click payments and invisible payments. Our intent is to shed light on customers’ most essential demands and what payment trends are on the rise due to these growing demands.
Co-Author for the blog – Timon Moolenaar