Banks risk losing payments business as third-party providers muscle in

Banks and retailers invest in payment technologies to meet customers' expectations and fight the competition threatening their supply chain

Banks and retailers are investing in payment technologies and infrastructure to meet customers' expectations and combat competition threatening to cut them out of the payments supply chain.

Research into the plans of over 1,000 executives, carried out by Ovum for payment technology firm ACI, found 86% of these companies will invest in online payments technology and 84% mobile technologies in the next two years.

Security concerns and the wide choice of technologies are making decisions more difficult, according to Ovum.

Gilles Ubaghs, financial services technology analyst at Ovum, said the payments industry is in the midst of rapid evolution. “Where payments were traditionally given little attention up until a few years ago, the changes taking place just on a daily basis are significant, to say the leas – from new providers to new platforms to new payment tools. As payments become smarter, this evolution has the power to transform the payments experience; and, as such, the needs, experiences and expectations of all of the players in the payments value chain are more critical than ever.”

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Third-part payment firms muscle in

The research revealed that 80% of bank and retail executives agree consumers want more choice when it comes to payments. It found that globally, credit and debit cards (87% and 82%) are the most widely accepted payment tools, followed by cash (74%). But businesses in the EMEA region are leading the way in contactless payments, with 39% of businesses accepting them.

The survey said banks are at risk of losing market to third-party payment specialists such as PayPal, telecom providers and large software companies such as Apple and Google. Technology companies are moving into banking, offering payment and information enrichment services, as well as peer-to-peer lending platforms. 

These technology companies are agile enough to try things out to see if they work and also have enough money to make acquisitions if they need to. Services could be added to their existing platforms and scale would not be a problem for IT companies with their huge processing engines. Facebook, for example, has more than a billion users. By comparison, Lloyds Bank has 30 million customers, HSBC has 52 million and Barclays has 48 million.

Mobile payments could even evolve as a feature of Microsoft operating systems, following the establishment of Microsoft Payments Inc by Microsoft in the US and its application for money transmitter licences in 50 US states.

Meanwhile in the US, the Apple Pay mobile wallet was responsible for 1% of digital payments in the US in November 2014, just a month after its launch.

Samsung recently bought mobile payments startup LoopPay in a challenge to Apple’s fledgling mobile payments business and Google is expected to launch payments API Android Pay at its I/O conference next month.

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