Making payments predictions is an absolute MUST when you’re part of a constantly changing, technology-driven industry that brings forward innovation and trends. For this reason, we can’t help but be excited and curious about the next developments within the payments industry. Also, looking back at the previous year’s developments offers us a further glimpse into what we can expect. So, it has become a tradition for us to analyze the developments in the payments market over the years and anticipate what could follow; check out last year’s forecast here.
Compared to the steady developments from 2015, last year experienced a slow trend of market consolidation. Apart from some significant partnerships in the more traditional space, such as Heartland/Global Payment, TSYS/TransFirst, there were minimal developments within the ecommerce space.
Following this trend, we predict that in 2017 and beyond we will see important and structured deals, even IPOs. Furthermore, increased regulation, compliance and cybersecurity will bring great challenges to small, locally focused European payment providers. Being highly price competitive, these small players may experience pressure on their margins and business.
An additional prediction remains the challenge that a certain category of payment providers is facing; small and medium-sized. The high capital requirements, from a compliance and cybersecurity point of view, place small providers in a very difficult position, and that will almost certainly trigger a restructuring within the industry. Being in the payments industry for 15 years, we know that operating a payments company is neither easy nor low-priced, so we predict only the mid-sized or big, well-equipped, payment providers will survive.
As predicted last year, there were not many legislation changes coming into effect during the course of 2016. This is because the PSD2 directive is an ongoing process, developing this year and eventually becoming a legal requirement in 2018 in all the EU member countries. The directive is focused on providing a high level of security through strong authentication, while continuing to bring forward innovation.
Bringing more PSD2 clarity will be a focus area for legislation in 2017, mainly from two perspectives:
Access to account
PSD2 provides the chance for third party providers to access available payment accounts at different payment service providers, such as banks, to validate the client and take money from that account. As a sensitive topic, this brings forward challenges to all payments operators; if banks are reluctant to cooperate, a set of multiple integrations will become necessary, slowing down the process of access to account. However, this topic could be also seen as a pretext for encouraging innovation. During this year, we should see how easy the integration is and which payment providers can get ahead of the game and come up with a single integration platform to ease this process furthermore.
While some may fear it terribly, others see the payment directive as more of an opportunity than a threat; for instance, the access to account feature provides FinTech companies with a greater role in the payments industry.
The second dimension of PSD2 is enhanced security through double authentication, which seems a less feasible solution due to the fact that the risks are rather low.
A great part of the discussion related to credit card transactions, which could be solved by introducing the double authentication for card payments on certain conditions. These could include: when payments are above a certain amount, or if they are from a specific country or industry posing a higher degree of risk.
Market consolidation and regulation are just the first two topics that we analyzed in terms of 2016 developments and payments predictions for this year. Make sure you don’t miss our next blog article Keeping up with 2017: Payments Predictions Part II, discussing omnichannel, data and IoT.