How technology has driven change | KPMG | BE

How technology has driven change in the payment services industry

How technology has driven change

Advances in communications and associated technology are rapidly changing the payment services sector, and financial services organizations, payment companies and electronic payment start-ups are all vying for leadership. Although the consumer spending benefits are clear, the winning proposition among so many entrants has yet to emerge.


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How the payment services industry has changed

The last two years in the payment services industry have seen tremendous upheaval, particularly in mobile banking and payments. Several factors are driving change in the once-staid payment services sector:

  • Cashless purchases: Consumers in North America, Western Europe/Scandinavia and Asia now make only small purchases with cash, and have traded in their checks for payment cards and other cash-free payment methods.
  • High merchant fees: Retailers are increasingly unsatisfied with paying credit card companies 2-5 percent of their gross sales, fees that up until now have been seen as a necessary cost to bear.
  • Small business limitations: Small businesses need a streamlined, low-cost way to accept payment beyond cash or checks.
  • Expanding marketplace: With new payment technology start-ups entering the market, financial services organizations and credit card companies are feeling threatened and scrambling to innovate in order to satisfy industry demand.

New technology: Near field communication

Although radio frequency identification (RFID) enabled devices have been around for years, near field communication extends contactless smart cards by allowing higher capacity two-way communication between devices. Beyond contactless payment, near field communication can also form the basis for a more advanced and reliable cashless electronic payment system. The proliferation of smartphones, tablets and other portable devices among consumers also helps to establish near field communication as the foundation for significant advances in electronic payment systems.

Recent developments in payment services

Hardly a month passes without a new product or platform announcement, a new industry partnership or a new entrant promising a radically new approach. Key recent developments in the payment services industry include:

  • Barclays Pingit offers UK account holders the ability to instantaneously transfer and receive money for free using any Android or iOS device.
  • New entrants Moven and OnTrees are offering a combination of mobile banking and payments services via smartphone.
  • Starbucks, along with a number of other major retailers, has introduced new payment options through mobile apps powered by near field communication.
  • VocaLink, operator of one of the largest UK ATM networks, is launching Zapp, which will allow retail customers to pay for purchases via smartphone.
  • Systems such as Square Register (in North America) and iZettle (in Europe and Latin America) allow small businesses to accept card payments using a reader that plugs into a smartphone.
  • eBay acquired payment services provider Braintree, whose Venmo app supports payments by tablet and smartphone, to strengthen the mobile payment services capabilities within PayPal.
  • Swedish online payment services company Klarna acquired German rival SOFORT.

The very range of current developments demonstrates how rapidly the payment services industry is evolving and how uncertain the market is. Ultimately, only a few of these innovations will offer the winning combination of consumer benefits, product features and economic advantages needed to survive over the long term.

Extracting value from advanced electronic payment systems

Breaking into the payment services market is not easy. Financial services organizations, payment technology startups and credit card companies are taking on the challenge for more than just transaction fees; there is far greater value in controlling the consumer shopping interface. Access to customer and market data as well as the ability to target added-value services, advertising and promotions to consumers at just the right time can generate value for all participants.

However, for widespread consumer adoption, any emerging systems will have to compete successfully with the virtually costless – and relatively low-risk – alternatives of paying with plastic or cash. To be successful, systems must add value for the user as well as for the provider.

How will the payment services industry evolve?

  1. Do you think these new payment systems offer enough advantages to maintain a competitive edge over card or cash payment?
  2. What do you think are some of the barriers present in switching from one advanced payment service offering to another?
  3. Have you ever used a smartphone or tablet to make a mobile payment?
  4. If you had to decide between using a card, cash or a mobile app to make a purchase, which would you choose?

To discuss this topic further contact:

Georges Pigeon

KPMG in the Canada

+1 514 840 2178

Tim Johnson

KPMG in the US

+1 312 665 1048

Jeremy Welch

KPMG in the UK

+44 20 7311 2527

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