The evolution of the payments has come a long way since the bartering days. Digital technologies have made a great impact in the payment processing industry and today companies in the industry are facing the challenge of innovating in order to keep up with the technological advances. The payment processing industry had typically involved four parties in its transaction. Card Networks who provided the services necessary for distributors which were mostly banks to issue debit and credit cards to their customer. In turn these customers used these cards in different merchants to acquire goods. Digital technologies have impacted the industry and now there are three other layers involved in the process. Payment intermediary companies like PayPal have had a great impact on mobile payments, the delivery mechanisms are now not only credit or debit cards but payments can be done through other methods like online or through mobile phones. Lastly the industry now provides a wide range of services from fraud prevention to analytics.
Several technological trends are affecting the industry and the different companies that belong in it are making important moves in order to keep up with them. On the online front we see that new forms of currency like virtual currency have gained great importance. New payment services like Fraud protection have become a major concern for financial institutions. Mobile payments appear to be the future of the industry based on the high adoption rate of smartphones. There are several ways that mobile payments can be implemented that go from near field communication to much newer concepts like “bump to bump” devices. All of these trends have resulted in partnerships and acquisitions between financial companies and technological companies. Companies in this industry want to make sure they maintain their position in the industry and are securing this by creating relationships that will enhance their capabilities.
The following video shows a condensed history of payments, from the time of cavemen to today
You noticed in the above video that today's credit card and payment processing sector is very different than what it was 5 years back. However, to really understand the how this sector's landscape has changed, look at the network map of the major players in the sector.
It may be hard to look at this map but the clutter of outbound connections at major nodes tell the story that the sector is expanding through multiple acquisitions and partnerships. We truncated this map to focus on few select players in this network. The truncated map is below.
Analyzing the connections through this map, the following stack represents our view of the current state of the industry:
In the following presentation, we discuss different layers of this stack, aggregated from our insights from the network analysis of the sector.
Continuing our insights from the network connection, now we will take you through an in-depth discussion of the recent technological trends that are affecting the payment processing industry.
As we can see there are major trends affecting the payment processing industry and by the looks of it this is just the beginning. While many of these trends have been in the industry for a while they have yet to gain a more widespread availability due to the competing interests and fragmentation of the markets. It will be very interesting to see how the different players will begin to collaborate in order to be able to reach a critical mass and which players will end up dominating the industry. It may still be too early to predict anything but what remains true is that the future retail payment systems will likely include many new and emerging payment methods, giving consumers and business a wider range of options for making payments.