2015: The Payment Industry’s “perfect storm”
The past 12 months have seen significant shifts in the payment sector as the industry changes at an unprecedented pace.
The past 12 months have seen significant shifts in the payment sector as the industry changes at an unprecedented pace. New customer habits, technological innovation, fierce competition and investment inflows are driving a profound transformation which is likely to shape the industry in 2015 and beyond.
While cash remains an important way for us to pay for things, the increasing popularity of cards for everyday transactions is likely to continue. Debit and credit cards now account for three in every four pounds spent in our shops, up from two in every four just a decade ago, according to the UK Card Association’s latest statistics.
What’s more, processors’ improving technological capacity, twinned with the growing appetite for online retail, is creating significant growth in “etail” payments. The recent so-called Black Friday shopping event saw a huge spike in volumes, with 28th November being Global Payments’ biggest ever globally – 3,940,739 transactions in the UK alone with 107 card transactions processed every second; online transactions represented a third of this volume.
Alongside online payments, contactless has also made inroads in 2014. While the adoption of contactless payments has taken longer than many expected, we are reaching a tipping point in its evolution. According to Global Payments’ data, average transaction value for card payments in retail stores has decreased by 85p, which can be attributed to the increasing use of contactless for purchases.
This shift is likely to further evolve in 2015 with the increased use of mobile payments. The recent launch of Apple Pay has the potential to push mobile payments into a completely new sphere. Their mobile wallet uses near field communication (NFC) to allow customers to pay using their iPhone. The same NFC technology is already used in contactless cards and so Apple Pay will work on retailers’ existing contactless card readers.
The introduction of such a popular handset with mobile wallet capabilities has the potential for very swift and widespread adoption, incentivising both retailers and consumers to really engage with mobile payments.
But Apple isn’t just exploring the possibilities of paying using a mobile phone. They have also launched a smartwatch incorporating technology for the user to make a payment by holding the watch against a payment reader. The development of ‘wearable’ technology such as this is another exciting avenue for the payments industry, which is only just beginning to explore the potential for wearable payment technology with applications for clothing, jewellery and even glasses in various stages of development.
Not only is the rapid pace of change in the payments industry piquing the interest of innovators, investors too are focusing on the sector, seeing the potential to generate consistent revenue as the sector grows.
They are also behind the emergence of a thriving M&A sector. Many of these innovators are new to the market. With the benefit of little or no legacy systems in place to develop around, they are agile and fast to develop, moving ahead of their older and more established competitors.
It’s not an exaggeration to say that there are thousands of payments start-ups, providing a steady stream of ideas, innovation and talent to the wider industry. While it is inevitable that only a relatively small number of these enterprises will survive, at least in their original guises, the more established players are paying close attention to see who the likely winners and losers might be, and eagerly snapping up those with the most potential.
It is clear that the payments industry is at the centre of what we might term a ‘perfect storm’, where new customer needs, product innovation, easily available technology and investor funding combine to create huge opportunities for growth. As the secular shift from cash to electronic payments continues to fuel this, 2015 promises to be one of the most interesting and dynamic times that the industry has ever seen.