The exponential growth of online commerce and the corresponding explosion of payment technology have led to a fragmented market. The development of solutions for every need on the global market and any demand of both, buyers and sellers, is far from slowing down.
In this guest post, Christoph Tutsch, founder and CEO of ONPEX, observes that while this evolution makes for a sophisticated payment ecosystem, there are still several barriers to overcome.
The global non-cash transaction volume reached $358bn in 2013, marking an increase of 7.6% over 2012 (cf. Capgemini and The Royal Bank of Scotland plc. (RBS): World Payments Report 2015).
The number of solutions and providers on the market grows accordingly, but not all sectors of the payment industry develop at the same pace and solutions that span across several sectors are still rare. This is an increasingly painful point for businesses using payment solutions, as they strive to present competitive offers to their customers while at the same time incurring consistently high infrastructure costs. The demand for fast, convenient, and secure payment options has also caused authorities to develop advanced regulation for the payment and banking industry.
Apart from consumer-facing businesses, most B2B providers of the payments value chain also experience barriers to their growth. There are four prominent groups of businesses that have unique payment requirements, namely payment card acquirers and issuers, financial institutions, Payment Service Providers (PSPs), international merchants and marketplaces. As different as these groups seem at first sight, they still run up against similar challenges:
- Fast and easy integration of global alternative payment methods (APM)
- Fast and easy connection to acquirers in many regions
- High-end white label technology to process transactions
- Easy, resource-saving reconciliation and billing processes
- Intuitive, flexible customer and bank account management systems
- Streamlined KYC processes
- Consolidated, streamlined cash management
- Connection to payment-related services such as fraud and risk management.
These issues have to be addressed speedily and comprehensively to ensure sustainable growth for the entire payment ecosystem. The best approach to solving them is an integrated solution that can be adapted to the special requirements of each payments and banking industry segment.
Such an approach requires technological expertise as well as a deep understanding of the legal and structural setup of the industry. It has to become possible to combine features from the currently separate sectors of payment gateway solutions, banking technology solutions, user account management, risk management, and acquiring for cards and other payments.
For a truly comprehensive approach, it is important to challenge the status quo, where these four areas are perceived as separate, as this can eliminate other time- and resource-consuming issues such as incompatibility of solutions, alignment of multiple interfaces and tools, and a low degree of automation and scalability.
In order to manage all financial matters from a central hub, it is necessary to integrate the technological solution with the existing banking framework. In addition to that, funds have to be moved through the banking networks, which has several technological and regulatory conditions. They include a financial institution or banking licence, PSD-/ PSD2-compliance, and ISO 20022 connectivity. Such an integrated payment and banking solution helps companies streamline their cash flow.
Apart from the centralisation, the most noticeable benefits are the availability of business bank accounts, foreign exchange capability, and streamlined KYC processes. All this reduces the time, effort, and cost of cash management significantly. This benefits businesses from the payments sector as well as banks, insurance companies, multinationals, and others. The real-life benefits of such an integrated, modular solution become apparent when considering the implications for the user groups discussed above.
Payment card companies can, for instance, create more varied, innovative, and competitive offers. It becomes possible to integrate APMs and traditional card schemes into a unique, attractive product portfolio. On the business side, they benefit from savings through streamlined reconciliation and from the option to forego an expensive BIN sponsorship or prime membership. Plus, backing a card programme by a financial institution secures full control and makes the benefits of a credit card available.
A modular white label solution enables the modernisation of banking infrastructures while saving time and costs, as, in the optimum scenario, in-house development is no longer required. With it, banks and financial institutions can connect a legacy banking system to modern payment IT. They have the added advantage that the solutions of a financial institution meet compliance and connection requirements and are inherently compatible with banking infrastructures. This makes them the perfect link between banks and payment providers as well as between banks and consumers.
By integrating with only a single solution, payment service providers can provide a global range of payment methods and add and remove them from their range with a single click. The connection to the banking rails makes it possible to open bank accounts and to map accounts from other banks into them. It also enables automated reconciliation and billing processes that are easily manageable and can include extremely complicated billing and commission models.
An integrated solution means that merchants and marketplaces require only a single point of contact to the payments ecosystem. It becomes easy to provide a global range of payment methods, the connection process to acquiring banks becomes easier, and complex billing and payment structures are now simple to manage and reconcile. Effectively, they save the expenditure of time and resources for advanced cash flow management.
The demand for and benefits of an integrated, comprehensive payment product suite that connects the worlds of banking and payments have become obvious. All members of the payment ecosystem benefit from the streamlined cash flow, finance, and customer management options it provides. This, in turn, advances the growth and prosperity of the entire sector.
Christoph Tutsch is the founder and CEO of ONPEX. He set up and funded the business in 2010 to provide businesses with a better way of handling online payments. He is responsible for the overall direction of the business and its continuing growth around the world. A lifelong entrepreneur, Tutsch was previously co-founder and director of several companies in the telecoms and marketing industries.
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