Payment industry: 2020 will be exciting

2019 has been another buoyant year for the payment industry and the fintech industry as a whole. Consolidation or capital raisings have strongly contributed to the headlines while Facebook’s ambition to launch a private digital currency (a stablecoin) has been a key topic in the second half of the year. We expect these same topics to be ever more on the front pages. Consolidation might indeed accelerate in Europe, whereas some big European players (Ingenico, Nexi, Worldline, Adyen) might unify their strengths.

Key themes:

1/ Deeds or words: Is Europe ready to compete with the US and China?

2/ Is Indian finance developing without banks?

3/ Are banks back in the payments business in Europe?

Significant news:

Paypal acquired Honey for a $4bn consideration. This is the US payment company’s biggest acquisition to date. It will give Paypal an earlier foothold in the customer’s shopping journey (Paypal will now be part of the deal discovery process while it has been only competing on the checkout page up to now).

European banks are working on a pan-European payment solution, PEPSI, at a time when Visa, Mastercard, Unionpay or GAFA’s have a stranglehold on the payments eco-system. At the same time, the French central bank is planning to test a digital coin (stablecoin) as an answer to Facebook’s Libra.

"GAFAs" (again) are pushing harder in the fintech area as Uber has created the Uber Money division. The wallet will allow users to navigate through the whole Uber eco-system (track expenses, receive cashback, etc.). Google is also partnering with banks and credit unions to offer checking accounts. The company promised not to disclose any consumer data, like Facebook once promised it… Facebook announced in November that is consolidating its payment processing for Facebook, Messenger, Instagram and WhatsApp into one brand called Facebook Pay.

For the most investigative readers, we will soon launch coverage on an Indonesian fintech, Achiko. It has long specialised in helping unbanked people who purchase digital accessories and services used to play social games. It is now aiming to be the number one fintech in South-East Asia. This offers another angle of reading in the fintech area.

1/- Deeds or words: Is Europe ready to compete with the US and China?

Europe has long been active in the payments area as evidenced by the recent implementation of instant payment services and the launch of the open banking area (PSD2). The European footprint remains still limited globally. The US companies Visa and Mastercard have indeed almost a global monopoly regarding card-based payments and Unionpay is the only player in China. At the same time, Paypal today and Wechat or Alipay tomorrow are the main alternatives for e-payments. And yet, payments are a matter of sovereignty.

Facebook’s Libra project has accelerated that awareness as some European leaders have strongly campaigned against this stablecoin (especially France). Most recent projects include the PEPSI (Pan European Payment System Initiative) which has embarked twenty European banks with the ambition to enable European consumers to pay without using the plumbing of Visa or Mastercard, for instance.

Instant payments, once democratised, have also the ability to disrupt card-based payments. The creation of a European digital currency is also on track with the French central bank at the forefront. It remains to be seen whether these nascent projects will end up being like Airbus or Galileo.

2/ Is Indian finance developing without banks?

With the planned coverage of the Indonesian company, Achiko, we have been digging a bit more into the Asian way of consuming financial services. Contrary to Western consumers, Asian consumers all have grown up with a smartphone. Hence, payment is not a matter of having a bank account but rather a smartphone. India is two steps further as it has set up the Unified Payments Interface (UPI).

Any player can connect to this utility. It has come with the implementation of Aadhaar which has given every Indian a digital identity (a twelve-digit number) allowing fintechs to offer financial services to any citizen even if unbanked.

Passport ID or any other identity (think of national health numbers) are bound to facilitate payments in the future.

Any player can connect to this utility. It has come with the implementation of Aadhaar which has given every Indian a digital identity (a twelve-digit number) allowing fintechs to offer financial services to any citizen even if unbanked. Passport ID or any other identity (think of national health numbers) are bound to facilitate payments in the future.

3/ Are banks back in the payments business in Europe?

In the last fifteen years, banks have been losing the battle of payments. Even if they still offer services to “acquirers” (the highest added value in the payment chain), their role is increasingly limited to the plumbing.

They indeed mostly facilitate money transfer between accounts. Most hyped acquirers are pure players such as Adyen or Wirecard in Europe and Stripe in the US which offer cross-border services to merchants (e-commerce particularly).

Recent news suggests that some banks are finding this business strategic again. Natixis thought about it a year ago with Ingenico but failed to take that risk. More recently, Santander has been buying into UK-based company Ebury (50% of the company for about £350m). Ebury provides cross-border payment services to small and medium businesses. At the opposite end, in December, Intesa sold its retailers’ payment business to Nexi but it kept an exposure via a 10% stake in Italy’s biggest payments group.