Payments ecosystem – are financial services really seeing the changes occurring?

Financial Institutions should take note of the changing environment in payments. The payments ecosystem is transforming itself into something many have not yet fully grasped. It is the industry that many have yet to look at within their strategic radar.

Traditionally, Asia Pacific has been a region dominated by the use of cash. In recent times, the increase in the use of credit cards and subsequent transactions with the Asia Pacific region has led to the evolution of the payments ecosystem. This is a time financial institutions need to consider what this payments ecosystem looks like, assessing the challenges and opportunities that exist in the payments system across Asia Pacific and consider what the next stage of evolution for payments.

Growth in the use of card payments has been significant in recent times in the Asia Pacific region. As a result, some mature markets are struggling to cope with increasing volumes of transactions after years of under investing in payments infrastructure. At a time when many banks are re-evaluating their core competencies, the future of payment systems cannot be ignored. There are many options available – payment systems can be streamlined, offshored or outsourced, and there are both risks and benefits involved in doing so.

Much of the payments infrastructure around the region is inconsistent and inefficient, hindered by legacy systems and the contesting interests of different stakeholders. Consumers are increasingly concerned by security and privacy issues. In a world once dominated by banks, there are already a wide assortment of players, from transaction processors and card scheme providers, to technology vendors and connectivity partners.

This payments ecosystem continues to be bombarded by commercial, technological and regulatory factors. These factors need to be understood by all players in the payments ecosystem as they help to explain the future direction of the sector, and the opportunities that exist for current industry participants.

Opportunities will continue to emerge for new entrants to shake up the landscape. In turn, the position of some existing players in the market is likely to be threatened. Interestingly, many international vendors of payments software applications and third party processors such as Global Payments and First Data are still at the stage of establishing their footprint in the Asia Pacific region, which will also impact on the dynamics of the payments ecosystem over time.

The emerging vision of the banking industry suggests there may be a continued shift from the in-house model to a shared services model, or what can be referred to as “Payments as a Service”. However, there are many other future states that might emerge from the current situation.

Having the right strategy, aligning with the right partners, and relentlessly striving for further efficiency gains, will all be key to survival. In these times of further cost reduction and efficiencies gain, banks looking at their payment processes may lead to better leverage.