COVID-19 accelerates growth of pay-as-a-service
The global COVID-19 pandemic has created a catalyst for change that is expected to perpetuate the rise of payment-as-a-service (PaaS) platforms, as innovative payment technologies lead the way in the new digital economy.
This is according to an analysis issued last week by PwC’s Strategy& division on the value of payments, which forms part of a soon-to-be-released report titled: “Convergence of Payments – PwC Payment Trend Series #2”.
According to PwC, traditional payment systems are undergoing a paradigm shift underpinned by new technology, innovation, rising customer expectations, mobile and Internet penetration, and new infrastructure regulations.
As all these global megatrends transform the payments ecosystem, Paas partnerships are playing a key role in shaping the future of online payments, it notes.
This is largely as a result of the latest rounds of acquisitions and partnerships by payment intermediaries and banks, aimed at creating value by offering a multitude of payment solutions, least-cost routing options and value-added services that can cater to the needs of small merchants and global multinational companies alike.
Most banks now have platform solutions that are integrated into their core banking systems via application programming interfaces from PaaS providers. Together with the rise of PaaS providers in the payments ecosystem, banks have become more firmly grounded as the ultimate store of value owners.
This emerging PaaS model allows merchants, consumers and other participants in the payments ecosystem to use local, regional and global payment options by interacting with a single interface - the value of this model lies in the removal of complexities, improved processes and differentiated experiences.
“The value of a payment has transformed, from a traditional medium used to complete an exchange of goods or services, into a cornerstone of the new digital economy,” says Chantal Maritz, Strategy& payments transformation lead at PwC.
“The traditional way to pay has been disrupted, progressing payments beyond the conventional model into a new paradigm. The new opportunity lies within the context of payments, which provide insights into managing your business better, understanding your customers more deeply and operating in a more efficient, effective and innovative manner.”
Last week saw the local launch of Apple Pay, with three main South African banking institutions – Absa, Discovery Bank and Nedbank - partnering with the digital wallet service to provide customers with a safer, more secure and private way to make payments.
Apple Pay allows users to make payments in person, in iOS apps, and on the Web using Safari. Customers simply hold their iPhone or Apple Watch near a payment terminal to make a contactless payment. Other similar PaaS partnerships with banks include Samsung Pay, Google Pay, PayPal and Payoneer.
PwC says 2021 will see more partnerships gaining traction as traditional payment systems become out of date and fail to keep up with the demands of a digitally-focused economy.
“Banks ensure regulatory and financial compliance, and in most cases are owners of the underlying clearing ‘rails’ that make it possible to move funds from one institution to the other. As the level of digital payments activity continues to grow, compliance with anti-money-laundering legislation and ‘know your customer’ and fraud management requirements continue to be scrutinised by regulators to ensure customers are protected.”
In some countries, such as Sweden, paying with cash is becoming increasingly difficult, with most transactions being digital. Beyond the horizon, several countries, such as China, are also exploring the concept of central bank digital currencies — a digital payment token that is issued and fully backed by a central bank and is legal tender.
Use of contextual data
Another observation in the PwC report is the growing focus on access, use and management of payments data across the payments ecosystem.
Payments data provides useful insights into customers and their purchase behaviour in real-time, allowing the financial services organisations to better understand their customers and identify their preferences or most-profitable customers, in order to refine their marketing strategies and achieve long-term success.
“The growing abundance of data within payments is enabling greater transparency and discovery of more creditworthy businesses to offer loans to customers. With greater access to credit, these businesses can scale up to employ more people, leading to greater contributions in tax revenue and consumption within an economy,” it notes.
The scope and scale of financial services will be more than just a movement of the transaction value, it becomes a value equation where payment transaction + insights + trust = value creation within the value chain, according to the report.
“Banks, governments, non-traditional financial service providers and financial technology firms must work together to enable this transition to a digital value-creating financial services ecosystem to further enhance their social licence, to build trust and to make sure the most vulnerable are protected,” comments Maritz.
“To stay relevant, never mind successful, payment providers have to be agile and anticipate change at all times - what is a differentiator today will become table stakes tomorrow.”