One of the most remarkable things about payments right now is how easy they are to miss.
Not that long ago, moving money around was a multi-step process that demanded one’s attention. You’d go to the ATM to get money, then go shopping, hand some over, and get some back.
But today, thanks to technologies like smartphone wallets, new payments products like buy now, pay later (BNPL), and new rules like Open Banking regulations, it has never been easier for a payment to fade into the background of a customer experience.
Payments today are often nearly invisible. This is creating tremendous new opportunities within payments—and attracting new competition.
I recently enjoyed a wonderful opportunity to dissect both of them at the 2022 Mobile World Congress, where I hosted a discussion on the digital payments landscape. Five esteemed panelists joined me for a wide-ranging look at the state of digital payments around the world.
The conversation included insights on many different markets, technologies and trends, but for me it was all connected by a single word: convergence.
All roads lead to payments
The makeup of the group itself was evidence of the striking range of organizations and industries with a stake in digital payments today. The panel included:
- The head of international for a major fintech startup (Keith Grose of Plaid)
- The head of the new digital payments arm of a Saudi telecom company (Ahmed Alenazi of stc pay)
- The vice president of business development for a European telecom and ask-to-pay leader (Matija Rezem of Infobip)
- The leader of the financial services division of South Africa’s Vodacom Group (Mariam Cassim)
- The global head of partnerships and innovation for TTS at Citi Bank (Carol Grunberg)
The different sizes, locations, industries and ages of the organizations represented on the panel all suggest that payments is unusually attractive to an unusually wide range of businesses at the moment.
Which raises a powerful and important question: why?
In my view, this convergence is being driven by technological innovation and new regulation.
On the regulation front, as Keith Grose from Plaid pointed out, the global move towards Open Banking is a sea change. The idea that customers should be able to access their financial data and move it wherever they want creates enormous potential for new payments experiences. And these experiences don’t need to be created or controlled by a traditional payments players.
Making payments work within these experiences, of course, requires more than regulation. Basic digital banking infrastructure and the popularity of smartphones form part of the foundation of modern payments. They support “combining layer” payments features like request-to-pay, BNPL, and immediate or point-of-sale payments.
Citibank’s Carol Grunberg compared our present moment of seamless digital payments to another memorable technological tipping point.
“About 21 years ago I realized I didn’t need a landline anymore,” she said in the panel. “We were using our mobile for everything. I moved to Chicago and realized, I didn’t need to set up a landline. I had my mobile.
“If you look at the last 10 years, I think the same thing has been happening in financial services, which is becoming that combining layer, just like my cell connected me to people and to services. I no longer need to go into a traditional way of accessing money once everything is fully integrated with financial services.”
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From launch to $1B valuation in two years
Another organization represented on the panel, stc pay, provides a compelling case study for the way cutting-edge technology and Open Banking regulation can lower the barriers to payments competition.
As CEO Ahmed Alenazi explained in our discussion, in 2018 the Saudi Telecom Company was interested in entering new industries, including financial services. Supported by Open Banking regulation, strong smartphone use in the kingdom, and a government goal to create a cashless society in Saudi Arabia by 2030, the company launched stc pay in 2018 in trial mode. Its main product is a mobile wallet that customers can use to seamlessly move money around by means of their smartphones.
Two short years after its launch, stc pay achieved a valuation of US$1 billion. Today it serves over eight million customers making over three million transactions per day.
And there’s an added wrinkle to that impressive growth that also speaks to the future of payments. That $1 billion overall value figure was calculated after Western Union acquired 10% of stc pay’s shares for $133 million. Partnerships between fintechs and incumbents give us a glimpse of the future.
BNPL with 0.5% bad debt ratio
The panel heard another fascinating case study on the trajectory of payments from Mariam Cassim, the head of Vodacom’s financial services group. She explained how Vodacom—originally a telecom business—became a BNPL leader in South Africa.
“From a telco point of view, one of the issues we were facing was: it’s 10pm at night, customers run out of airtime, and they can’t get to the corner store or a filling station to buy more.
“So we made a simple product that pretty much said ‘well, if you’ve run out of air time, we know, based on your past behavior, that the first thing you’re going to do tomorrow is walk to a filling station, and purchase air time’. We created a product that provides some bridging finance. Knowing you’ve been a historic customer, we know your telco behavior. We used that behavior as a predictor for credit scoring.
“It’s been extremely successful.”
In fact, that may be an understatement. Cassim told the panel that BNPL now accounts for 45% of all the airtime Vodacom sells, and the bad debt ratio is just 0.5%. This is remarkable in the broader context of BNPL, where bad debt ratios of 5% are not uncommon.
A seamless future
The panelists also brought up several new technologies that are just now beginning to make their impact known in payments. One, of course, was the metaverse—the hottest topic in financial services right now—and another was 5G, which is still nascent in most markets.
The long-term impact of both of these is still unknown, but I feel confident projecting that they will both accelerate the already-powerful trend towards seamless payments experiences that allow customers to pay anywhere, anytime, and any “how” they want to.
For instance, as Matija Rezem of Infobip pointed out during the panel, 5G makes secure customer authentication much easier for mobile payments services. It seems inevitable, to me, that this will make it possible to remove even more friction from any customer experience.
We are living through a digital payments revolution right now. But I suspect that the biggest changes—and opportunities—are yet to come.
If you’d like to discuss how your organization can compete in today’s payments landscape, please contact me here. You can also read our Growing Payments to New Heights report for more on growth opportunities in payments.