Other parts of this series:
For the last 20 years, the most predictable thing about the payments industry was that it was unpredictable. Disruption has been going on for so long that it’s now hard to remember what so-called “normal” times were like—and the changes show no sign of slowing down.
But the disruption will not be evenly distributed, either by geography or industry segment. Some markets will be highly volatile where others will merely be vulnerable. A few pockets of the industry may even be relatively calm and durable.
In this series of posts, we’re going to explore Accenture’s new Payments Disruptability Index, which provides insight into the tumultuous present and future of the industry.
But before we jump into the specific findings in the index, we need to understand the forces driving the disruption.
What’s behind all the change?
The most powerful shockwave roiling payments right now is the same one that’s reshaped global society since the spring of 2020: the coronavirus pandemic. From a payments perspective, the most salient aspect of the pandemic is how it is changing consumer behaviour and business sentiments. These are likely to act as an accelerant on the other disruptive trends that were already reshaping payments before the outbreak.
These include regulatory developments like the EU’s revised Payment Services Directive (PSD2) and Interchange Fee Regulation, and the UK’s Financial Conduct Authority fintech regulatory sandboxes. When paired with the accelerated move to e-commerce and contactless payments at this time of physical distancing, these regulatory developments may hasten the substitution of cards and other traditional instruments with alternative payment solutions.
Meanwhile, new entrants to financial services—big tech, fintechs, challenger banks—are driving market disruption too by offering customers (especially consumers) better user experiences and lower prices. This may have started with the substitution of physical cards with digital wallets, but merchants’ and consumers’ appetite for radical alternatives to traditional payments options is growing.
These new tastes include payment experiences that offer more control and lower costs, like request-to-pay solutions displacing direct debits. Other new services like Klarna minimise upfront payments and return control of cashflow to users.
Embedded payment experiences are also on the rise. Non-financial services providers like Starbucks, interfaces like voice recognition and Internet of Things devices like smart appliances are all offering new ways to pay.
Finally, the use of cash and checks is continuing to decline while online shopping grows in popularity. Both of these trends have already been supercharged by the pandemic and both will open even more opportunities for disruption in payments.
In fact, it’s happening already. Accenture research based on GlobalData numbers show that e-commerce as a share of GDP is expected to grow 15 percent in China, 22 percent in Sweden, and a staggering 114 percent in Nigeria in 2020. Almost 380 billion transactions worth nearly US$64 trillion are expected to shift from cash and checks to cards, interbank payments and alternative payments instruments by 2023.
An uneven wave of disruption
These trends are all creating a powerful wave of disruption—but it’s not one that will hit all parts of the industry equally. The level and rate of disruption is uneven across different markets and payment instruments.
Challengers are targeting the segments with higher margins and lower barriers to entry—and banks are scrambling to respond. This comes at a time when banks are already feeling the competitive heat, with many seeing payments revenues contract during the COVID outbreak.
In the next post in this series, we’ll look at which parts of payments are most vulnerable to disruption.
I invite you to read the full Payment Disruption report to find out more.