‘Payments’ is a strange term in many ways. Just 15 years ago, we would have used it to describe handing over change at the till or sliding a piece of plastic into a clunky card machine.
Now, the digital payments market is estimated to grow $19.89tn by 2026. Payments generated revenues of $1.9tn in 2020 even as spending slumped through the pandemic, and that figure is expected to swell to $2.5tn by 2025, according to research from McKinsey.
Fintech firms offering digital payments have commanded more than $108bn in funding since 2018 while digital payments penetration has reached 89 per cent.
But even after that period of astronomic growth, we are standing on the cusp of another revolution. New regulation in the UK and beyond is set to spur a period of whirlwind innovation, while the full benefits of initiatives like open banking and ISO 20022 are set to fundamentally reshape the landscape in which payments take place.
When Streets Consulting was founded, we were passionate and enthusiastic about the evolution of fintech in financial services. But having seen the growth and development of the payments sector, we now know that in the next 15 years there will be yet more monumental change to come.
First up: Consumer revolution
The pandemic fundamentally changed what payments mean for consumers. Shoppers migrated online en masse and usage of tools and technologies like embedded payments and buy-now pay-later (BNPL) surged.
But as with all emergent technologies, the landscape and regulation is now changing with them.
BNPL firms for example are facing a shift in public sentiment as concerns grow over the prospect of unregulated debt as a cost of living crisis hits. Regulators in the UK are preparing to swoop in this year and firms are facing an inflexion point.
As the Treasury in the UK prepares to unveil a consultation on regulation of the sector in the coming weeks, firms with the right combination of regulatory and political engagement alongside a well- argued consumer proposition will come to the fore.
Next up: Open Banking to overhaul payments
We are seeing a similarly monumental shift in how open banking will overhaul the payments landscape across the world. While the UK may have been the leaders in rolling out game-changing open banking propositions and pushing ahead with mandating big banks to open up their data to smaller third parties, other jurisdictions are now moving just as fast.
As an international agency, we observe the cross-border adoption of these initiatives with great interest and watch regulators and firms learn and push ahead with technology we expect to revolutionise the sector.
We have worked with companies across the fintech industry over the past 15 years, and we know these tectonic shifts present an opportunity as well as a challenge. For firms that position themselves on the right side of the debate and navigate the change to come, the next 15 years could be just as important.
Behind the scenes: Payment standards propel innovation
Behind the more eye-catching consumer names, the industry is moving ahead at pace. Firms and innovators are building the infrastructure and rails that will facilitate the next stage of payments development.
ISO 20022 is one area that will set a new international standard for companies and roll out a common platform for payments messaging across borders. Scores of firms are off the pace, however, and we know engagement is now crucial to ensure companies are not left behind in its wake.
We have been working on campaigns to stress the importance of acting now to ensure that institutions are not left behind as a new age of payments arrives. While the frameworks and standards governing institutional payments may not generate the same level of column inches as their consumer counterparts, we know that they will be just as crucial.
Take Volante Technologies for instance – a client we have been working with in the payments sector since 2015. They help large institutions like Citi, Goldman Sachs and Wells Fargo shrug off the limitations of legacy payments technology and innovate like agile start-ups.
Last but absolutely not least: Payments for good
Against this backdrop of change, both firms and consumers are facing urgent and all encompassing challenges. Soaring inflation and a cost of living squeeze are impacting every area of the economy – and payments are at the heart of that.
Payments are at their most powerful when they can facilitate good. Perhaps the most heartening area of innovation has been watching the sector spawn innovation and ease the strain on people’s finances. Cross-border money transfer firms have seen record transaction volumes, for example, as firms send money back to struggling family and friends. And the charity sector is now capitalising on innovation to facilitate the smooth exchange of cash to where it is needed most.
It is important to keep that human centric view of fintech when considering innovation. New methods of payment have not evolved for their own sake, but to help ease the transfer of wealth and solve the challenges facing people across the world.
It isn’t money that makes the world go round, it’s payments. And as we reflect on 15 years of Streets Consulting and the next decade and a half to come, we can’t wait to work with some of the most exciting firms in payments as they shape the world to come.