By Pascal Mauzé, Executive VP, Group Head of Communication, Marketing & Sales Performance at Worldline 

The payments industry continues to thrive amidst a rapidly changing economic landscape, driven by transformation that continues to experience enhanced levels of digitisation, the streamlining of contactless payments and the development of omnichannel capabilities.

Whilst major payment solutions providers – typically listed global companies – tend to be innovation leaders through R&D, the on-going integration of new technologies into existing products, or direct market distribution by smaller players increasingly plays an important, disruptive role.

In this article, we explore how collaboration between large operators and small disruptors, such as Fintechs, can pave the way to harmonious success.

Innovation in the payments industry

The payments ecosystem continuously faces a myriad of challenges that make it stand out from other, more standardised markets. Issues such as the intense rate of competition, consolidation and market change make it a much more complex industry than many others. This is where innovation becomes a key characteristic, acting as a major differentiator to help market participants stand out from their peers.

And innovation exists in abundance with current trends including the development of e-wallets complete with tokenisation, cryptocurrency capabilities and looking further ahead, Account-to-Account (A2A) payments. This will see transfers occur directly from one account to another with no requirements for intermediaries or payment instructions whatsoever.

Brilliant ideas often emerge from partnerships between both large and small operators serving to make both sides stronger, in a process known as open innovation.

Acting alone may allow a company to be more agile and efficient on occasion, but inevitably there will always be a point when competition and innovation will come up with something better. More often than not this improved product or service is likely to be the result of a varied group of companies each having done things differently. For example, we are currently witnessing unprecedented numbers of Application Programme Interfaces (APIs), through the Web 2.0. However, Web 3.0 technology currently under development will enable the full code to be passed through the blockchain, dramatically improving the speed of development and delivery of innovative market solutions.

The role of Fintechs

Essentially, the large, transnational payment providers are expected to provide reliability, scale and security to their clients. Their platforms process millions of transactions per second, and the process must be flawless, whilst meeting strict regulatory standards. In contrast, Fintechs and start-ups play a less important role in the ecosystem, but that also means they operate in an environment with less stringent rules and constraints, enabling them to be more creative.

Furthermore, smaller disruptors which tend not to have a baseline in terms of client or revenue, have a greater ability to build from the bottom up. Risk and uncertainty are a greater part of their journey, but this also enables them to embrace a more ‘open’ approach to their thinking and be more creative in bringing the technology to life.  Larger organisations, on the contrary, can help finesse an idea, ensure it is compliant and scalable and integrate it with the clients’ back-office systems, so that processes are seamless. A good example of this comes with the introduction by Fintechs of facial recognition technology currently used for payments. As a transnational business, active in many European markets, the role of companies such as Worldline is to ensure that such SaaS complies with GDPR regulations – ascertaining compliance levels around the storage of personal data, prior to this technology being introduced to the market and offered to merchants.

Three possible paths to collaboration

I would contend that fundamentally, there are three ways for a large payments operator to spark a strong, reciprocal and beneficial business relationship with a Fintech.

1. Industrial partnerships – this option involves embedding Fintech ideas/products into a broader solution to penetrate the market and distribute products to the larger company’s network of clients.
2. Direct distribution focused partnerships – in which the larger company either directly distributes products developed by the smaller Fintech, or leverages its network to help integrate them. In other words, a large company acts as a potential business multiplier for smaller companies.
3. Acquiring or investing in these companies – helping them to achieve size and scale. My view is that it is often easier to purchase Fintechs as the payments industry is so heavily regulated, however investing below the 100% level tends to complicate things – i.e. it takes a lot of time and effort in governance etc.

It is worth mentioning that beyond these examples, we are always exploring other ways to facilitate and nurture relationships with Fintechs and start-ups, together with exploring new, creative partnerships.

One important element to bear in mind is that competition is high when it comes to sourcing the right talent in the payments industry. Collaboration acts as the perfect means to find talented individuals. Over the past four years, we have been organising a hackathon with Fintechs, entitled ‘Worldline’s e-Payments Challenge’. This hackathon, a concrete example of leveraging open innovation, brings together worldwide payments ecosystem stakeholders, including start-up disruptors and innovators, banking institutions, merchants, as well as Worldline’s talented team of technology experts. During the latest event in January, within two days, we saw 15 companies, and identified numerous prospects for establishing relationships in the future. The field of possibilities is so broad!

Looking forward

We are currently experiencing the early stages of a radical transformation – if not a revolution – in the payments landscape. The future will offer a greater diversity of frictionless and secure payment methods, including CBDCs, QR Code, SoftPos, Account 2 Account, Cryptocurrencies, as technological innovations, and regulations continue to fuel this shift. Collaboration between larger and smaller providers will play an even greater role in this trend moving forward. The result will see a shift from a large, entrenched ecosystem to one which offers a better and sustainable future for merchants and consumers alike.