We’ve seen a gigantic growth in the payments sector and fintech industry as a whole in recent years, and it’s not just a few incumbent firms who are handling the billions of pounds which are transferred each year, there is also a lot of competition coming from fledgling start-ups. London, and the Silicon Roundabout in particular, is one area which has seen tremendous amounts of venture capital investments into new payment processors in the past couple of years.
Thanks to advances in cloud computing and hardware, the ability for software developers and banks to provide low cost payment processing solutions has become far easier too. So along with all of this growth in the payments sector we’re also seeing a further reduction in the cost to consumers and retailers. Even for established banking corporations, payments services are becoming an increasingly vital source for revenue and customer retention, thanks to the sheer number of transactions each year.
Subsequently there is plenty of competition when it comes to price and its easy for any consumer, eCommerce business and retail store to pick out a cheap option if that is what they are looking for. There’s so much choice for the customers of payments companies when we consider price alone.
It is therefore vital that payment processors provide innovation or set themselves apart from competitors in some way, if they are looking to not just survive but to also prosper. That is why, now more than ever, differentiation is important for payment processors.
It is no doubt the incumbent firms in the payments sector which will feel the pressure to differentiate the most. Yes, many incumbents such as PayPal are household names which consumers and small businesses know can be trusted, but start-ups in the sector are often more willing to take a risk when it comes to differentiating and are incubators for innovation.
Make no mistake though, the pressure to differentiate exists for both incumbents and newcomers. How will new payment processors receive vital funding if they aren’t any different from all of the other firms already in the market?
PayPal is however a perfect example of a company which has started to feel the pressure to innovate and differentiate. PayPal’s directors know that being established and providing a reasonably priced service to consumers and businesses isn’t enough anymore.
EBay’s PayPal acquired payments gateway Braintree in 2013 for the costly sum of $800million cash. Why? Most likely because Braintree was establishing itself in technologies which PayPal did not have and which would help to differentiate the payment processor from its competitors.
Venmo, a mobile payments solution acquired by Braintree previously was a key attraction of the acquisition for PayPal. Venmo, which allows people to pay and send money to each other for free, bolsters PayPal’s mobile services and allows them to offer new services to their customers.
Braintree brought new resources and products to PayPal and allowed them to advance in areas which they were not previously ahead of the market in. Braintree was the beginning of PayPal’s path to innovation and differentiation - which many industry experts knew had to happen if it was going to compete with start-ups in the sector competing on more than price and brand recognition.
PayPal have snapped up many other smaller fintech firms too in order to ever expand that differentiated product line with services that competitors do not offer.
Providing an innovative technology isn’t the only way to differentiate one’s self on more than price of course, although it clearly is a good way for start-up firms to achieve a valuable acquisition. Differentiation can also come in the form of adding new integrations to existing software or services; the combination of payments and messaging is one key area being talked about in the industry at the moment.
Tapping into ever expanding social media is a real differentiation and growth opportunity. Standing out as a firm that offers better security safeguards is another potential unique selling point.
Consumers and retailers alike are also looking for better customer experience in every product and service which they use. Customer experience over price and product alone has created a real buzz in many industries; your customers don’t just want a great product at a low price but when something goes wrong they also want you to be there to quickly help them and for dealing with you to be as painless as possible.
There are many ways to differentiate of course (many which haven’t even been imagined yet) and finding a way to really stand out from other payment processors is crucial. Hopefully for those payments firms reading this, there will be a realisation that competing on price alone will not allow anyone to really win.
Differentiation is important for payment processors as competition is fierce and to grow in the market takes a combination of, at the minimum: low prices, innovative products and an outstanding service. Incumbents and start-ups need to focus on all three aspects in order to succeed.