Search
Close this search box.
Blog » Business Tips » The New Future of the Payments Industry

The New Future of the Payments Industry

ACH Payments

As 2016 begins, there will be a year of ongoing change that lies ahead for the payments industry, especially as technology further evolves. Further exploration and debates over security and compliance standards will continue. Meanwhile, consumers and businesses increase the adoption of new payment methods.

New Territory, Growth Potential, and Sticking Points Ahead

Numerous reports suggest the future of the payments industry is only going to get brighter. Banking Technology Magazine envisions the future like this:

The future promises to deliver a rapidly changing payments landscape as increasing convergence, integration and e-commerce and mobile technology radically change the shape of the payments market place. Over the next five to seven years, retail and wholesale payments are expected to mature into highly automated and interactive eco-systems. 

With the growing acceptance of new payment forms and migration from cash, there has also come increased competition and new platforms. As Fintechist noted, this includes being able to use a mobile device or smart card to access a bankcard without using the bank’s actual application to do so.

With the growing globalization of purchases and financial transactions, there is a need for standardization across financial regulations. However, this is something that may take considerable time given the red tape involved in regulating across countries. At the same time, banks do not like being left out of the payment process as mentioned above, so there could be a real battle ahead.

One area that appears to have significant potential is the corporate payments sector, which has issues with efficiency and transparency that need to be addressed. Established payment processing companies, banks, and fintech startups will all have the opportunity to create disruptive solutions for the corporate payments segment.

New fintech companies have the chance to emerge as the controlling group in payments, if they look at enhancing their customer relationship capabilities. Traditionally, customer relationship has been an area where banks, as payment processors, have been strained and ultimately failed to fulfill needed relationship for their consumers and corporate clients.

Banking Technology also listed a number of other trends that may direct the future of the payments industry:

  • Payment product development will entirely focus on the customer.
  • Payment innovation will be driven by non-banks with more banks partnering with these companies to remain competitive and relevant to their customers.
  • Wholesale and retail payment sectors will converge and lead to banks moving payments to an in-house gateway so they rely on third parties as little as possible and capture the corporate customers they will increasingly seek.
  • New models for market delivery of innovative payment systems and platforms are required to capitalize on these opportunities and address further integration coming between wholesale and retail payments.

All is Not Square(d) Away with Payment Company Valuations

Despite the advancement in adoption rates and technology, there are still signs that everything in the payments industry is not necessarily ready for the next stage in growth.

Recent analysis of Square’s current stock performance has illustrated the areas that still need to be addressed. That’s not to say what Square has done in leading the way for unicorns to go public has not been a good thing. Its initial public offering in November 2015 proved that these companies can debut on the stock market, but it has called into question the extraordinary valuations being named. Its last round of funding had Square valued at $6 billion, but it is now listed at a value thirty percent lower.

That price tag meant that Square’s stock price is being watched very closely. And, recent results show that maybe the valuations have to come back down to more realistic price points. Although the price has appreciated 9.4% and hit a high of $13.49 on December 31, 2015, analysts like Wedbush are actually giving the company a neutral rating and lowering the price target down to $11 from its $12 original target. The company has also lost 13% of its market value just in the first week of 2016.

The reasons for lowering the price target are based on the fact that the company does not necessarily have an operating structure that does not mesh with Square’s actual potential in the payments industry, to be an innovative leader guided by a respected management team. The Wedbush analyst noted that the critical issue was that Square had to align its expense structure with its monetization process.

Another major speculation and concern as to why the stock price and valuation were not in alignment was that Square’s addressable market was significantly less than had first been anticipated, standing at five million instead of 21 million. This may be a sign of saturation, which could mean Square doesn’t currently have the growth in its future that had been originally thought. Or, it may mean that people are having a “watch and see” attitude before jumping in to Square with both feet.

As if this were not enough of a concern, Wedbush mentioned other problems related to Square’s margins, which are being adversely impacted by poor lead generation, transaction losses, and generous stock-based compensation. Issues concerning a rise in fraud rates and the need for Square to invest more heavily in expensive marketing compared to others that rely on referral networks could explain why the stock is just not performing as well as its company valuation would have delivered.

Promising, Yet Cautious Optimism

It seems like everything is bright and optimistic for the payments industry, including Square’s recent IPO. Yet, the results show that more work must be done. This includes ensuring the payments industry can ride out all types of economic cycles. Square will need to be creating the disruptive solutions, necessary to generate new growth opportunities, and they will be focusing on the service component that traditional payment companies like banks have failed to do.

About Due’s Editorial Process

We uphold a strict editorial policy that focuses on factual accuracy, relevance, and impartiality. Our content, created by leading finance and industry experts, is reviewed by a team of seasoned editors to ensure compliance with the highest standards in reporting and publishing.

TAGS
CEO at Due
John Rampton is an entrepreneur and connector. When he was 23 years old, while attending the University of Utah, he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months, he had several surgeries, stem cell injections and learned how to walk again. During this time, he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine and Finance Expert by Time. He is the Founder and CEO of Due.

About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Categories

Top Trending Posts

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More