Viewpoint: The Processing Market Is Ripe for Disruption

By Marc Winitz, i2c Inc.

As the global payments market continues to evolve and mature, we’ve reached a turning point. Consumers want more—much more—in terms of financial flexibility based on new feature and benefit expectations driven by mobile computing. Experienced financial services providers (FSPs)—issuers and program managers—are faced with critical issues around service delivery and market growth, while new entrants are looking for differentiated ways to monetize new markets. In short, many opportunities exist for FSPs that can think and deliver creatively. However, they’re consistently held back by processors that are inextricably tied to old ways of doing business.

We’ve seen very real examples of what happens to entrenched industries that have stagnated and only tinker around the edges of an existing order versus innovating a better approach. Think for a moment about what Uber, a startup with revenues north of $15 billion by some estimates, has done to one of the least innovative industries—taxis. It’s radically changed the transportation market. The same can be said for Airbnb—its $20 billion market valuation has caused a fundamental re-thinking of the hoteling experience. Both industries, hardly known for innovation, have been disrupted. So, it’s not a stretch to think the existing financial payments processing model can’t be significantly rethought, too.

A Consumer-Centric Shift

For the payments market to ignite a new generation of growth, processors must support customer value propositions that are centered on the consumer. We hear this a lot, but what does it really mean? I contend that the central player supporting the payments business, the processor, must play a greater role than providing commoditized transactional services. For too long “mass production” processors have optimized for cost by providing a singular link in the end consumer value proposition chain. While that link is important, it’s only marginally acceptable for low-end, undifferentiated programs.

So, how can processing disrupt itself and earn the right to play an instrumental role in advancing the next era in payments? Five areas must be exploited to help FSPs conceptualize, deploy and build consumer-centric payments experiences. These are:

Embedding Payments in Business Processes–A significant opportunity in the next phase of payments involves embedding value exchange—a payment—into a larger business process. This concept has evolved significantly in the prepaid market, as the majority of processing innovation has come from prepaid. Some prepaid examples include disbursing funds to large populations in times of emergency and actively funding accounts that help consumers actually save toward a specific goal (then intelligently helping them spend those funds). Whether the payment is prepaid is not the point. There are virtually unlimited use cases to consider. Processors that can facilitate and deliver embedded payment capabilities tied to a business process clearly will have an edge.

Market Responsive Processing–Legacy processing platforms aren’t designed to support rapid speed-to-market requirements nor can they facilitate quick, inexpensive changes to existing feature sets. This is unsustainable in the consumer-centric payments model, which is directly influenced by mobile computing and social media. When FSPs are unable to deliver new functionality “at the speed of mobile,” they take the reputational hit, not the processor. Every time a payment experience is poor, for whatever reason, the customer isn’t thinking “the processor fell down here.” They’re judging the product and the provider. It’s not just the FSP’s reputation that’s affected, so is their bottom line.

Flawless Service Execution–Consumers are more in tune than ever about the actual payment experience. A small misstep is not acceptable in today’s “always on, always connected” world. The reality is that mass production processing wasn’t designed to handle rapid change and cannot embrace flexibility. When that is attempted, those systems break down. Market responsive processing systems need to embrace market-driven change and then re-think what an SLA really means. This new era of payments requires the processor be able to deliver all of the time.

Contextual Innovation–Everyone likes to talk about innovation, but few can really define why it’s important. Innovation for its own sake isn’t very useful. For innovation to be relevant, it must lead to a better outcome. So, how does that work in this new payments era? In a word—context. This means processors must provide more to FSPs than transactional capability. Systems intelligence and controls that integrate historic and real-time customer information (history, location, preferences) and can act on that data to solve a business problem are required: for example, educating a payroll cardholder using an ATM about the opportunity to use his card at the POS; then, providing contextual offers via a mobile channel to incent the “pay at the POS” behavior.

Product and Program Management–A question arises around this new generation of payments. Is the existing bank model the right configuration to support a customer-centric user approach? Given the rise of this new class of FSPs, probably not. Market responsive processors can play an important role here by understanding the consumer need and suggesting customer value propositions that can be enabled through technology, advancing cost reduction and supporting revenue-creation strategies based on context and the disciplined use of key performance indicators to maximize business performance. Demonstrating how to increase interchange revenue via a real-time, integrated mobile strategy or suggesting ways to reduce dormancy of cards in a portfolio through segmentation and awareness campaigns makes the processor more than a supplier—it becomes a business partner invested in mutual success.

Consumers are demanding more from their relationships and program managers need help beyond accessing commoditized services. Processors that view their role as business enablers can disrupt the status quo and will do well on behalf of their clients in this new era of payments.

Marc Winitz is the CMO of i2c, a Silicon Valley-based issuer processor and technology infrastructure provider. To understand how to apply new processing innovation in the changing payments marketplace, checkout i2c’s market expert series, “The 7 Laws of Prepaid Success”. You can reach Marc at [email protected].

In Viewpoints, prepaid and emerging payment professionals share their perspectives on the industry. Paybefore endeavors to present many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.