The prevailing wisdom is that Big Tech poses an existential threat to incumbent payments providers like Visa and Mastercard. You’ll remember that back in March, Apple captured headlines with the announcement of Apple Card, it's bold new credit card offering.
But when you look beyond the hype, you realise that the payment industry’s biggest competitor isn’t Big Tech. It’s cash. Further, it’s fair to say that the major payment providers are here to stay, and will continue to play a key role in the evolution of payments.
The inexorable rise of the card
The explosive growth of card payments versus cash has surprised everyone. And it continues to present immense opportunities for payments companies – both incumbents and challengers.
In a recent interview, Al Kelly, the CEO of Visa, observed that “cash in many countries is the dominant way people pay. Cash Inc. is, in fact, our biggest competitor. And we’re working to displace cash every day.”
The data backs this up. Card as a method of payment is increasing globally. 43% of global consumer purchases were made on cards last year, up from 28% in 2010. Adoption has consistently risen by roughly 2% each year, according to research firm MoffettNathanson LLC.
United we stand
In the same interview, Mr. Kelly pointed out that whilst Visa faces competition from all sides, many challengers could wind up as partners.
Recent history bears this out. Apple chose to partner with Visa, Mastercard and American Express when it launched Apple Pay in 2014. The result was less disruption, more optimisation, with customers enjoying more options when it came to paying for goods and services online and at brick-and-mortar locations.
Since then, Visa and Mastercard have performed admirably in the stock market, suggesting that investors remain confident they will be relevant for some time to come in the era of Big Tech, innovative startups and everything in between.
Don’t underestimate scale
The world’s biggest payment companies have vast networks in every corner of the globe. For example, Visa is used at 54 million merchant locations and has 3.3 billion cards in issue, accounting for $11.2 trillion worth of payments in 2018.
On a practical level, this means that partnership is a far more attractive option than competition with the major players. Their reach – and considerable brand equity – give them an almost unassailable first-mover advantage. It’s the sort of advantage that startups cannot hope to disrupt with new products.
That’s our thinking here at Shieldpay. We believe our product complements the existing payments infrastructure, improving security and enabling counterparties (both individuals and businesses) to transact with confidence.
A word of caution
But what about real-time payments, crypto and other cutting-edge technologies? How can incumbents co-exist with new methods of payment that threaten existing business models?
Everyone assumes that the end-game of the payments industry is real-time payments, but this is not a given. In fact, real-time payments pose a challenge for dispute resolution, especially in cases where payments are made accidentally to the wrong person. Revoking funds is practically impossible if money is sent to the wrong individual, or goods are not delivered as agreed.
It might not be fashionable to say it, but when it comes to payments there continues to be a trade-off between speed and security. Friction isn’t always a bad thing – in fact, positive friction is a vital part of building and guaranteeing security.
Major payments companies know this, which is why they are partnering with niche providers to improve different areas of their offerings. And it’s why we’ve partnered with Visa to deliver secure card payments across peer-to-peer marketplaces, opening up the use of cards to the £120bn classifieds industry.
Like Apple and many other forward-thinking companies, large and small, we have decided to affect positive change for consumers by working with an established powerhouse that can reach them at scale. Together, we win.