There´s More to Being King of Payment Methods than Getting Your Way all the Time

Cristina is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With Santa Clause on his way, December was a good month to talk about how social and audacious the new actors in the payments processing sector have become. However, neither Square, nor iZettle nor Flint Mobile can rest on these laurels. With the New Year already in, the challenges they face are far from being a silent night´s story.

Despite the envisaged decline of the use of bank cards and the cash, it doesn´t seem that there would be such a swift and smooth transition. To become effective, alternative payment methods depend on merchants with a good number of clients requiring these alternative payment tools; instead, these clients should be ensure to have access to a wide network of establishments accepting these technologies; otherwise they will be hard on changing payment habits.  The relationship between these two elements brings in the fragile universal dilemma about what comes first, the egg or the hen.

On the competitors’ side, the traditional global payments actors are giving new entrants a pretty hard time. American Express (NYSE: AXP) has recently introduced real time purchase during television series, through free downloadable apps for iOS and Android-carrying smartphones. MasterCard´s (NYSE: MA) agreement with Telefonica (NYSE: TEF) in 2011 opened a market for 87 million people across 12 countries in Latin America shopping via mobile or making mobile payments; and 2012 was a good year for MasterCard´s PayPass technology, which was incorporate in more than 50% of the total number of bank cards.

Here is another small detail that the new entrants in the payment processing sector might want to take into account: some niche markets are being left unattended. For example, at 20th of December there were 1.272 signed petitions and Windows Phone 8 users asking for Square´s attention – that is, for a payment app adapted to their smartphones. This might not be a high enough number, but it puts consumers back into the limelight.

However, crying victory on the side of traditional financial services providers doesn´t make too much sense either. Recent studies show that 60% of users in China, Japan, some European countries and the US are eager to adopt the mobile payment and discard their old bank card.

Actually, these traditional actors are entering a Bermuda Triangle, since the main pillars of their business model - trust, security and added value products – are disappearing in the deep waters of innovation and added value service. 

Spain is a good place to start if we try to catch up with the latest movements. During last year, the country became a good catwalk for the different payment processing technologies to be displayed and surprising news to make the headlines. One such news occurred during the last days of 2012, when Apple (NASDAQ: AAPL) added a small “i” on the Spanish market, buying the problematic bank Bankia and launching the online payments platform iBank. No wonder that soon after, Deutsche Bank gave a warning to the financial sector explaining its fears that companies such as Google (NASDAQ: GOOG), Apple or Amazon (NASDAQ: AMZN) might soon bite even more out of banks´ genuine piece of pie.


Financial services providers need to reinvent a new payments recipe
Deutsche Bank´s fear might be quite reasonable. Online mobile payments market is expected to exceed 170.000 $ million in transactions in three years´ time, reported to the 60 million in 2011.

In terms of a SWOT analysis, one strength technological companies are great about is their innate flexibility to adapt to change. As a consequence of detecting market opportunities, this advantage makes them strong actors in answering clients´ demands and envisaging would-be customers´ needs.

So where does all this lead to? And why does it matter?

Definitely, to an urgent need to reshape the business model of financial services providers. Raising consumer prices – as in bank fees – cannot be the answer. The new actors in the field are claiming for their piece of pie. But the size of the actual pie is not big enough for all the involved actors.  A bigger one is needed: one that would split benefits according to the added value of the services provided. Product excellence and public segmentation will be decisive. As there is one thing to provide marketing driven-financial services for a young public, financial consultancy services to a base of loyal clients, or alternative marketing services to businesses. 

Maybe one lesson that all the actors would be good to learn and adapt to their field is the one that Disney´s Lion King provides us with: there´s more to being king than getting your way all the time. More stands for real added value, mutual trust and respect. It also stands for taking competence seriously and making the best of you. 

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