The Future of Payment Transactions Has Only Winners and 6 Other Fallacies

The digital revolution has certainly produced huge success stories in other industries. They are inextricably tied to the rise of brands – Apple, Amazon, Tesla – that nobody had ever heard of a few decades ago. But there have also been losers – the expression “Kodak moment” has even made it into everyday language. It stands metaphorically for a transformation that was started too late or was never initiated at all. It seems very unlikely that the world of payment transactions is immune to a Kodak moment.

During the era when bank branches were the main access point for customers, banks could exist relatively carefree within the protective confines of Switzerland’s borders. Today, however, customers want to conduct their financial transactions digitally on their smartphones. This allows them even to register with and start using the offerings of financial services providers outside Switzerland in less than five minutes. And, if that weren’t enough, Apple, Samsung, Revolut, and the like actually already operate in Switzerland, and many other BigTechs and FinTechs will follow in their footsteps.

BigTechs and FinTechs possess platforms that create cross-border economies of scale. In other words, they have a cost advantage. But more importantly, they grew up digitally from day one. In a loose analogy with Henry Ford, they could skip the step of first harnessing faster horses to the carriage and could go straight to building proper automobiles. Customers, especially young ones, love this: their offerings operate intuitively and are mobile and available 24/7/365. Smartphones are supplanting bank branches as the primary access point.

That’s certainly possible, but might not be necessary, because another development is taking hold here: “APIfication.” APIs, or application programming interfaces, are software intermediaries that let two applications communicate with each other. If they are standardized, their technical specifications are the same for everyone and are openly accessible to the public. This enables new connectivity possibilities. Google Maps, for example, is integrated into almost every website these days – via an API. Banks, too, can secure services from third-party suppliers this way. There are suppliers, for instance, of digital customer identification and document authentication solutions. Banks do not have to develop these processes themselves; they can purchase them as a service.

Beware, “as a service” also goes the other way around. Let’s take a large retailer as an example. It wants to offer its customers accounts as well in the future to facilitate shopping payments, installment loans, and participation in reward programs. So, does this retailer have to found a bank and obtain a license from the Swiss Financial Market Supervisory Authority FINMA? No. It can instead seek out an account provider that supplies customer accounts as a service – via APIs. Some neobanks in Europe provide such services today exclusively for non-bank clients such as retailers, but also for other firms like car dealerships, insurance companies, and health insurers. The account leaves the bank, becomes part of the third party’s service chain, and is supplied to the end customer usually under the third party’s brand name. The bank vanishes from the field of view.

It’s already happening. People in Germany, for instance, can buy Samsung smartphones with a pre-installed banking app. Samsung is collaborating with Solarisbank, which supplies Samsung with bank accounts as a service. It takes less than five minutes to open one, and then you can already start paying with Samsung Pay. In addition to accounts, interested companies can now access an entire universe of services with which to expand their offerings: credit score queries, installment loans, loyalty programs, receipt filing – everything can be obtained as a service and integrated in the company’s own digital offerings for its customers, without separate application forms, digitally, and seamlessly.

No, we aren’t. Many trailblazing developments have been initiated in recent years. The widescale introduction of ISO 20022 fired the starting shot for consolidations and an acceleration in digitalization. The impressive record of achievements for 2020 alone included the consolidation of the Swiss platforms for clearing and settlement and for eBills, the successful launch of the QR-bill, and the migration of 6,000 automated teller machines to a uniform operating system software. In addition, bLink, the API platform from SIX, went into operation with its first use cases, and TWINT last autumn reported that it had over three million users. Furthermore, instant payments are in the starting blocks. An accelerated structural transformation is clearly discernible, but it’s still anyone’s guess who the winners and losers will be.