February 6th 2019
Just a couple of decades ago, people only paid for goods in stores, and in cash. Nowadays making payments online is an everyday occurrence and e-commerce is alive and well, with a global online retail market expected to top $4.5 billion by 2021. So who are exactly the competitors striving to conquer this market?
Digital payments have become commonplace, involving a broad range of players, among whom the biggest name is PayPal, through which 18% of all e-shopping is carried out. Meanwhile mobile payments are becoming more widespread, with a growing number of smartphone-based transactions through a multiplicity of new channels, including mobile wallets such as those provided by Apple Pay and Samsung Pay; mobile apps – notably those developed by Venmo and Square; and the new tools offered by instant messaging services such as Facebook Pay on Facebook Messenger.
So, might digital payment mechanisms evolve in order to enable retail customers to carry out transactions in the near future without using a system provided by a financial sector player in the strict meaning of the term – i.e. without using an app developed by a bank or FinTech firm? As a result of the new collaboration between Google and PayPal, people can now make payments using Gmail or YouTube, while Microsoft users are able to access Microsoft Pay from Outlook. A new wave of services based on frictionless payment mechanisms is being developed and the web giants try to capture and retain users’ attention so that they keep their products and do not switch them to another provider. But will the startups acting in this field be able to face the strategies deployed by such mighty players as Google, Apple, Microsoft, Facebook and Amazon?
Max Koenig, Head of Partnerships in the Fintech sector at the Silicon Valley-based startup accelerator Plug and Play, argues that the battle is actually being fought out between the new players, as quite often “Often large incumbents - whether they be banks or tech companies - have an already very large and faithful base of users. Rolling out a new payment service within an already existing product will have far more success initially than convincing users to download, onboard and start using a brand new product.” He adds: “The Payments race has based on a frictionless user journey. Zelle is leading the way on the front. It was created by seven of the largest US banks and is fully integrated within your banking app. With Venmo you have to withdraw the money from the app and transfer it to your bank account, which adds a layer of friction. Whereas with Zelle, your money is deposited directly.”
The advent of Zelle on the market is a sign that “banks are relentlessly working to keep their advantages and avoid becoming simple pipes. We can see Zelle overtaking Venmo however Venmo is still the go-to”, says Max Koenig, explaining that Zelle’s popularity is linked to the banks’ user base, on which the app has been able to rely ever since it was launched. This analysis also applies to Facebook and Google, which are now grafting products on to their already existing user base. It would thus appear used that consumers tend to go for simplicity – i.e. a single app for a wide range of services.
Between FinTech and TechFin – a term to name those digital giants who extend their activities to include financial services – it seems that everything is still to play for. Max Koenig also points out that Google and Apple do not have such a large impact on FinTech startups. He explains: "Fintech is a very interesting niche, where most founders are highly educated and experienced bank executives who are addressing a specific segment. Generally, the vast majority of Fintech startups are not native of the Silicon Valley. The Valley is an important place, at a given moment, when it comes to scaling up and attracting investment, but the product development rarely takes place there.”
Taken together, Apple Pay, Samsung Pay and Google Pay have today over 150 million users and this figure is likely to reach 500 million by 2021. Surprisingly however, in the United States it is Starbucks which is the leader of mobile payment applications. It remains to be seen who most consumers will place their trust.
Written in partnership with l'Atelier