The rapid proliferation of digital technology is disrupting lots of different industries and there’s no better evidence than in the payments industry.
Payments are fundamental to the entire way commerce operates — both online and off.
For many years the industry moved slowly, reliant on the decisions of just a handful of companies. But digital has not only brought increased speed to market for the plethora of startups vying for a share of the over $US5 trillion dollars in annual US retail commerce. In many cases it’s also allowed the commerce experience to be re conceived and created numerous greenfield opportunities.
Understanding this complex and rapidly evolving space can be challenging, but in a new explainer from BI Intelligence we’ve made it simple. We offer a high-level look at the payments industry — how it functions, who the key players are, and the trends shaping the industry. We start by explaining payment-card processing, since the majority of consumer payments and transaction volume flow through this system. From there we take a look at how consumers’ move to mobile devices is changing the way we pay, and which players stand to benefit.
Here are some of the key takeaways:
- The ecosystem for credit- and debit-card processing involves a complicated set of players interacting to process every transaction. Five types of players are involved: acquirers/processors, issuers, card networks, gateway providers, and independent sales organisations (ISOs).
- To process a typical transaction, three steps must occur: authorizing, batching, and funding. Each participant in this process takes a fee off of the total volume of a transaction. The remainder is deposited in a merchant’s account.
Three trends will shape the payment-card-processing ecosystem from 2015 onward: the EMV security migration, rapid development of new payment technologies, and the massive card-fraud problem in the US. While none of these developments will completely upend the incumbent system for processing payments, each will disrupt key players.
- The mobile point-of-sale (mPOS) is going to have a massive impact on the payments-hardware and payments-software industry. By 2019, we forecast that nearly 80% of US retailers will have implemented a mPOS device. The move to mPOS will continue to put pressure on hardware providers that compete directly against mPOS devices, as well as ISOs that sell legacy devices to merchants.
- While the payment-card-processing system as a whole isn’t in danger, the proliferation of mobile devices will have a significant effect on the way we pay.
In full, the report:
- Provides 9 infographics and diagrams explaining how card transactions are processed and which players are involved in each step.
- Analyses the key trends and and forces that will shape they payments industry going forward.
- Details how mobile is shaping 5 types of consumer payment technologies and which companies to watch for within each category.
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Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.