Payments in 2021 and beyond: Simplifying the complex

The global payments ecosystem is incredibly complex. Simply put, there are a number of entities and intermediaries throughout the payments process that provide a piece of the puzzle and take a fee for their efforts. In some respects, it is a house of cards with each entity relying on others to manage their parts of the process. 

The complexity of the payment’s ecosystem doesn’t stop at the number of entities involved, it is a highly niche environment with specialised skills and knowledge. There are strict regulations and laws at both global and local levels as well as intricate relationships between competing organisations and within different divisions of these companies.

If you’ve already read the first and second blogs in this series, you’ll see I have talked at length about the security advantages of software-based payments solutions in relation to hardware-based counterparts.  And while security is of the utmost of importance, it is not the only benefit that software-based payments solutions provide. In this highly complex ecosystem, software has the ability to change the very fabric of this industry.

Payment acceptance, no experience needed

Software is literally turning the payments industry on its head – payments is now just an SDK. No special purpose, costly hardware or infrastructure required. Some software-based payments solutions can be stood up inside of 24 hours and integrate as easily with legacy systems as new ones. Where payments previously required people with specialist knowledge and hugely expensive infrastructure, it is truly now plug and pay.

But the most compelling aspect is that this software can turn any business into a payments company. Take food delivery aggregators for example. Anecdotally, around 35% of takeaway businesses in the UK are still cash only (think of the local kebab shop). A food delivery aggregator could quite simply integrate a software-based payments solution into its mobile app and offer payments as a service to this 35%. It’s a win for all parties; the kebab shop can now sell to consumers paying by card without incurring the cost of payments hardware and the food delivery aggregator accesses a much wider market.

All the benefits of a ubiquitous payments system at a fraction of the cost

As you would expect for an industry with multiple entities, the fees associated with accepting payments also have many layers. You have scheme fees, which are a ‘click fee’ per transaction. You have an interchange fee, which varies depending on the category of the business accepting payments and increases commensurate with the level of risk associated (for example businesses selling goods that are of greater value to fraudsters will pay a higher interchange fee than those with very low risk products). The interchange fee is split between the card issuer, the acquiring bank and the schemes. Then you have the acquirer margin and the fee for the processing of the payment. With the exception of the scheme fee, all fees are calculated by transactions size – the larger the purchase price the higher the fee.

But just because things have always been one way doesn’t mean they can’t change, and I firmly believe it is time for change, which is why we are seeing many companies, my own included, adopt a SaaS approach to pricing. By charging a small flat fee irrespective of whether the purchase is for a cup of coffee or a smartphone, or indeed a car, it turns a fintech into a true payments utility provider. Interchange fees will still exist, but for my part I believe in a single, simple, inclusive low value fee per transaction.

A new era of payments is on our doorstep
Technology has been disrupting legacy industries for a long time. There’s almost no business sector that hasn’t been reshaped by the opportunities and innovation software brings. Payments may have been slower to transform by virtue of its complexities and regulations, but make no mistake, disruption is just around the corner.

And it will be for the better. Greater accessibility in every sense of the word – for merchants of any size, in any location, with any budget. For consumers with disabilities, of any age and stage. Greater protection against fraud with near real time monitoring. Easier integration, which will see more businesses accepting payments, and more uniformity in pricing, which results in democratisation.

It’s an exciting time to be part of this dynamic ecosystem and there’s one thing we can all be certain of; software is the future of payments. And that future is now.