Consolidation: the answer to a promising future for payments

The future of the banking system and finance as a whole industry has recently been in doubt, catalysed by the collapse of Silicon Valley Bank and Signature Bank. Concern around the future of the industry is clear, but for payments in particular, the outlook is bright.  

Those businesses who have the strength to weather the storm are likely to also have the robustness to continue to thrive. And we’re likely to see one key theme throughout this success: consolidation.  

This consolidation will be seen across businesses, with more M&A activity, across services, including the rise of the ‘Super App’ as businesses compete for attention, and the consolidation of technology, which will see payment providers utilising the blockchain capabilities that crypto companies have left behind.  

Consolidation of businesses 

Against the backdrop of a challenging landscape for the financial services sector, fundraising is difficult.. Valuations are declining, and deals are stalling. As a result, we’re set to see a rise in M&A, as businesses explore its potential for boosting valuations and remaining competitive. In 2022, there were 6,006 deals across global fintechs, including mergers and acquisitions (M&A), private equity (PE) and Venture capital (VC) which was valued at US$164.billion. This year, as businesses look to consolidate, that number is only set to grow. We’ve already seen a number of notable acquisitions, such as HSBC’s acquisition of Silicon Valley Bank and Trustly acquiring Ecospend.  

For payments businesses looking to boost valuations, meet business goals or create a diverse product portfolio, M&A seems like a logical tactic to use.  

Consolidation of services 

In recent years, in part catalysed by the pandemic, we’re seeing a more connected world than ever before. Merchants are looking to move towards a global, omnichannel model, to serve more customers in more countries. However, as merchants foster this omnichannel approach, the requirement for a new generation of all-connected payments technology and local payment methods has emerged. Global businesses need global payment methods, to serve customers with the payment methods they’re accustomed to, have access to and prefer.  

To meet this need, we’re likely to see the strengthening and consolidation of services, and the rise of niche offerings, as merchants set their sights on enhancing customer experience, growing their portfolios and increasing market share. EMIs and PIs are likely to expand their offerings and include local payment methods, at the same time as consolidating services and making them available from one platform, from a single provider. 

Similarly, as businesses compete in the midst of the attention economy, consolidation is set to emerge in the form of Super Apps. This is already beginning, with the rise of Revolut in the UK, which is well on its way to becoming a financial super app, and WeChat in China which already encompasses a huge range of financial, messaging and lifestyle stories.   

Consolidation of technology 

The rise of crypto has brought with it the emergence of new technology for moving money, such as Distributed Ledger (DL) and blockchain, without the need to rely on traditional, incumbent payment rails. However, the sector has been through an incredibly challenging time, with major players such as Coinbase and Gemini experiencing market losses and making layoffs. But all is not lost, as the technology they have created and boasted creates a unique opportunity for PIs and EMIs.  

The payments space can leverage this kind of technology, to improve - or rather, replace - existing payment rails, to enhance user experience and simplify transactions.  

A unique opportunity  

Following a turbulent first quarter of the year, there’s no denying that the year ahead will be challenging for the fintech space. The collapse of banks, further redundancies and continuing difficulties in raising capital are all likely to have a longstanding impact. However, this period of uncertainty can be used as a pivotal point for change for the payments industry, allowing them to reflect, reconsider their goals, the services they offer and the technology they foster to create a brighter future.