According to the Bank for International Settlements‘ (BIS) annual red book report on payments, more than a quarter of payments previously held by banks have been seized on by smaller challenger companies.
Within the one-pager, (which you can find here), the BIS highlight the vice that traditional banking finds itself in:
“The traditional bank-based ecosystem is being disrupted from below by new Fintechs, and from above by well-established big techs.”
Over the last couple of years, challenger fintechs and innovations by tech companies have allowed businesses to take care of transactions between themselves and their consumers.
There’s nowhere that we see this more than in the graphs depicting both the number of payment solutions coming from these third parties, but also the side-ways performance of Real-Time Gross Settlement (RTGS) compared to fast-payment systems.
So why are we seeing challengers start to grab at this previously banking-dominated space? We can break it down to three words: Innovation, Speed and Convenience.
We need only look at the dramatic increase in the number of people making use of alternatives to fiat currency over 2018 and 2019 to see how innovation has really changed the nature of the game.
According to companies like Tencent, Statista and others, there are over 4 billion people that reliably use digital and mobile solutions for instant payment settlement.
This is thanks to their collective ability to scale and reliably settle payments nearly instantaneously.
It’s for reasons like this that we’re not only seeing rapid scalability for countries like Denmark, Sweden and the UK.
But the continued decline in the number of people using cash – which is expected to continue to decline well into 2030.
This innovation question doesn’t even factor in the kind of immense advantages that the inclusion of 5G will involve for digital payments over the next couple of years.
This is a direct factor that the BIS team raises during the report; the fact that challenger solutions are readily available on a 24/7 basis simply makes them more accessible for the average user.
Speed, combined with scalability, allows for these payments solutions to be embraced and thoroughly put to use; as we see in Denmark and Sweden.
“In Denmark, Singapore and Sweden, adoption has been much faster than for many more mature systems. The average Swede makes about 40 fast payments per year…”
Digital Payments simply outperform conventional RTGS, with the latter taking up to 30 mins, while digital payments occur instantaneously.
This is one area that banks have been working to improve, however. Providing consumers with more time in the day to have their payments settled.
Inevitably, the biggest advantage that digital payments have is that they’re readily available and easy to use for denominational payments, big or small.
“Consumers do also crave convenience in paying. This is reflected in the number of contactless cards per inhabitant rising rapidly in both advanced and emerging market economies.”
Digital payments like those in the mobile space are more industry-agnostic; allowing users to easily make payments both retail and wholesale.
The Future of Payments
Competition is going to be in the very near future between banks, big tech and small-scale challenger companies, without a doubt.
We’re fortunate enough to see that banks are rising to the challenge so far. But for businesses and users, all three of these factors – Innovation, Speed and Convenience – they all matter.
Businesses that want to really put themselves out there can learn a lot from this study, especially where it relates to their payments.
That’s why we here at Unlimint aim to provide the broadest level of access to domestic payment solutions, along with an innovative level of security.