by Anant Patel
The COVID-19 pandemic has had a profound impact on all industries, forcing many to become mobile and digitally agile almost overnight. For the digital payments industry in particular, there is no doubt that 2020 was significant. Insider Intelligence research revealed COVID-19 accelerated payments industry digitization by two to three years, as the implications of the virus shifted consumer habits, and altered business priorities, as businesses of all sizes accelerated their digital transformation.
The innovation and disruption we have seen in digital payments over the last twelve months is just the beginning. I predict 2021 is going to be a defining year for the payments industry. Collaboration will be key as business reshift priorities and begin to explore ways to leverage payments to deliver a better experience for customers, drive out inefficiencies and create new opportunities.
Greater push for global B2B payments innovation as prompted by COVID-19
While innovation in B2B payments was gathering speed pre-COVID, B2C movements in the fintech and payments space had always been the forefront of payment news and stories, with consolidation, partnerships and the growth of start-ups in the sector dominating much of the talk for the past decade.
However, COVID-19 exposed the pitfalls of businesses neglecting investment in B2B payments technology. Those companies that relied on outdated, siloed B2B payment systems before the pandemic were more exposed to issues of fraud and soaring costs with negative implications on customers and supply chains.
As such, we have witnessed the potential over the past year for B2B payments to add greater value and solve bigger problems for firms as we have with consumers. It has created a ripe environment and a hotbed for B2B payments transformation, not starting, but catalysing of innovation in this space.
We are now seeing significant innovation in the B2B payments space, and it’s a really exciting time, with experts and analysts expecting the market to continue to grow exponentially over the next few years. Mastercard estimates that the current global business payments market exceeds $100 trillion, encompassing all forms of payment. In addition, we are seeing increased collaboration and consolidation between players in this space as they move to expand and innovate their offerings to customers.
Traditional institutions are looking to upgrade
While the pandemic may have left some thinking investment into tech platforms can be put on the backburner, 2020 proved that this is not the case, and we should see investment into tech and the modernisation of payments continue to grow as it becomes a more pressing business priority.
Retail banks and traditional financial institutions had previously relied on outdated, legacy systems that provided no agility; however, we’re starting to see such businesses wake up to the return on investment that upgrading these systems can have.
Our recent research in partnership with The Economist Group, found that over a third (39 percent) of executives in financial services had thought about implementing new technologies including data analytics, while 42 percent thought about modernizing technology platforms and infrastructure for customers. The results show there is a clear new direction in the marketplace, one in which executives are reviewing their workflows and supply chains and ultimately looking for a digital-first approach.
New findings from Synergy Research Group also revealed that cloud spending is up and has not been hampered by the ongoing COVID crisis. Q1 2020 spend on cloud infrastructure services reached $29bn, up 37 percent over the same time last year. Despite the inevitable economic downturn in the wake of the pandemic, cloud spending is estimated to rise 19 percent according to Gartner making clear this demand from traditional instructions for greater security, scalability and cost savings.
Increasing collaboration between fintechs, banks and tech players
2021 will also be the year that the increasing integration between platforms, fintechs and banks comes of age as businesses increasingly looking towards simpler, one-stop ‘plug in’ systems that can suit their every need under one roof. The big question for banks at the moment is whether to build, buy or partner when it comes to adopting new technology or innovation. This is a topic explored in depth by WEX’s Greg Sassone, Senior Vice President of Business & Partner Growth discussed this in a recent Leader’s In Payment Podcast.
While we have continued to see increasing M&A in the payments industry, something more common that we are seeing at WEX, is an increased adoption of white labelled collaborations between fintechs, payments players and traditional financial institutions.
In a long-term view, this will be key to sustaining healthy momentum, innovation and a competitive peer set within the payments sector. On the fintech side, some new market entrants have built innovative and outstanding, but are challenged as they have no entry point with traditional financial institutions that are looking to adopt it and embrace innovation. Therefore, we’re also expecting fintechs to track down partners that can help bridge their world with that of the larger institutions.
Payments providers will add value
The pandemic highlighted the true value that payments technology can have for a business, as it reinforced that back-end, manual processes are no longer viable due to behaviors such as working from home, and that we need to look at new technologies to help automate archaic processes.
This is true particularly in times of crisis where the relationships between buyer and supplier are under increased focus and require higher levels of trust to be efficient. In fact, it is digital agility from payments providers that provided many businesses with the resilience they needed to stay afloat during the pandemic.
Our WEX research shows that 72 percent of executives in financial services and technology are more digitally agile than before the pandemic and 83 percent have leveraged payment technology to innovate new sources of business value. A testament to the opportunity that can come from digital payment transformation, 86 percent agree that companies that lead with technology will thrive in recovery from the current economic and health crisis.
It’s clear that 2021 just marks the beginning of an exciting journey ahead of the digital payments industry. As innovation in B2B payments builds more momentum, businesses will need to keep their eye on the ball, and to look to how they can continue to evolve and innovate for their customers. Those that can keep up with the fast pace of digital innovation and transformation will be the ones to succeed.