How modern payments processing has changed: In conversation with BPC

by George Iddenden, Reporter, The Payments Association

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The Payments Association (TPA)’s George Iddenden recently sat down with Peter Theunis, senior vice president sales and European managing director at BPC to discuss the remarkable transformation of the payments processing industry, driven by the rise of fintech, the shift towards digital payments, and evolving consumer behaviours. The traditionally stable environment, where banks outsourced processing to established providers, has been shaken up by the emergence of fintech players. These newcomers introduced more consumer-centric payment solutions, forcing traditional banks and processors to adapt and innovate to stay competitive.

“In the early 2000s, the payments processing market was quite stable, with banks outsourcing processing to established providersPayments were not a major profit centre for banks, so the focus was on cost control and reliability. However, this stability was disrupted by the emergence of fintech players, who introduced more consumer-oriented payment solutions.

“This meant that the stable environment was shaken up by newcomers who introduced new features, such as allowing consumers to manage their card parameters through an app. This marked a new era for these processes. A second wave of change occurred a few years ago related to COVID, where not only did we see the rise of digital banks, but payments also had to go fully digital.”

“The COVID-19 pandemic further accelerated the shift towards fully digital payments, with the rapid adoption of contactless and mobile payment options, as well as the growing trend of ‘invisible’ payments where the transaction is seamlessly integrated into the overall service experience.

“This surge in digital payment activity has challenged legacy systems, as payment processors now need to prioritise factors like agility, adaptability, and API-driven functionality to quickly launch new products and meet the evolving needs of both traditional banks and fintech clients.

“The traditional payments processing market was a very stable environment ten years ago. Banks outsourced this process and didn’t make many changes. Card payments, or payments in general, were often not a profit centre for the banks. Everything was controlled for cost and reliability.”

“Significant. The rise of fintech players in the payments industry has had a disruptive impact. The more consumer-centric payments solutions have proved to be incredibly popular with consumers, forcing the legacy sector to change its thinking. Allowing consumers to manage their card parameters through mobile apps represented a significant shift that traditional payment processors had to adapt to. Fintech’s emphasis on delivering a more seamless, user-friendly payment experience has raised the bar for the entire industry, pushing traditional banks and processors to focus on modernising their technology stacks – perhaps faster than they would have otherwise.

“Fintech firms, unencumbered by the technical debt and rigid processes of traditional financial institutions, have been able to build their payment solutions on top of cutting-edge technology. Flexible, API-driven architectures, cloud-native infrastructure, and DevOps-driven deployment pipelines have been instrumental in this.”

“Complementing their technology advantage, fintech companies have also adopted agile development methodologies that prioritise rapid prototyping, continuous integration, and frequent customer feedback. This approach allows them to quickly respond to changing market demands and consumer preferences, rolling out new features and enhancements on a much shorter timescale than the traditional waterfall development models used by legacy payment processors.”

As the payments landscape has transformed, the increasing importance of factors like agility, adaptability, and API-driven functionality has become evident for payment processors. The surge in transaction volumes and the need for quick product launches have challenged legacy systems, which were not designed to accommodate these new demands.

“Payment processors must be able to rapidly roll out new features and functionalities through robust API integrations, enabling their banking and fintech clients to stay competitive and responsive to evolving consumer behaviours.

“The ability to quickly adapt to changing regulations and market conditions has also become a critical differentiator, as payment processors navigate an increasingly complex compliance landscape. Agility and adaptability are no longer nice-to-have traits, but essential capabilities for modern payment processing platforms.

“The demands of modern payments have created challenges for outdated systems. Transaction volumes have surged, and there is a need for quick introduction of new payment products. However, traditional payment processing platforms have struggled to keep up, lacking the needed flexibility and scalability.

“The introduction of API-driven functionalities and the ability to quickly configure new offerings have become essential, areas where newer payment processors like BPC have a distinct advantage over their more established counterparts.”

“Recognising shifts in market drivers, BPC has partnered with Arkwright to conduct collaborative research on next-generation payment processors. Our joint paper, “Next Generation Card Processors,” released in early October, highlights how modern challengers are outperforming the market despite facing significant challenges and competition from incumbents.

Our report have interesting highlights such as that challenger processors are growing at a rate four times higher than the overall card processing market, with a CAGR of 35% from 2021 to 2024. Their market share has increased from 2.6% in 2021 to 4.0% by 2024, driven by API-first and cloud-native architectures. Furthermore, challengers have secured 127 new client contracts compared to only 26 for incumbents, demonstrating their strong client acquisition capabilities.

The card processing industry is at the forefront of the growing payments landscape. Those that invest in innovative technologies, customer-centric services and modernised infrastructure are best positioned to make their mark and establish themselves as a major player. ”

“One of the primary challenges is the functionality gap between legacy systems and the requirements of today’s digital-first payment landscape. Legacy systems were often designed around back-office operations and manual processes, such as changing parameters on individual cards through a ticket-based system. In contrast, modern payment processing requires an API-driven approach that allows consumers to directly manage the features and behaviour of their payment instruments through mobile apps and digital interfaces.

“This shift in functionality and user experience represents a significant hurdle for legacy providers to overcome. Additionally, the surge in transaction volumes, driven by increased digital interactions and the rise of new payment methods, has put a strain on the scalability of legacy systems.

“These older platforms were not architected to handle the sheer number of API calls and diverse payment flows that are now the norm. Addressing this scalability challenge is crucial for legacy providers to keep pace with the demands of the modern payments ecosystem.

“Ultimately, the transition from a stable, cost-focused environment to a more agile, technology-driven landscape has exposed the limitations of legacy payment processing systems, requiring these providers to undergo a significant transformation to remain competitive.”

I believe that the strong technological foundations and customer-centric strategies that are usually adopted by fintechs have actually enabled newer players to build products from the ground up, putting them at a significant advantage over their legacy counterparts. Unified tech stacks allow firms to roll out new functionalities and adapt to the evolving needs of both traditional banks and fintech clients.

“Additionally, firms like us have invested heavily in their account management teams, ensuring constant customer communication and collaboration. Unlike in the past, where banks and processors would only interact occasionally, dedicated account managers work closely with clients to align expectations, streamline implementations, and provide ongoing support.

“I think that this approach has enabled fintech players to serve a diverse range of customers, from large tier-one banks to agile fintech start-ups, by offering the stability and scale of an established processor combined with the agility and innovation of a modern technology provider.”

“The payments processing industry has certainly embraced the advantages of SaaS models in recent years. Processors are now able to centrally manage the complex compliance and security requirements that are critical in payments, such as PCI-DSS, Visa and Mastercard rules, and evolving regulatory standards, which was more difficult pre-SaaS integration.

“I think that this shared approach to meeting these stringent standards benefits all customers of the SaaS provider, as they can leverage the provider’s investments in security and reliability. Additionally, the scalable and robust nature of SaaS architectures enables payment processors to handle high transaction volumes and ensure 24/7 availability – a must-have in today’s payments space of course.”

“Looking ahead, I believe we are only at the beginning of the digitalisation journey in the payments industry. There is still tremendous potential for further digital transformation, particularly in areas like card transactions and services for small and medium-sized enterprises, which I see as an underserved market.

“Additionally, I expect payment processors to increasingly specialise in specific business verticals, going beyond just automating the payment process to offering integrated solutions that cater to the unique needs of industries like hospitality.

“When it comes to emerging technologies, I see a growing role for AI, especially in automating manual back-office processes and supporting multiple languages to improve profitability. And while open banking and instant payments are gaining traction, I believe established players like Mastercard and Visa will likely dominate the global interoperability in these token-based transaction models. Overall, the payments landscape will continue to evolve, driven by further digitalisation, industry-specific specialisation, and the strategic integration of innovative technologies.”

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