New financial technology firms and payment platforms are unlikely to displace the existing consumer electronic payments landscape, Moody’s Investors Service says in a new report. While technology innovation poses a long-term competitive threat to the current payment ecosystem, led by card networks, card-issuing banks and merchant acquirers, Moody’s expects the established system to be resilient and to adapt to digital demands.
Moody’s expects the established system to be resilient and to adapt to digital demands. The report also says:
- Card networks and large financial institutions are fully entrenched in existing networks and have several inherent advantages over new entrants that are looking to displace them. These include large consumer and merchant customer bases with long-term relationships, significant financial resources, credit underwriting capabilities, and a wealth of data that they can use for marketing and to tailor payment offerings and services.
- Digital transformation does pose significant risks to the traditional system, particularly to providers that are slow to adapt. The fees that incumbents charge for electronic payments are clearly at risk. New entrants are aggressively attacking the incumbents with the potential to lower card fees to merchants as well as provide consumers with additional convenience and benefits.
- Large tech companies such as Google, Amazon, Apple and Facebook could pose a significant threat, especially if they set up proprietary payment networks that bypass the existing payment paths. However, to date, the tech giants have chosen to participate in the existing payments ecosystem rather than compete directly against it.
- Incumbents recognize the risks, and have been actively participating in the changing landscape by innovating and partnering with fintechs as well as aggressively defending their businesses by increasing consumer rewards as well as slowly lowering fees to merchants, particularly large merchants.
“Card networks and large financial institutions are fully entrenched in existing networks and have several inherent advantages over new entrants that are looking to displace them,” says Moody’s Senior Vice President Stephen Sohn. “These include large consumer and merchant customer bases with long-term relationships, significant financial resources, credit underwriting capabilities, and a wealth of data that they can use for marketing and to tailor payment offerings and services.”
Digital transformation does pose significant risks to the traditional system, particularly to providers that are slow to adapt. The fees that incumbents charge for electronic payments are clearly at risk. New entrants are aggressively attacking the incumbents with the potential to lower card fees to merchants as well as provide consumers with additional convenience and benefits.
“Large tech companies such as Google, Amazon, Apple and Facebook could pose a significant threat, especially if they set up proprietary payment networks that bypass the existing payment paths,” says Moody’s Senior Vice President Warren Kornfeld. “However, to date, the tech giants have chosen to participate in the existing payments ecosystem rather than compete directly against it.”
But the incumbents recognize the risks, and have been actively participating in the changing landscape by innovating and partnering with fintechs as well as aggressively defending their businesses by increasing consumer rewards as well as slowly lowering fees to merchants, particularly large merchants.
Moody’s ultimately believes that incumbents are well-placed to benefit from innovation, and that scale and customer relationships should help them cope with the challenge.
Moody’s research subscribers can access the report, “New payment technologies pose threat, but are unlikely to dislodge incumbents,” here.
