Payments consolidation and its future

The transition to digital has been redefining the payments industry. We see payment, and financial technology providers join forces to offer a one-stop shop for end-to-end payment solutions. Let's look at the impact this has on payments technology and the FinTech space.

Digital payments, to a significant extent, have driven the FinTech revolution in almost all parts of the world. The aggregate of digital payments globally is expected to reach $9.47 trillion by the end of the current year (2023), and the sector will continue growing at a staggering CAGR of close to 12%. There has been a massive improvement in consolidation driven by factors such as better technology, lower costs, and the ability to boost pricing power. There is, however, some skepticism that the unprecedented level of consolidation in the market would stifle innovation within the sector. However, given the level of technological innovation that the industry has shown, you can dismiss any concerns and skepticism regarding its absence even in the future.

The overall digital adoption rates have been consistent, especially in emerging countries. Whether it’s a gradual shift or a push created by Covid-19, it’s undeniable that the demand for E-commerce and electronic payments has consistently increased, pushing the payment companies even further. However, the payment sector has seen more innovations than any other industry, which are expected to continue even in the future.

For instance, several FinTech start-ups have taken up the digital payments route, and new businesses in other fields have followed suit.

Consolidation and the Spirit of Innovation

The sector has seen more consolidations in the past couple of years with mergers and acquisitions. As per the trends in 2022, the total number of corporate restructuring activities through mergers and activities was on the rise and would surpass the previous year’s numbers in all probability. Whereas a few experts, such as Marc Kitten – Program Director of the Mergers & Acquisitions Executive Education program at Imperial College Business School, have suggested that such activities are critical for the natural growth of an industry, others have underlined the increased level of volatility within the sector as the primary force behind these restructuring activities.

This is precisely why industry trends have always favored cooperation and consolidation over internal competition among businesses. With an overall increase in market volatility, a limited number of customers, and the challenge of retaining customers—the best alternative before the decision-makers are to opt for consolidation, which has become quite popular within the sector.

The Impact of Consolidation on Payments Technology

When we consider some of the most important consolidations in 2022 in the sector, it is evident that the unions between companies are prominent and sound complimentary. The technology capabilities can be increased comprehensively, including accounts processing and digital banking solutions to card issuer processing and network services, integrated payments, and point-of-sale (POS) solutions. Along with the advantages often associated with corporate restructuring, some of the most significant consolidations have highlighted the importance of sharing innovation and technology.

Companies often look to consolidate with payment players with enhanced digital capabilities and innovative services. Undoubtedly, payment processing will continue on the path of commoditization, whereby improved services through value-added offerings shall be provided. The primary catalyst for consolidation is the need to access emerging technology, have a wider talent pool, and expand to new markets. Furthermore, other synergies, such as cost reduction and maximizing resource utilization, are always the reason for consolidation.

The Future of the FinTech Ecosystem

The FinTech trends in the future shall be an extension of what we have witnessed in the past. The role of intermediaries in traditional payment processing shall diminish even further. There shall be a massive push toward open banking and higher security standards. In addition, consolidation and corporate restructuring will continue to play an enormous role within the ecosystem as the stakeholders will try to expand the range of customer offerings and help those incumbents remain relevant, even as the value chain evolves.

Due to regulatory factors, there will be an increase in the prospects for new areas like lending SaaS, risk management, underwriting, and other segments. The super app push shall continue in the current year, with prominent FinTech companies introducing expanded insurance and broking services.

Final Word

The overall pace of consolidation in the FinTech industry is expected to continue in the future as well. While it is too early to assess the impact of the rapid instances of mergers and acquisitions within the sector, it is certain that payments are now more about technology than distribution.

If you’re looking to offer next-gen payment experiences, then we’re here to help you get started! Talk to us to know how we can power your business with innovative payment solutions that are necessary for tomorrow.

Team Opus

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