How every bank can be a payments company
Embedding payment processing inside mobile banking apps is a key opportunity
In the last post, we looked at how software is disrupting payments.
We started by looking at the history of card acquiring and payment processing. At its core, card acquiring allows a business to accept customer payments. The acquiring bank deposits money from daily sales into a business bank account.
For many decades, card acquirers were part of a bank. They provided businesses with the ability to accept credit and debit transactions at the point of sale. This card-acquiring capability formed part of a business banking relationship.
Over time, a new wave of card acquirers emerged. Banks lost market share to this second wave of card acquirers focused initially on e-commerce payments.
The latest competitors are software providers who embed payment technology within their app. Only a phone is needed, as the phone's built-in NFC technology, known as SoftPOS (Software Point-of-Sale), can take payments directly. Often, the term Tap to Pay is used for this service.
As well as removing the need for a payment device, the other fundamental change is in the distribution model. A fintech with a business model predicated on SoftPOS doesn't need a significant sales function or an extensive customer support team.
But here’s an addendum to the previous post. On one hand, SoftPOS is a threat to traditional business models - a lower cost structure will enable a technical shift to software-based payments. On the other hand, there’s an opportunity for banks to enhance their offering by embedding payments into their mobile banking apps.
The question is whether they will take the opportunity.
The distribution advantage
Banks can add payment acceptance into their mobile banking app by working either in-house or with a payments partner. Some banks have already started thinking about this. Others will follow, and some are already live.
Revolut has gone live in the UK with Tap to Pay on iPhone earlier this summer:
Revolut Pro and Business customers can start using Tap to Pay on iPhone directly within the Revolut app or the Revolut Business app. New customers wishing to use Tap to Pay on iPhone can do so by downloading the Revolut app or the Revolut Business app on the Apple App Store using an iPhone XS or later running the latest iOS version. From there, they can sign up with a Revolut Pro or Revolut Business account directly within the app to start accepting contactless payments within minutes.
The anecdotal feedback for Revolut's solution has so far been good. Businesses can go live without delay and start taking payments in a few minutes. As well as Revolut, a few other banks have also implemented the tap-to-pay solution for their business banking customers. This trend will continue to speed up.
App stores are a distribution channel for payments acceptance that provide a route to market at zero marginal cost. Banks are one layer ahead in the distribution chain.
Banks have their apps on many devices. Even the limited friction of downloading a new app can be removed. A vast potential customer base could be ready to take payments from their mobile app with limited work required to enable it.