How hard is it to disrupt the electronic payments space?
Payments
Asked by Question Bot12/Aug/20131 answer
1 Answer
F
Faisal Khan
Answered 12/Aug/2013
Let me answer on a global scale first. Since the possibility exists for disruption - the probability of it happening is quite low.
Payment systems take years to establish themselves as a trustworthy avenue for doing business with them.
The time cycles for rolling out payment systems, invariably is getting shorter. However, this does not mean, acceptance would be equally matched.
Price reduction itself would not be a viable reason to disrupt an existing payment giant. In fact it could very well be counter-productive.
Every market is served by a need. Such needs are fulfilled by the players in the field. For a new payment company to disrupt, the pertinent questions are:
On an individual country level, disruption is very much possible and is happening all around. Geographically concentrated disruption of financial payment systems is the norm these a days. Global players have to conform to the local markets as one-glove-fit-all solution is not enough. Acclimatization to local environments is a must, and herein lies the opportunity for disruption.
For markets that are fiercely competitive, like the US, the payoffs of a successful disruption can be immense, think of what Dwolla is trying to do or how Square is shaping the POS market or how Apps based P2P payment systems are shaping up, or how telco agnostic, bank agnostic branchless banking payment systems are evolving.
On a global scale, I am skeptical. It can be done, but a lot of inertia is required. On a regional market scale, it is very much achievable.
Payment systems take years to establish themselves as a trustworthy avenue for doing business with them.
The time cycles for rolling out payment systems, invariably is getting shorter. However, this does not mean, acceptance would be equally matched.
Price reduction itself would not be a viable reason to disrupt an existing payment giant. In fact it could very well be counter-productive.
Every market is served by a need. Such needs are fulfilled by the players in the field. For a new payment company to disrupt, the pertinent questions are:
- What is the Value add?
- What is the key differentiator that would enable the new entrant to displace the old Kings?
- What is it that the new entrant can do that the existing players of the industry cannot do (copy, innovate, steal, acquire)?
- Traction? How can the disrupter can massive traction?
- Network Outreach - this perhaps would be one of the most important aspects. Say you had to displace VISA and get the ball rolling in signing up banks for your payment system that charges 1.0% vs VISA's 2.9% - how will you possibly go and connect (read: convince?) millions of merchants to adapt to your payment solution? How will you ask all the banks to adhere and adapt to your solution? A close analogy is China Union Pay, similar to what VISA / Mastercard are doing. They have massive amount of funds at their disposal, and yet their growth, as impressive as it may be, has been one that is struggling in various markets. Traction is a huge issue for CUP.
- Time-frame for disruption? What sort of a disruption are we talking about? 10 Years? 5 Years? 1 Year? A lot can change in 5-10 years, and never underestimate the market conditions and what the prevalent players can do to protect their eco-system.
On an individual country level, disruption is very much possible and is happening all around. Geographically concentrated disruption of financial payment systems is the norm these a days. Global players have to conform to the local markets as one-glove-fit-all solution is not enough. Acclimatization to local environments is a must, and herein lies the opportunity for disruption.
For markets that are fiercely competitive, like the US, the payoffs of a successful disruption can be immense, think of what Dwolla is trying to do or how Square is shaping the POS market or how Apps based P2P payment systems are shaping up, or how telco agnostic, bank agnostic branchless banking payment systems are evolving.
On a global scale, I am skeptical. It can be done, but a lot of inertia is required. On a regional market scale, it is very much achievable.