The pandemic changed payments forever. The fundamental need for touchless and remote payments spurred massive demand, subsequent adoption, and a huge push for expanding payments capabilities. HFS Research, in partnership with Infosys, surveyed 150 payment providers across North America and Europe to better understand where payments goes from here. The findings are both exciting and sobering as we watch payments providers do a delicate dance to drive growth with new and innovative offerings while investing in essential modernization initiatives.
A tale of two cities—payments provider version Macroeconomic forces present clear market challenges, but technological advancement and the availability of innovation are the best they’ve ever been. This amalgam of circumstances sets the stage for payments providers to reconsider what they need to achieve success. Their intent is clear: The top business objective for payment providers is growth, and they want it now. Using ecosystem partners as a source of new value rates is the second priority.
Beware the Horizons innovation chasm Payment providers hungry for new value creation are targeting ecosystem creation. They are investing across three Horizons of innovation: Horizon 1, functional digital transformation; Horizon 2, enterprise transformation; and Horizon 3, ecosystem transformation. Forty-seven percent (47%) of respondents are currently at Horizon 1, focused on digital optimization. In two years, this will magically flip, and 47% expect to be at Horizon 3, ecosystem transformation, focusing on leveraging partnerships to drive new forms of value. There is no skipping Horizon 2. Those trying to do so will be sucked into the Horizons innovation chasm of limited progress.
Sanity prevails as modernization—not marketing—tempers plans for hot new offerings Payment providers have big plans for new payment offerings citing digital wallets, blockchain and crypto payments, and real-time payments as their top areas for offering expansion. But their top area of investment is not in offering development; it’s in modernizing payments infrastructure, reminding us that there is critical enablement work to be done internally.
The Horizons framework offers payment providers a paced approach to innovation-led transformation Payment providers are crystal clear on their North Star objective of creating new forms of value through offering expansion. Modernization is how they will enable it. The Horizons model provides a simple innovation roadmap for progress.
This is why we can’t have nice things Respondents indicated talent (55%), organizational silos (40%), and leadership commitment (36%) remain the greatest barriers to progress. The fact that these obstacles persist reinforces the point that there cannot be transformation without change.
Payment providers shift their partnering strategies to better combat roadblocks Sixty-three percent (63%) of payment providers favor full-services firms with a growing need for fintechs (62%) and consultants (55%) to help them grapple with roadblocks and drive progress. Fintechs, once regarded as competitors, are increasingly embraced by payment providers as a means to complement existing tech stacks and offerings.
Strategic partners need to offer much more than cost savings Payments providers work with 11 strategic partners on average today, and 73% indicate they expect this number to grow. The top responses to “What makes a partner strategic?” include a heady mix of co-innovation and collaboration, cost savings, and the ability to offer cutting-edge capabilities at scale. Increasingly, the “strategic” value is through compounded benefits.
The Bottom Line Payment providers hell-bent on growth through new offerings must prioritize modernization or risk failure. Strategic partners help them progress through the innovation Horizons.
This report is part two of a four-part series examining the growing importance of ecosystems in the banking and financial services (BFS) market through the lens of making practical progress across the innovation Horizons and savvy use of partners to help drive modernization and create new forms of value. The series includes a broad view of banking and financial services trends complemented by drill-down spotlights on innovation and ecosystems in payments, commercial banking, and wealth and asset management.
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