Anew breed of bank-ready payment fintechs are keeping banks competitive, as increasingly sophisticated payment alternatives emerge from challenger brands. The latter have enticed away a large proportion of merchants, warranting a call to action from banks – a call to embrace a powerful, non-acquiring technology solution to close the gap: white-label payment orchestration.
Challenger payment brands have long offered superior customer-centric payment experiences. Merchants have little choice but to switch to these challengers to address their payments needs, as legacy technologies employed by traditional banks are unable to keep pace with rapidly evolving consumer payment preferences.
This challenge presents an opportunity. Today, 51% of merchants would prefer to consume value-added services from their existing bank rather than from fintechs. However, 72% of incumbent banks agree that it is hard to compete with fintech and big tech, particularly in merchant acquiring services, payment cards, and cash management.
Enter white-label payment orchestration, or ‘Orchestration-as-a-Service’ (OaaS). Supporting existing infrastructure, satisfying merchant needs, and future-proofing banks’ merchant services offering, OaaS is positioned to play a pivotal role in shielding vulnerable areas of banks’ core business income.
By adopting OaaS, banks embrace technological innovation and agility in meeting evolving customer needs. Simplifying and automating payment processes, OaaS delivers an efficient and personalised customer experience. Paydock recently deployed its OaaS solution with a major banking partner, addressing these challenges in under 12 months. Banks should expect to accommodate such timeframes in planning their next move, remaining cognisant that merchant attrition is not quickly or easily reversed.
Critically, through a single API integration, OaaS delivers a dynamic payment experience to a bank’s merchants, without requiring an overhaul of the bank’s existing infrastructure. By bridging legacy and emerging technologies, OaaS provides the foundational platform for the value-accretive payments solutions merchants seek, beginning with instant access to a myriad of payment methods, including Buy Now, Pay Later (BNPL), digital wallets, fraud tools, identification checks, Open Banking solutions, local schemes, and other payment methods. This expandable capability drives merchant satisfaction and retention.
Any change to the complexity of a bank’s operational payments stack typically gives rise to a range of technological and security challenges and risks. OaaS avoids many of these by negating the need for a major transformation project. Moreover, a true bank-ready OaaS should have, at its core, the requisite bank-grade security credentials necessary to satisfy the bank’s risk auditors.
The global ecommerce market is projected to grow at a CAGR of 9.5% between 2023 and 2027. Over the past 12 months, in many regions, banks’ ecommerce volumes have stagnated, while the market has grown by up to 30%. Merchants are aware of this growth, and their response is clear, with 59% of them preferring a multi-vendor payments strategy. Therefore, the banks that do not act quickly will face compounding market share loss each year. OaaS is the only viable solution available to banks to bridge the gap in a matter of months rather than years.
With this reduction in market share comes an ensuing reduction in acquiring revenue. Add to this the increasing margin pressure exerted by fintech challengers and the card schemes, and the need to find new revenue streams becomes even more acute. Once again, OaaS provides a solution to this. In addition to preserving and growing traditional acquiring revenue, banks can now offer payment processing fees for value-added services, as well as revenue share arrangements with downstream vendors.
Not only does OaaS offer a shield from the forces impacting traditional payments revenue, but future-ready paytech could deliver a 42% boost in payments revenue for banks.
It’s important to note that the risk to revenue is not limited to payments alone. In fact, core banking revenue in the form of net interest income is also under threat.
As challenger fintechs begin securing banking licences and offering their own suite of loan products, the preservation of deposits has become a strategic battleground. Payment vendors who own the ecommerce account have a greater influence over the flow of transaction revenue, directly impacting deposits and balances. Banks must retain their main financial institution status to preserve deposits and meet net interest income targets. According to Mckinsey, account ownership no longer suffices in preserving deposits. OaaS binds the merchant account to the main financial institution by repositioning the payment offering to best-in-class.
The incumbent banks’ payment solutions are insufficient to keep pace with the offerings of fintechs. As the ecommerce market continues to grow at an unprecedented pace, only providers who offer exceptional, customer-centric payment solutions will be able to compete and gain market share.
From protecting revenue streams to preserving deposits, fostering net interest income growth, and establishing a stronghold on comprehensive financial relationships, OaaS emerges as the most compelling strategy for banks intent on being well-equipped to navigate the challenges of the contemporary banking landscape.
This editorial piece was first published in The Paypers' Cross-Border Payments and Ecommerce Report 2023–2024, which taps into the fast-growing cross-border market and provides a comprehensive overview of trends and developments that are pivotal in this space, being the ultimate source of information for ecommerce businesses interested in expanding globally.
Rob Lincolne is an entrepreneur with extensive experience in the payments space over the past ten years. As Co-CEO of Paydock, Rob is focused on changing the way the world transacts by building the most trusted payment orchestration platform.
Paydock is a leading bank-grade commerce orchestration platform that offers financial institutions and merchants rapid connectivity to fintech and payment systems by integrating with their existing infrastructure. Paydock processes millions of monthly payments through its platform for businesses across all industry sectors, including financial institutions, household brand retailers, travel, insure-tech, and not-for-profit.
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