It can often seem that some of the biggest names in payments were established a long time ago in a galaxy far away, and today are constantly defending their empires from scrappy startups launched by digital natives.
But the incumbents' deep pockets and scale free them of the limitations faced by smaller companies, and many have already caught up to their challengers in terms of technological innovation and a fundamental rethinking of their roles in industry. And rather than try to destroy their competitors, the larger companies want to woo them over to their side.
"What we have done over the past few years is build a foundation upon which new experiences can be created," said Sherri Haymond, senior vice president of digital payments for MasterCard. "We're partnering with startups, we find it's a really good marriage. They come to the table with all sorts of excitement and we can help bring them to light."
MasterCard's Digital Enablement Service, which delivers the tokenization technology that protects mobile commerce transactions, is becoming a catalyst for the Purchase, N.Y.-based card network to drive mobile payment adoption at retailers.
The effort began with smartphone-focused features, but is quickly moving into other connected devices, Haymond said. "That can include jewelry, key fobs, fitness wearables and things we haven't thought of yet."
Visa's Digital Enablement Service is the Foster City, Calif.-based network's system for using its i infrastructure to simplify connections between the mobile payment systems of retailers and card issuers.
Neither of these companies' strategies is a slam dunk. Visa's "connection" strategy, for example, faces challenges from technology companies like Apple that want to collect their own transaction fees. But the lesson is that older, established companies can use the benefits of their maturity to fast-track the concepts introduced by outsiders and startups.
Those advantages are improved by a cultural change at the established companies. Those that have embraced digital technology are using open development tools as a regular part of their playbooks.
"The incumbents have the scale and the customer base to take advantage of changes," said Swee-may Ngeow, a managing director at Accenture Payment Services. "There is an acceptance that things have changed and there is a full shift toward digital and toward a culture driven by mobile and new innovation."
The card networks, for example, are developing uses for wearables and mobile ordering; and traditional processors have made investments in mobile point of sale technology.
"The startups will always be nipping at the heels of incumbent companies," said Andy Schmidt, a research director at CEB TowerGroup's commercial banking service.
PayPal is an example of one such company that came in as a disruptor and ballooned to a global scale. This scale was its saving grace when the San Jose-based payments company found itself falling out of touch with the fast-paced tech community. Despite its successes, PayPal had become the slower incumbent. Its Pay Later service (now called PayPal Credit) lost out to the smaller Bill Me Later; and its open development platform was not able to reach small developers as fast as competitors such as Braintree.
In both cases, PayPal bought the smaller rival, absorbing its technology and expertise. To make the most of these investments, PayPal allowed these companies' products to cross-pollinate with its own, particularly in the case of Braintree's Venmo P2P app.
PayPal had to learn to balance its role as both a global giant and an enabler of startups. Its current CEO, Amex veteran Dan Schulman, has a more balanced background than that of his predecessor, David Marcus, who was was described as having more of a startup mindset and eventually left the job for a role at Facebook.
"The smaller companies or the startups often need an adult in the room, someone to ensure the code is safe and that banks can provide a user experience that will connect with people," Schmidt said. "So while the new innovation may be awesome in terms of functionality it may be little circumspect in how it protects data, for example."
Following its spinoff from eBay this year, PayPal kept up the momentum, acquiring cutting-edge consumer and social network analytics talent to add to Venmo, Braintree and other lines of business. With its new leadership and its independence from the company that has owned it since 2002, PayPal has a chance to take another crack at in-store payments, a setting where it has tried many times to establish a foothold with varying degrees of success.
PayPal, Visa and MasterCard all benefit from introduction of contactless mobile payment systems from Apple, Google and others. Systems like Apple Pay and Android Pay combine cutting-edge mobile technology with the long-established backbone of the larger financial services industry.
Visa and MasterCard have also spent the past couple of years combining their long-standing merchant networks and with emerging security tools to quickly respond to the expected growth of in-store mobile payments driven by the new mobile wallets. Visa's efforts could also get a boost from its reunification with Visa Europe, which has been active in nurturing the innovations in mobile and wearable payments throughout its continent.