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To survive, payment firms need to tip the scales

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Scale has always been important in payments and financial services, so seeing the big players get bigger is really not a surprise. What is interesting to note here is that most of the big deals from the past year are about more than simply processing more transactions.

It would certainly be an understatement to say “a lot happened” in 2019. The year started off with a bang when Fiserv announced that it would be acquiring First Data for $22 billion. That transaction only set the stage for other payment processor mega deals, including the FIS acquisition of Worldpay for more than $33 billion and the “merger” of Global Payments and TSYS - in a deal valued at “only” $21.5 billion.

In other significant M&A activity, Mastercard acquired a chunk of Nets ($3.2 billion) and, in the biggest deal involving U.S. banks in more than 10 years, BB&T acquired SunTrust for nearly $30 billion to become the sixth largest bank in the country.

These deals are about adding people, products and services in order to offer a more comprehensive, end-to-end portfolio to their clients. This trend is likely to continue as organizations do everything they can to stay relevant and competitive in the very dynamic world of payments.

But just as the industry consolidates, it is also expanding. We will continue to see new fintech startups introduce innovative ideas and offerings, including alternative payment types, that will appeal to different consumer and business segments. There is clearly a lot of VC money still available to fund these innovators and disrupters, many of whom will eventually be acquired by some of the major players listed above.

In addition to the heavy M&A activity and new start-ups, there have been a number of additional interesting developments over the past year that will continue into the next.

Facebook announced Libra, its proprietary cryptocurrency. Initially supported by key industry players like Visa, Mastercard, PayPal and others, the plan has faced considerable resistance from the market, as well as regulators, causing many of the supporters to back away. Facebook seems determined to drive this initiative forward to launch in 2020, so we have certainly not seen the last of this one.

Causing even more worrisome nights for bankers across the country, both Google (Cache) and Uber (Uber Money) revealed their next attempts to enter into financial services. While there is not a lot of detail yet available on these offerings, both organizations have indicated that they are aiming to have products available in 2020.

Both Venmo and Zelle have seen significant growth in the P2P payment space. Given the drive toward “mobile everything” and the rapid rise in both transactions and dollar volumes for these organizations, we are sure to see products and services coming to the market in this space.

The Clearing House (TCH) signed up several new members to their RTP service, including Wells Fargo and HSBC. TCH says that more than 50% of U.S. bank accounts now have access to the RTP service through their financial institutions. The success of RTP has certainly caused commotion in the marketplace, with the Federal Reserve announcing that they too will now work to develop a service (FedNow) to support faster payments.

Closer to home, we saw a significant upswing in activity related to the Windows 10 migration for the ATM channel. Both NCR and Diebold Nixdorf reported significant increases in revenue related to ATM hardware, software and services. And even though the deadline for moving from Windows 7 is less than two months away, recent discussions with industry leaders indicate that only 30% to 35% of the ATM deployers in the U.S. will complete their Windows 10 migration projects before the deadline. This means a long tail on this activity as organizations scramble to complete their migrations and minimize the extra expense and risk that out of compliance software brings.

Given this latest round of investment and the ongoing preference for cash in many consumer segments, the ATM is not dead yet. However, ATM deployers must continue to update and modernize their fleets and processing environments in order to deliver both the functionality and the experience that aligns with contemporary consumer expectations. The ATM channel must continue to grow and evolve in order to remain both relevant and profitable.

Of course, we are only touching the surface here. There is a lot more change occurring each and every day within all organizations, and the pace of change only continues to accelerate. Unrelenting change has become the “new normal,” with both businesses and consumers expecting what used to be completed in days, weeks or even months to be accomplished in minutes or even seconds. To compete and remain relevant in 2020 and beyond, organizations must rapidly develop, test and deploy innovative new products and services at scale.

As quickly as the industry is moving, it is impossible for us to predict exactly what will happen in 2020. The one thing that we do know is that more change is inevitable. To ensure that organizations can take advantage of every opportunity and weather any storm, it is crucial that they are operating with focus, strategic intent and at peak efficiency.

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