Payment as a Industry

What a start of the week - prior to Global Fintech Festival in Mumbai on 28th -30th Aug, there couldn't be more fitting topic for this Sunday. With heavy rains in Pune, just 13 nominations, we were really thinking - it may not be the same. However, rain or shine, the blockbuster networking and learning sessions continue to captivate us beyond our usual weekend vibe.

As we delve into the Payments domain, exploring the tech ecosystem with domain knowledge, we uncover the duality of payments: Payments as a service and Payments as a business.

Sonu Sachdeva effortlessly simplified this complex topic for everyone during a concise session leaving us mesmerized by the entire payments architecture—the backbone of the banking industry. During our exploration, we delved into two types of payments: domestic (IMPS, RTGS, NEFT, UPI) and cross-border (SWIFT) payments. We also discussed their use cases.

At the payment initiation level, Fintech plays a crucial role. We examined how NEFT transformed domestic payments from a 24-hour process to just 30 minutes, while UPI made them instantaneous. Looking ahead, the industry’s focus will shift to improving cross-border payment speed.

Our learning journey also covered regulatory aspects, sanctions, controls, technology departments, security compliance, fraud prevention, and risk management. We explored game-changers like blockchain and CBDCs (programmable money) unfolding globally.

Data privacy emerged as a critical factor, with retail use cases differing from corporate behavior. Ultimately, we reinforced the value of traditional banking alongside fintech innovations.

Further we learned about the payment industry ecosystem:

1. Issuing Banks: These are like the creators of payment magic. They issue credit and debit cards to customers. When you swipe your card, they make it happen!
2. Acquiring Banks: Picture them as the hosts of the payment party. They work with merchants to accept card payments. When you buy that coffee, the acquiring bank ensures the money flows smoothly.
3. Payment Processors: These are the behind-the-scenes choreographers. They handle the technical dance—routing transactions, checking balances, and making sure everything syncs up.
4. Payment Gateways: Imagine them as the bouncers at the digital club. When you shop online, payment gateways ensure your card details are safe. They’re like the velvet ropes of security.
5. Payment Networks: These are the global connectors. Visa, Mastercard, and others—they link issuing banks, acquiring banks, and merchants. They’re like the air traffic controllers of payments.
6. Trends and Tech: The ecosystem grooves to the beat of trends. Contactless payments (tap your card or phone), digital wallets (your phone becomes your wallet), and real-time transactions (instant money moves) keep it fresh.
7. Regulatory Guardians: Think of them as payment superheroes. Global and regional regulators set rules. Compliance, security, and consumer protection are their capes. They ensure the financial system stays rock-solid.

Here are some key insights from recent reports:

• Global Payments Revenue Growth: Global payments revenue grew by double digits, reaching an all-time high of over $2.2 trillion. India, driven by cash displacement, entered the top five countries for payments revenues. Interest-based revenue contributed nearly half of the overall revenue growth. Cash usage declined globally by almost four percentage points. Electronic transactions grew at a rate nearly triple that of overall payments revenue over the past five years.
• Geographic Trends: North America, Latin America, and Europe, the Middle East, and Africa (EMEA) all experienced double-digit revenue growth. Asia-Pacific, which has been a primary growth vector, saw slower growth due to a decline in payment revenues in China. Excluding China, the region grew at a faster rate. Economies with large payments revenue pools (such as Brazil, India, Japan, and the United States) contributed to the strong results.
• Domestic and Cross-Border Payments: Domestic payments include methods like IMPS, RTGS, NEFT, and UPI. NEFT improved payment speed from 24 hours to 30 minutes, while UPI enables instantaneous transfers. Cross-border payments (e.g., SWIFT) face challenges related to regulations, sanctions, security, and fraud. Emerging technologies like blockchain and CBDCs (programmable money) are game changers in this space. Data privacy remains crucial, and retail use cases differ from corporate behaviours.
• Industry Resilience and Future Direction: Payments revenues proved resilient globally, overcoming regional headwinds. The industry may be entering a new era of “decoupling,” presenting opportunities for banks and other players. Payments continue to support digital economies, foster inclusion, and drive innovation while serving as a stable economic backbone.

In summary, payments play a vital role in our interconnected world, and understanding their dynamics is essential for both individuals and businesses.?

Kudos to Sonu Sachdeva for simplifying this domain-heavy topic, even at 7am during heavy rains in Pune!

So next time you pay, remember this intricate dance of banks, processors, and rules—it keeps our money world spinning!

Further readings - and the learning begins!

Payments 2025 and Beyond | PwC

The future of the payments industry | McKinsey

What Should We Expect to See From Embedded Finance in 2024? | The Fintech Times