Payments and Banking in 2016 : Year of the Plumber ?

As to methods there may be a million and then some, but principles are few- Ralph Waldo Emerson

There is so much disruption and change in payments business these days (much like EPL), it is quite a challenge to be on top of all the dimensions. A new year, like in our personal lives, is an opportunity to reflect and resume the journey with renewed purpose.  

Following is an attempt (inspired by Chinese zodiac cycle) to create an aperture to understand and direct the efforts for 2016 and beyond.

Broadly there could be 4 types of years*(payments business cycle) that we could carve out to understand the churn in the payments and banking space :

• Year of Pioneer: This year is characterized by introduction of leading business, regulatory or applied technology, typically, in the collaborative space. Some examples could be iDeal (2005), FPS (2008), mPoS (2012-15) etc.
• Year of Product: This year succeeds a pioneer phase. Typically produces a winning product (mostly competitive space) - M-pesa (2007), Square (2010),Pingit(2012), are a few examples.
• Year of Plumber: This year is characterized by more mainstreaming and higher adoption (both collaborative and competitive space). For existing players, the plumbing is a two horse race: preparing for the new (both backward and forward access and not just integration) and de-bottlenecking (simplification, shifting volumes to enhanced / newer platforms). For the newer ones plumbing supports scale and reachability (critical mass). As such, this phase also reflects the players positions to manage the changes from ‘pioneer’ and ‘product’ phase on their as-is (Biz, Ops & IT).
• Year of Performance: This phase industrializes the gains made in earlier phases / years (the new normal). Basic payments methods and products of yesteryears are being supported in this phase today. It also supports iterative changes to ‘keep the lights on’ while pursuing scale and ensuring continued relevance.

These phases /payments business cycle exist and evolve against the backdrop of infrastructure “super” cycles’ and country / regional level adoption cycles. The cycles look like this: 

 What about 2016?

It is a close call between product and plumber themes. It may yet be the ‘year of the plumber’ due to the following transformation imperatives and alignment to super cycles.

• Transformation imperatives supporting plumber theme :

1. Much like financial markets, players need a buy side view (what they need buy, beyond correspondent banking, including from newer players) and sell side view.
2. Opportunities to ‘forward integrate’ - in pursuit of scale and supporting franchise.
3. Backward integration with a twist - supporting ‘access’ and not mere ownership.

• Alignment aspects supporting plumber theme :

1. Level of parallelism (evident from the cycles),
2. level of internal readiness (bank are various levels of readiness),
3. Diverse standards (a bigger issue for regional and global players)
4. Cross product harmonization themes are increasingly evident.

In summary, would 2016 be the year to plumb and pay? Could it still be the year of the product ? What do you think?

*Used illustratively. These can also be seen as phases that are not limited to a 12 month period, but may extend over a longer period of time. Also intra-phase evolution may be iterative.