Debit as a platform:
A mature market, proven tech stack and savvy customers drive adoption
Finextra broke news today with a summary from British Retail Consortium study, showing the debit form factor winning over credit in the UK retail payments market. Where some pundits tell of this happening due to debit favoured by both savvy millenials chosing money they have over the credit they’re unable to obtain and by issuers balking over credit card rates limited by the enactment of the EU discount fee cap on cards — this blog author’s firm bielief is that it’s not the debit as a product that won — but debit as a tech platform.
The dominant majority of emoney players looking for ways to extend their footprint, the merger between online and offline payment — the birth of the wallet experience where the token of payment is hidden in the user experience of the app providing the payment utility, all that contributed to the fact that many newcomers with the idea to propose a service, where a payment component is part of the value chain, would subscribe to standardised offering of several big processors.
The advent of the processors was partly due to big banks inability to transcend into the online world (RBS first buying Nick Ogden’s WorldPay) and a number of savvy PSPs like Adyen and Wirecard offering fringe world operations (processing gambling, adult entertainment — but stumbling on the user preference to utilise pseudonimised tokens like prepaid and virtual debit).
The leapfrog moment allowing cash economies with access to cheap mobile / mobile web to have instant-online users and scaling the ostensibly specialised token of payment, granting it scale — and ensuring appeal from banks cathing up with the trend.
The tokenisation that leveraged the prepaid / debit infrastructure (a token is a heavily modified one-time virtual prepaid) — allowing all outsourced elements of the infrastructure to support low-value payments and thus making them ready to VC fund’s supported wave of newcomers
The challengers happily took the offer of big processors, following the rites of lean startup methodology and greatly benefited the processors drive to market their plug and play components to the big guys. The dearth of flexibility is pushing the giants in the midst of their digitisation strategies to hop onboard.
The customers no longer see much difference between CP and CNP (as it is all in their mobile). The new generation does not even now about the card, while for some services they are using the tech is still there (and V and MC efforts are all about not loosing those who are already free from old concepts — eg, Chinese with Wechat, Philippines etc.).
The end of the beginning: what does it all signify:
> More projects on the issuance side, pushing startups to test new categories where efficient scalable processing infrastructures support new customer experiences
> The need on the issuance side to invest in scalable hardware, real-time in memory analytics to generate VAS out of the millions of transactions per second
> Requirement for embedded fraud prevention analytics
> Demand for identity management to support issuance to new untapped customer categories
About Digital Space Ventures:
Digital Space Ventures is a Luxembourg-structured and EU- operating early-stage venture capital firm build by career professionals in private equity and entrepreneurs from digital payments and remittance space.
Its main impetus is in contributing positively and actively to create sustainable and scalable financial service innovation models, borrowing from the founding team 20+ years of industry experience in the field.