Oversaturated payments space still draws capital and players.
For years, experts have been anticipating the “digital disruption” of payments, a shift in consumer transaction habits that could upend financial services.
To a degree, this disruption is already underway, evidenced by the decline in cash and check transactions in recent years, coinciding with the rise of e-payments.
The prospect of cashing in on disruption keeps attracting a wave of tech companies, startups, and venture capital investors to the payments market. All hope to leverage new technologies like bitcoin and mobile payments to change the way consumers pay. This has led to an overcrowded field.
Many areas within payments, like cross-border and in-store mobile payments, have multiple startups or tech companies claiming to be disruptors, all offering somewhat similar solutions.
So the market for digital payments startups is now incredibly oversaturated, but the influx won’t stop. That’s because, despite all the change that’s happened in “payments years,” digital disruption of payments hasn’t really happened yet.
Awaiting tipping point
The gradual rise in digital payments and decline in cash and check transaction volumes in recent years has yet to reach a tipping point where a true disruption has occurred.
When that tipping point is reached, the competitive balance in financial services will be significantly altered and consumers’ lives will truly be transformed by the inherent benefits of digital payments, leading to a steep decline in paper payments.
We haven’t reached this cliff yet. So venture capital investors will continue to back new payments startups entering a crowded field. CB Insights recently found that venture capital investment deals in the payments sector increased 17% in Q2 of this year compared to the same period last year.
Even successful payments startups like Venmo process minuscule volumes compared to more traditional payments providers. E-commerce still only accounted for 8.1% of all retail sales in the U.S. last quarter, according to the U.S. Census Bureau. This indicates that although digital payments volumes have risen, mostly because of adoption by younger demographics, consumers overall still have not realized the full benefits that digital transactions can bring to their lives.
Keep reading on Banking Exchange.