“Banks didn’t understand how valuable the customer experience was. So other companies came in and took part of that relationship away, everything related to e-commerce,” says Mollie CEO Gaston Aussems. He’s explaining the synergy between e-commerce and payments, one where Payment Services Providers (PSPs) like Mollie play an important role. But how did we get to this point where online merchants can easily connect many payment options to their shops using PSPs? Why did PSPs beat the banks at the e-commerce payment game?
A technology company
“Traditionally, in Europe, banks were into payment services for both consumers and companies, but then around 2005 something changed: the growth of e-commerce and the financial crisis. In e-commerce, a whole new ecosystem started to arise,” recounts Gaston, one where merchants used shopping carts, and that’s where the rub came in with banks. “In order to provide payments, you needed to be more of a technology company than a financial services company.”
Still, banks stepped in and began creating solutions. But, “these products weren’t easy to integrate,” says Gaston, which put up quite a usage barrier for merchants. They also offered bank transfers to merchants, which weren’t ideal because, “merchants want to conclude a sale with guaranteed payment and then ship the good,” Gaston says, “when a customer pays via bank transfer, this takes the payment out of the customer journey, which drags out the sales process because of the delay in payment, which in turn delays shipping.” All of this means conversion rates would drop.
The merchant had a different need
Banks, additionally, weren’t providing payment methods merchants needed, like credit cards or popular online payment methods such as PayPal. They’d have to go directly to every single company providing methods like these and negotiate a deal. And they’d also have to integrate the payment method themselves, receive separate settlements at different intervals and reconcile each payment method with their open items.
“The merchant obviously had a different need,” Gaston says. Thus, e-commerce created the need for different payments services that banks couldn’t meet. And then something major happened: 2008’s financial crisis. At this point in time, “banks became completely internally focused, their whole existence was threatened,” he says, “and innovation came to a halt. That’s when PSPs stepped in and came to prominence. PSPs were much more able to provide broader and deeper payments services than banks. One integration, one contract, one reconciliation.”
Now, PSPs are considered financial services entities, but that wasn’t always the case. “PSPs are essentially tech companies that made sure payments services became integrated with the whole customer journey of the shopping cart software used by merchants. Actually, PSPs never asked to be financial services companies,” Gaston continues, “only with the adoption of the Payment Service Directive (PSD) in Europe in 2009 did every company dealing with third party funds come under regulation, emphasising the important role that PSPs are playing in today’s world.
Currently, Gaston says that technology wielded by financial technology (fintech) companies, like PSPs, allows financial services companies to do something that would have been impossible in the past. “By decoupling the user experience with the services provided in the background, you can just make one user experience and all the services are provided by separate companies.”
So, where does this leave banks?
“Banks are now pushed back to maintaining the infrastructure —the pipes, the rails —and fintechs just drive the train over these rails, also taking over the customer relationship, which is most important,” Gaston says. However, even if banks can provide a host of payment methods, “they don’t have the links into the ecosystems, such as Magento or Shopify, which merchants use. We Mollie] build modules for these platforms, and [we’ve built a lot of them.”
The recent rise of PSPs and fintech companies who specialise in providing one service that’s often cheaper and faster than banks is, “slowly taking away not just payments, but all of the profitable elements of banking services,” according to Gaston.