Brian Boelens & James King
When it comes to payments, it’s never been more competitive. While the unbundling of financial services through new technology has expanded the possibilities for payments, it’s also opened the door for new challengers. This includes fintechs, telecommunications companies and online retailers, alongside the acronym-based giants of GAFA, BATX – all of which are competing to own the customer payment journey.
The reason for this is that payments are a huge prize. The transaction value of instant payments is expected to exceed $27.7 trillion in 2026, representing a 470% increase from the $4.8 trillion recorded in 2021. But winning a slice of this cake requires attracting and retaining consumer and merchant interest on a vast scale.
In the mission to stand out, one of the most promising possibilities is offering value-added services – using the increasingly digital nature of payments to connect merchants and consumers to wider value systems and networks.
However, making this a reality requires solving key technical challenges presented by today’s infrastructure, moving beyond legacy architecture to a digital-ready platform, built around integration and value.
What are value-added services in payments?
Credit card payments have long been the norm for retail, but direct, account-to-account (A2A) payments are gathering pace, accounting for 13% of all European checkouts in 2021. The move from cards allows the integration of new services and functionalities within payment schemes, helping merchants who want additional services to run their business and create consumer loyalty through customer experience.
In this new payment flow, the consumer activity is digital from the point of generation. This chain goes all the way from consumer to the bank and all along that chain are opportunities to add value.
Value-added services are additional advanced functionalities that can be offered alongside payments to drive improved consumer and merchant experience, enabling schemes to increase customer value by bundling additional payment-related services for merchants and consumers. In turn, by adding new services – including flexible payment methods – merchants can attract new customers and drive more business.
For schemes looking to expand their transaction volumes, this is a potential game changer.
Why are value-added payments relevant today?
The historic lack (until 2020) of any EU-wide standard for digital payment schemes has created a market where various challengers are all competing to acquire users and retain them. This is an existential mission for schemes – those who don’t grow will fall behind and likely fail.
In the current market, it can be challenging to generate enough revenue from payments to sustain the investment required to build and maintain infrastructure, meaning schemes need to offer additional value for the merchant to drive acquisition and retention. Due to the expanding role of data and its potential for generating value, there are also plenty of other players interested in owning payment data flow, adding extra urgency to this race.
If payment schemes don’t offer the possibility of value-added services in their own environment, it’s likely another provider – think Amazon or Apple – will step in and move the merchant to their own payment ecosystem.
Luckily, payment schemes have a home-advantage in this mission, since integration schemes at the source of payment generation have the potential to create a more seamless experience for providers, merchants and customers, as long as the scheme has the right technology on their side.
What are the technical challenges?
Value-added services rely on adding new functionality to existing payment architecture. This is done through API integration, however, the technical capabilities to achieve this are not widespread.
Many incumbent payment schemes are either not working with open APIs as a native feature or running monolithic legacy platforms that require significant work to modify. These institutions also face a severe shortage of developers with the necessary experience to maintain these platforms, meaning adding any value-added integration is time consuming (up to a year), driving up development costs as well the risk of project failure or scope creep. This has limited the expansion of value-added services industry-wide, as the wide number of stakeholders involved in the ecosystem means the time and cost of individual, manual integrations are difficult to justify for institutions running legacy systems.
In order to implement these services at scale, schemes need to move to microservice-based, publicly-available systems that can enable the structured sharing of data via API and server-to-server integration. For schemes unwilling to overhaul their core systems, there is another option – integrating with a platform built with flexibility in mind to expand the potential for additional services. This is the platform Payconiq has built, which has already shown results.
Value added services in practice
As an example of the potential of value-added services, Payconiq International has recently released a new digital meal voucher solution, enabling consumers to add their vouchers to the Payconiq by Bancontact app.
Currently in Belgium and Luxembourg meal vouchers take the form of payment cards with a chip, which can be used on payment terminals. The advantage of dematerialising these payment cards into apps, such as the Payconiq enabled apps, is that a digital device can manage hybrid or partial payments, increasing flexibility and convenience for the consumer and helping merchants improve their customer experience.
This can facilitate mixed purchases, for example when the consumer is buying food as well as other products in a supermarket. In this case, the consumer scans a Payconiq QR code, or clicks on a Payconiq payment link. The system then gets the information that part of the payment is meal voucher entitled, with that amount taken from the meal voucher account of the user, assuming there is money on the account, and for the rest a payment is initiated from their bank account. The merchant gets one amount, covering the entire transaction value.
This also helps with partial payments, where the account balance of that user doesn’t cover the amount owed. Here again the Payconiq system could ensure that the meal voucher account balance is used up, and the remaining amount owed is paid from the consumer’s bank account.
In both of these use cases, the advantage to the consumer and the merchant is that there is only one payment authentication. This is an advantage to the merchant because today in order to perform hybrid payments the consumer must authenticate at least twice, once with their meal voucher card, and then pay again for the remaining amount with another payment method, a card or cash.
Where next for value-added services?
While value-added services have clear utility for merchants and consumers, schemes need to invest in order to achieve the capabilities to offer them. To implement value-added at scale, schemes have two options. Firstly, they can rebuild their core systems, with open APIs and structured data sharing, which gives increased control, but also high levels of expense, risk and lead time. Alternatively, they can partner with an established transformation partner like Payconiq – providing an accessible, secure data platform to integrate with other services to improve margin, retention and customer value.
In the race to win and retain customers, the prize will go to the providers who can offer the best, most flexible experience, first.