Think Tank

Rise of payment service providers – the pointers to the future of the retail banking industry

Whether PayPal, Adyen, stripe, transferwise, PayU, Wirecard or PAYONE – years ago the first startups of the still young FinTech industry, they have now developed into serious financial services companies. The development of the payment industry is already showing where the journey of the retail banking industry is going.

It is surprising that while payment is one of the main tasks of banking, besides lending and investment, banks outsourced significant payment processes to third parties already decades ago. New business areas, such as the credit card business, banks have left to the credit card companies. Amazing, because with payments the private as well as business customers experience their banking daily and thus payments contribute to a substantial part of the customer loyalty. Last but not least, the payment transactions of the customers also give very good indications of the respective life and business situation and potential financial services needs.

But banks have not only left the credit card business largely to third parties, but also the fast-growing market for online payments. This is the only way to explain that PayPal has now attracted more than 20 million users in Germany, PAYONE handles more than 2.6 billion transactions per year, and Wirecard has a larger market capitalization than Deutsche Bank- all of these would have been unthinkable ten years ago!

Payment service providers are processing more and more diverse payments for retailers, shops and apps

Whether Uber, Free Now, PayPal or Facebook Pay – payments will be more and more integrated into the primary processes such as online shopping, social media communication or taxi driving. Once the payment method is configured in the user profile of the shop or app, the payment and thus the payment provider and above all the bank disappear in the background. And the increasingly diverse contactless payment with a card, iPhone Apple Pay, Fitbit Smart Watch or “payment ring” on the finger in the shops at the cash register pushes the bank back as a perceptible brand in daily banking. The customer no longer experiences the brand of the bank. In particular, when payment service providers, such as PAYONE, carry out these diverse payment methods and processes completely automated, very fast, smoothly and error-free for their primary customers.

According to science fiction author William Gibson, “the future is always there, it is just distributed unevenly “. For the retail banking of the future, this means that as with payment transactions today, the daily banking services disappear in the background and thus the bank also disappears from the customer’s field of vision. It has already started with payment transactions. Next, consumer loans will “disappear”. At the point of sale, whether online or in the store, the customer will decide whether to pay directly or later and on installments. In the future, it is very likely that the customer has already configured this decision in his user profile or that a digital financial assistant takes this decision in accordance with learned and anticipated behavior. The winners of this development are highly specialized and technology-driven payment service providers, which are evolving into business-to-business (B2) banking service providers for online and multi-channel retailers – at the expense of traditional banks and savings banks. The winners of this development are highly specialized and technology-driven payment service providers, which are evolving into business-to-business (B2B) banking service providers for online and multi-channel retailers – at the expense of traditional banks and savings banks. PayPal is already one of the largest lenders to small and medium business customers in the US today. Many payment service providers worldwide follow this model.

From payment to B2B banking service provider

The greater the demand from retailers, shops and apps for B2B banking services among highly specialized and technology savvy B2B banking providers like PAYONE, the greater the retreat of traditional banks and savings banks, given their outdated and less flexible technology landscapes. They can no longer keep pace with the increasing pace of digitization and the resulting innovations and technical diversity.

Exactly this development is reflected on the one hand in the strong reduction of banks, branches and employees in retail banking. On the other hand, this development is confirmed by successful market entries by flawless B2B banks such as the British Railsbank or German solarisBank. Founded in March 2016, solarisBank is basically a technology company with its own banking license and has created a digital B2B banking platform that other companies can connect to in order to become a financial services provider themselves.

A vision of the future: retail banking 2035

Since 1990, the number of traditional banks and savings banks, their branches and bank employees has more than halved in German retail banking. At the same time, Internet banking, which is now used by more than 50% of all bank customers, has become firmly established. Given the increasing speed of digitization and the improvement of related basic conditions, such as network development, legal certainty for new products and digital laws, and further cost-cutting through automation and innovation, both trends will continue to accelerate over the next 15 years.

As a result, it is very likely that by 2035 traditional banks and savings banks will largely retire because they have lost the client interface to major online, retail, big tech and social media brands. There are only a few banks and savings banks in the country – especially where wealthy private customers live or large corporate clients are based. Face to face, bank advisors only meet their clients in major cities or metropolitan areas, mostly for complex mortgage lending, estate management or sophisticated investment advice. Daily banking takes place at the place of demand, very often online and mobile. Cash, if still necessary, customers get at the checkout of retail stores. Payment is usually contactless and with the smartphone. The purchase of a new refrigerator is increasingly being financed by consumer credit – in seconds directly at the electronics retailer’s cash register or online at Amazon or a comparison portal.

For several years, PayPal has been offering its retail customers comprehensive banking services, including a salary account, and has thus gained a market share of over 20% in German retail banking. By 2035, several former crypto, payment and fintech startups were able to retain many millions of customers. This was mainly due to new, innovative banking services, such as asset and investment asset tokenization, crowd finance and crowd investing, which counteracted the ongoing period of low interest rates.

In 2035, retail banking is once again in transition. Increasingly far-reaching peer-to-peer and crowd-banking services are increasingly decentralizing and democratizing banking. And machine-to-machine banking will create a new banking business in the future.

Many traditional financial services providers, banks, and savings banks were unable to keep pace with increasing technological and media-cultural change, given their inflexible business models and technical legacy, and subsequently had to relinquish or merge their businesses. By contrast, agile financial services providers organized in ecosystems and technologically savvy, such as PAYONE, were able to develop a good position. Through national and international partnerships and mergers, PAYONE has achieved the size it needs to continually invest in procedural and technical renewal in order to continually offer new banking services at competitive prices to succeed in the marketplace.

Event announcement: In a live streaming event, the B2B banking service provider will provide insights into the vision of the new PAYONE brand for the payment market. More information at