One of the most commonly questions my Payment Service Provider(PSP) clients have asked is : Where do I invest ? No doubt the burgeoning payments field is attracting all kinds of funds - from VCs to corporate funds to growth funds to loans to re-allocated funds..

The activity in the industry is so high that it may seem difficult to analyze it properly and identify the right areas to focus the efforts on.

Starting from new payment instruments to merchant-oriented tools to consumer-oriented tools to multi-channel payment enablement to industry-specific payment offerings, the PSP companies cover a wide spectrum of offerings. Which company wins doesn't matter as there is such a huge opportunity for all players - incumbents, new or yet-to-launch players. The key point here is that the company needs to intelligently allocate its invest its funds and efforts in the areas in line with its market positioning.

In my view, the PSP industry has 5 pivotal areas as shown in the diagram below. Major changes are happening around these areas. In order to grow (sometimes, in order to just survive), PSPs need to either upgrade their services/offerings in these areas or expand geographically..

I will briefly talk about these 5 areas in this post,but will be glad to get into the details of each of these if you are interested. Yu can refer to some points on International expansion in my other post here.

1. Payment types.

There are several types of payment instrument PSPs could support. While credit card payments dominate the US market, alternate payments have great usage in the European market. Cash-based payments are the most commonly used method in developing countries. Factors such as payment infrastructures, cultural preferences, convenience, security and consumer behavior drive what payment method is dominant in a region/country.

Depending on when the value of money leaves the payer, we can categorize payment systems into 5 different categories (as shown in the diagram below). While the names are self-explanatory, I have given some examples of those systems.

In the context of online payments, any form of payments other than the credit card, debit card, prepaid and check are referred to as the alternate payments. Innovation is happening at a rapid pace in this area across the world. Here is a list of some of the alternate payment systems around the world:

The PSP need to wisely choose what payment acceptance systems to support in what area/region to get the maximum traction. In many cases, a simple creditcard/debitcard acceptance may be a starting point.

2. Merchant experience

One obvious area that PSPs differentiate against the competition is based on the list of services they provide to the merchant. There could be a multitude of services, but what really matters to the merchant is "Increase in sales", "reduction in payment processing costs", "Increase in customer reach", "transaction insights leading to more sales" and "great control". Payment leaders in ecommerce/enterprise companies strive to attain these all the time.

PSPs should strive to elevate the merchant experience in the process of tending to these objectives of their merchant customers.

3. Consumer experience

This is another area where new solutions/products are changing at a revolutionary speed. Whether they are the payment initiation methods such as QR code, NFC, wallet, online or authentication  mechanisms such as physical cards and bio-metric, newer features are making it more convenient and contextual.

PSPs traditionally had lesser focus in this area. With the help of mobile and cloud technologies,  more and more PSPs have started investing in this area. Whether it is Visa's V.me or Braintree's Venmo or Google's Wallet, new consumer oriented products have started catching up with Paypal's and Amazon's wallets.

4. Multi-channels

The terms "online payments" or "mobile payments" will make little sense over the next few years. We are already seeing seamless payment experiences over multiple channels - whether it is online, offline (retail POS payments) , email,  IPTV or SMS.

PSPs have just begun to make investments in supporting payments in this area.  This could be a great area for upcoming or newer entrants to make a mark in the industry.

5. Different segments

Newer use cases of payments have led acquirers and payments to assess risks in newer ways. Companies such as WePay and Stripe underwrite merchants based on their social presence and activities. WePay apparently helped an individual raise more than $750K during the Occupy Wallstreet protests and the risk assessment was done mainly on that individual's social networking presence - never heard of in the payments underwriting industry!

PSPs - who provide merchant underwriting services - can differentiate by offering to support different and newer usecases. Below are some of the commonly used payments use cases today.

Another way to segment  is based on the size of the merchant. While the large and medium sized merchants were well served, the Small merchant segment was completely un-served till Square entered the play.

Today, thanks to the Square, this merchant segment is bombarded with offerings from traditional as well as new PSPs. 

So, back to the number one question - where do you invest? where do you get the most bang for your buck?

It's up to you to prioritize! based on whom you serve and how you are positioned to serve!