Will Open Banking eat Visa’s and Mastercard’s lunch? (02/2024)
If you’re following the space actively, you know that financial technology companies have succeeded in reducing payment costs for merchants by providing cheaper and easier ways to accept payments.
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However, their ability to truly disrupt the dominance of card network giants like Visa and Mastercard in payment processing looks small. At least for now. Let’s take a quick look and see what’s the status quo right now.
Love it or hate it, the card networks still control the vast majority of the plumbing that connects banks and enables card payments. Together, Visa and Mastercard handle a whopping ~$20 trillion in payment volumes annually.
In contrast, one of the leading European FinTechs TrueLayer processed just $35 billion in open banking payments last year. Hence, it’s not surprising that card payments are still expected to account for close to half of total payments in major markets over the next few years.
Lucrative industry The card networks generate very high margins, with minimal marginal costs, on payment transaction fees. So rich rewards are awaiting any company that can divert a significant share of volumes away from cards to direct bank transfers aka account-to-account (A2A) payments.
FinTechs thus aim to do this by enabling mobile and digital payments through technologies like QR codes, biometrics, and/or open banking. While in the long run, this could reduce reliance on physical cards, for now, though, cards still dominate both in-store and online payments.
It’s clear that changes driven by the FinTech revolution are reshaping the global payments landscape. But card networks are not stupid - they understand and monitor these global shifts and more importantly, are also adapting by building their own real-time payment capabilities. In fact, due to their scale, resources, and network effects, they might end up being the ones that will end up setting the new standards for open banking. Hence, the death of Visa & Mastercard due to OB might have been greatly exaggerated…
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