Over the past few years, several major payment service providers (PSPs) have expanded their product sets by introducing banking solutions such as cards, credit, and business accounts. In this article, we analyze the banking offerings of select PSPs across Europe and the U.S., listed in Figure 1.
Card issuing is often a space PSPs look to expand into due to attractive revenues earned from commercial card interchange fees and the relatively low operational complexity of introducing this offering (when leveraging vendors). Working capital lending is another area PSPs are increasingly expanding into, as there is naturally high demand from SMEs for lending, and a relative lack of supply by banks. When introducing a banking solution, some PSPs like Square (for issuing) partner with product specialists (i.e., Marqeta etc.) for faster go-to-market and lower complexity. Other providers like Adyen develop in-house capabilities and source their licenses to have full control over the product stack and user experience.
Regardless of the model chosen (partner vs. build), the development of a banking proposition comes with costs. For example, Stripe and Adyen have made a significant investment in building their banking proposition with little public evidence of reaching a meaningful scale thus far. Despite the lack of data and ability to fully assess the success of PSPs’ banking products, the number of payment providers expanding to banking for the past few years does tell us that there is a demand for such solutions and (presumably) attractive financial benefits.
What is clear is that any PSP that is considering introducing banking solutions should accurately pinpoint its proposition (product and geo focus), determine a precise distribution strategy, calculate the business case, and carefully choose its operating model (partner vs. build).
Based on our observations on the current card products offered by select PSPs (Figure 2), we can summarize the following:
Based on our observations on the working capital products offered by select PSPs (Figure 4), we can summarize the following:
The pricing structure for working capital solutions is mostly consistent across geographies amongst the PSPs who offer these value-added services to merchants. Based on available pricing information from select PSPs (Figures 5A & 5B), we can summarize the following:
Please do not hesitate to contact Erik Howell at Erik@FlagshipAP.com with comments or questions.