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08:00 AM
James Wester
James Wester

Innovation at the Top

Innovation is of massive importance to the payments industry.

As with years past, this year's IDC Financial Insights FinTech Rankings once again demonstrates the importance of payments to the financial technology market. Two of the top three companies, FIS and Fiserv, derive the largest portion of their revenues from payments. An additional 12 companies in the rankings list payments as their primary source of revenue.

That payments are such an important part of financial technology is not particularly surprising but it is especially relevant this year as companies like Apple make news for entering the payment market. Much has been written about what this means for payments, especially consumer payments, and much of what has been written is wrapped up in a larger story about how financial technology is being radically altered by the introduction of new products, technologies, providers.

Look below the surface of the Apple Pay story, however, and it's not about a changing payment space at all. In fact, it's very much about the vendors listed on this year's FinTech Rankings, which are familiar names from past FinTech Rankings. Apple Pay, and just about every other supposed agent of disruption in the payments space, rests securely on top of the same rails that carry the bulk of payment traffic already, rails built and maintained by companies like FIS, Fiserv, ACI, TSYS, and First Data.

This is not meant to imply that real change isn't occurring in payments. Of course it is and those changes are significant. Like every other industry, the payment space is seeing the effects of cloud technologies, mobile devices, and big data.

This is an exciting time in payments, an industry not known for being described as exciting. That's by design. No one -- not merchants, not banks, and certainly not consumers -- wants the act of paying for something to be exciting. It should be smooth, seamless, and completely unremarkable. That's one reason why disruption in payments is so slow, new developments and technologies in payments must prove themselves to be highly reliable and scalable before they are adopted. Anything that interrupts smooth and seamless will be rejected by the many stakeholders that make payments work.

It would be tempting to assume a company's placement on the FinTech Rankings, especially towards the top, is an indication of a lack of innovation. Within the mythos of technology is the story of a couple of guys toiling away in a garage with a disruptive idea that will change the world. We like to think it's the nimble startup, not the big corporation that brings innovations to market.

But the truth is that the changes in payments and financial services are often coming through the very same companies that have been innovating in financial services for some time: the companies on the FinTech Rankings. These are the organizations that know not only how to make payments work securely and efficiently at massive scale, but are also positioned to evaluate and introduce new technologies. They understand bringing highly reliable and scalable solutions to market.

There's a reason why new entrants like Apple are relying on the companies listed in the FinTech Rankings. Payments is a difficult business, one with very small margins across a scale that is nearly incomprehensible. We measure payments worldwide in trillions of dollars, with transaction times often measured in microseconds and fraud measured in basis points. The companies on the FinTech Rankings are responsible for making all those payments happen, and their very placement on the list is a tribute to how well they do it.

James Wester is Research Director for IDC Financial Insights responsible for the global payments practice. His core research coverage includes the evolution of payment networks and technology, developing fraud and security risks, and legal and regulatory issues. Based on his ... View Full Bio

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