The finance industry is going through seismic changes, but companies are still looking for the same trust, fairness, and sustainability in payments that they were 20 years ago.
The often fleeting nature of digital payments providers like fintech startups has made this a more pressing concern.
75% of VC-backed fintechs apply for bankruptcy, according to stark research from finance blog Upsilon IT, including several high-profile examples in 2023 alone.
The failure rate of tech startups, including fintech
There could be further challenges ahead, too.
Fintech funding dropped 46% in the third quarter of 2023 compared to the same period the previous year while pandemic relief funding has dried up for most firms.
Sustainability in payment providers is a hot topic among business leaders looking to incorporate financial services into their product range.
As 2024 proceeds with uncertainty in the financial sector, what should businesses in the US and Europe look for when looking for longevity in their potential partners?
Let’s take a look at some expert opinions to give us the answers.
In this article, we’ll discuss:
- How important is working with sustainable providers?
- What are the signs of sustainability in providers?
- 3 ways how to choose a sustainable payment provider
- Understand the value of saving money
Looking to build a sustainable revenue stream for your business? Contact Berkeley Payments today to find out how our embedded financial services are designed to deliver long-term benefits for both you and your customers.
How important is working with sustainable providers?
When we hear about sustainable payments providers today, it’s typically about looking at a company's environmental impact in terms of its carbon footprint and green initiatives.
This is a valid issue. Pressing environmental, social and governance (ESG) targets call for the payments industry to spend $2 trillion a year on climate change sustainability goals by 2026, according to a recent report by the World Economic Forum.
Yet sustainability has another meaning relevant to business payment customers: longevity.
The potential lifespan of a payments provider is critical to companies looking to supply robust financial services to their customers.
Trust, as ever, is top of the agenda in a payments sector dogged by notable closures. In 2023, several prominent fintech providers hit the wall, including Plastiq which owed more than $50 million to creditors.
Payment providers, then, must earn this trust by offering signs of stability and consistency.
If customers sense something untoward, then they will often switch companies. After all, if they won’t leave money in a bank without a consistent business model, then they certainly won’t use a payment provider without one.
Choosing a long-lasting provider, then, is paramount if businesses want a long-term revenue stream, but what are the things to look for to make sure they make the right choice?
What are the signs of sustainability in payments providers?
Doing detective work into sustainable payment providers can be complex. Every payment option is going to say that they’ll be around forever to win new customers.
Yet there are also underlying signs we can pick up that will convey a sense of trust and security – or not.
Jonathon Hamburg, Founder and Executive Vice Chairman of real-time payments platform Berkeley Payments, believes that this is the first thing any business should do when assessing a new provider.
He points out a checklist of simple questions that will help you get a clearer picture of a payment provider’s longevity.
“There are several signs of a robust and healthy platform that is going to be around for the long term, which we can get to by asking the following:
- Has the provider been around long enough to demonstrate a sustainable business model?
- Are they compliant with all regulations without cutting corners?
- Are they profitable, or are they just burning through other people's money?
- Does the provider show diversity in clients, platform use cases, and evidence of stability?
“I think these are all good indications of companies able to withstand shocks.”
To sum up, providers with an established track record, diverse use cases spread over several payment solutions, and consistent revenue growth are the smartest options.
One more factor to consider is how the provider is adapting to rapid changes in payment technology. This is one of the big strengths of fintech providers, of course, but looking for an older, more established company (often referred to as a legacy provider) that embraces innovation looks to be a smart move.
Trusted financial institutions that offer diverse real-time payment products, digital wallets, and crypto functionality show that they’re ready to adapt to the long-term tech demands of the payments ecosystem.
But this leads us to another important question: how do we know how to make the right choice when teaming up with a sustainable payment provider?
3 ways how to choose a sustainable payment provider
Detecting underlying signs of risk is one thing, but it’s also important to strategize provider selection when seeking long-term reliability.
By prioritizing sustainability in your provider selection process, you can mitigate risks and build trust with your stakeholders for the long haul.
Here are three measures a business can take.
1. Take greater care with underlying banking service providers
A sensible practice for businesses is to put more time and effort into choosing providers that offer underlying banking services, like current accounts or credit and debit cards.
“Banking service providers require more careful consideration due to the long-term relationships they establish with consumers,“ says Jonathon Hamburg. “If the service is more on the acquiring side, where the relationship with the customer is very transactional, then it’s not as much of an issue”.
Following this advice, a business might make sure it conducts thorough due diligence on a banking provider, for example.
It might also think about diversifying its providers to mitigate reliance on a single entity.
A business might also choose to focus on transactional products that offer more flexibility and lower risk. Payment processing solutions, like point-of-sale systems
DDA deposits for employees fall into this category.
2. Research the market
Like with any product, looking for proof of quality goes a long way when looking for sustainability in payment providers.
Looking around for satisfied customer reviews or past success stories is one factor to prioritize. Their website is an easy place to find these, but social media sources like LinkedIn may lead you to less biased examples.
If the provider has a demonstrated history of positive impact, then they’re more likely to continue it into the future.
Fees are another crucial element that businesses sometimes overlook. Transaction fees, for example, might appear small, but they can mount up and damage your bottom line.
“The average transaction fee is between 1.5% and 3.5% per transaction, which add up over time and can cause a dip in the merchant’s profits, “ says Elie Y. Katz, CEO of National Retail Solutions (NES) writing for Forbes. “These are especially damaging to small businesses because their larger counterparts have opportunities to make deals that they can’t.
3. Look out for ‘too good to be true’ pricing
On the flip side, no transaction fees and low installation costs might signal something that’s “too good to be true”.
Many fintechs have gone to the wall recently because they weren’t profitable. A chief reason in many cases was trying to compete with other digital payments providers with ultra-low pricing: a tactic that can be fatal.
“There are many businesses that have raised a lot of money in the past, but are now struggling to break even,” says Jonathon Hamburg. “Businesses talking to these providers should be wary: if pricing’s too good to be true, then it probably is. Somebody’s got to pay for it somewhere”.
Many ‘fly-by-night’ fintech payment methods have fallen prey to the lure of super-attractive pricing models to tempt customers, but plenty of notable failures have proven that this as fatal for longevity.
The value of legacy providers in the digital era
Fintech providers are dominating the payments market today, and it’s easy to see why.
Many have solid business models that embrace innovation as well as set out a path to long-term growth.
Yet, many legacy providers are also holding their own, and often offer several critical features that mark them out as trusted long-term payment partners.
Central to these is access to a large client base that most fintechs can only dream of.
“A fintech company always dreams of “making it big” but can only do so if it is able to access a large client base quickly”, says John David (J.D.) Penner, Offering Manager at IBM Payments Center. “Banks and their service providers offer an easier path to that goal, rather than fintechs trying to build the client base themselves”.
A large customer base also makes it more likely for the provider to seal partnerships with leading payment systems issuers like Mastercard and Visa, further enhancing trust.
Independence from external funding like seed capital is another characteristic that marks out legacy providers from their fintech rivals.
Self-sufficient growth is a sure sign of prudent investment decisions and a culture of treating company and client money with caution.
Jonathon Hamburg talks about how this approach has led to a value-first culture at payments platform Berkeley Payments.
“We've always been very careful about how we make investments, how we spend our money, and we always treat our clients' money in the same way. It’s a philosophy that has permeated its way throughout the company”
Sustainable relationships are the product of this, as Berkeley focuses on providing value to its customers. "As long as our clients are also delivering value to their customers, then their relationship with us will be sustainable for all parties." says the CEO.
A digital move toward sustainability in payments
The trust and stability that legacy payment providers foster is something that many digital start-ups are adopting as they target a new era of sustainable growth.
This means prioritizing profitability over rapid expansion, which involves high-cost discipline and strategically growing their capabilities and market presence. Growing net revenues across North America, Europe, and Asia are a testament to this.
Rising net revenue across the globe as they target sustainable growth
The two fintech traits of innovation and customer-centric cultures remain essential, which has led to a blend of traditional banking practices with fintech agility.
Likewise, many legacy providers have introduced dynamic new products, such as API-powered embedded finance, seeking a similar fusion of the two financial worlds.
As we move further into the digital age, sustainable practices like this will be key for both established companies and industry newcomers to achieve long-term success.
Ready to offer trusted financial services to your customers? Sign up today and find out how Berkeley Payments blends advanced API technology with reliable banking infrastructure to deliver elite payment products.
