Cloud 210 Lesson 3: The Network Effect Implications

by Tim Attinger

Cloud Payments 210 (required): Building Value in the Network

Lesson 3 Discussion Board: Which payment network business do you see as the strongest and most intelligent today?  Would you also say it is the most adaptive to change? Why? Click here to respond. 

So, payments are by their very nature operations that function on the network business model. Simply put, driving new participants to your network brings more value for everyone there. As you attract more participants, more value is created, and more participants want to come. As the business grows, more ancillary players and more providers are attracted to the business, wanting to bring valuable services and finding the most potential customers for their services there.

By driving three key strategies, a payments platform business can ensure the growth of the model and secure the network effects described in our first class. Those key strategies, put simply, are as follows:


  • Drive participants to the network

  • Increase interactions between participants

  • Enhance the value of each interaction


But driving these three simple strategies is not so simple. How exactly will platform network payments businesses grow over the coming years using this mantra? So much is changing in the world of payments, and competition is coming from so many quarters. How do payments businesses that are in the marketplace today remain relevant? Will new systems emerge? Will the payments businesses we know today be the same ones we know tomorrow? Perhaps the answer lies in a wonderful quote about the intersection of history, change, and innovation from Charles Darwin:

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”

So, as we think about the ways in which payments businesses may adapt to change, let’s take a look at the three key strategies from our last class and see where network businesses might manage successful growth as the world of payments changes so dramatically. How will the businesses we know now adapt to this change? Will they be the strongest, the most intelligent? Or perhaps they will be neither of those but instead the most flexible? As we do with every discussion of implications, we will raise more questions here than answers. But rest assured it is in these questions, and the answers current players provide as the industry evolves, that the future of the major payments networks resides.

Add Participants: What is your definition of customer? The major consumer payments networks that have grown up the in the marketplace over the past decades have had only one answer to this question: “banks.” The organizations that have driven the vast majority of consumer payments activity in the developed world have indeed been banks – signing up consumers, on-boarding merchants, and processing payments between them. However, for the vast majority of the emerging world — and for an increasing share of the population in the developed world — the organizations with the distribution, reach, relationships, and retail knowledge to sell electronic payments to consumers have become a very diverse set of players. In North America, retailers, prepaid program managers, and money transfer operators have become financial services delivery channels for and increasing share of the consumer population. In emerging markets like India and many countries in Eastern Africa, mobile operators are the companies with the network reach and connectivity to distribute core payments services to consumers. How will existing payments networks and their core participants adapt to these new sources of consumers, merchants, and transactions? Will they embrace direct relationships with new sources of transactions, or will they stay tied to existing bank-centric models?

Increase Interactions: What kind of products do you offer? Just as the most common definition of a payments network participant has been “bank,” so too has the most common definition of a payments network product been “plastic card tapping a credit line or debit account at a bank to make a physical retail purchase.” What happens to this paradigm when the growth in consumer payments in developed markets increasingly drives toward the “lite” version of debit known as prepaid? What about the billion+ consumers in the developing world who are entering the middle class with no experience of banking whatsoever but with a weekly experience of cash-in/cash-out electronic prepaid services from money transfer and mobile operators? Which network will bring on the next billion electronic payments consumers and the next tens of millions of acceptance locations? What happens to the current players as payments moves from land-line processing to cloud-computing services accessed over more open IP-based networks? If you’re a current competitor without a strategy for mobile, money transfer, prepaid, eCom platforms, and network access optimized to let the best in the market build solutions and services for the transactions you need to see, will you grow substantially over the next decade?

Enhance Value: What kind of network presence do you bring? This is perhaps the most important question for payments networks and their business partners. If the value at the core of your business is a network effect, don’t you need a physical processing network to underpin that value? How do you drive incremental value to transactions and participants, and tie it to your payments brand and capabilities, if you don’t see the transaction activity of participants in your network business in the first place? How do you remain relevant? How do you unlock unique network value for those participants, and for yourself, if you never see the transaction? If you are a processor of payments and not a brand, are you in a stronger position than if it were the other way around?

We here at PYMNTS University will most definitely be watching the evolution of the payments marketplace for signs of the most adaptive, and therefore fittest, species of payments network business animal to survive. We don’t know which companies and what value propositions will win out, but we can guess that — if Charlie Darwin was indeed right — it may very well not be the strongest of today’s competitors that are the strongest tomorrow. It might work out that way. Then again, it might not. Mammals were tiny furry rodents darting from under the feet of multi-ton dinosaurs millions of years ago. And just look at us now.

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Professor Tim Attinger



The pressure on banks to modernize their payments capabilities to support initiatives such as ISO 20022 and instant/real time payments has been exacerbated by the emergence of COVID-19 and the compelling need to quickly scale operations due to the rapid growth of contactless payments, and subsequent increase in digitization. Given this new normal, the need for agility and optimization across the payments processing value chain is imperative.

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