While the beginning of any new year is typically filled with predictions on top of predictions, Laurent Le Moal, CEO of PayU, told Karen Webster that he’d like to take a decidedly different approach to sharing his insights on how the next 12 months will unfold.
Rather than providing what he described as a horoscope for 2017, Le Moal instead shared his perspective on some of the biggest trends observed in 2016 and how they will shape the developing payments landscape now that 2017 is here.
Prediction #1: Disruption
There was a lot of talk about disruption in 2016, Le Moal said, but at the end of the day, there can’t be disruption without scale and markets large enough for change to take place.
While China has demonstrated that it was an emerging market ready and willing to be a source of disruption, Le Moal expects that 2017 will be the year of India.
“I think what you can expect is, especially with the big push to digital payments and demonetization, you will truly see India as a market at the forefront of regulatory changes and innovation at scale,” he explained.
The current state of India’s economy, where rapid change is taking place as 86 percent of the money has been taken away from the market, is something Le Moal said has never been seen in the history of payments.
“What it means right now is everything,” he added. “I don’t know what will be the outcome, but at this stage it’s not a laboratory, it’s real-life huge-scale innovation.”
Enabling 15 million small merchants to accept payments when much of the population does not have access to payment cards and the cost of POS machines can be as much as the equivalent of six months’ salary is a significant challenge that Le Moal said is ripe for the right kind of disruption.
Prediction #2: Consolidation
The year may change, but one fact remains: Payments is still a business of scale and efficiency. But to operate at scale, businesses need scale. With that, Le Moal said he expects to see more consolidation starting in emerging markets in the coming year.
The same consolidation that’s taken place in developed markets by major global players over the last five years is what Le Moal predicts will now happen more frequently in emerging markets as well.
He expects consolidation to grow not only in India and China, but also in markets across Africa and Latin America.
Le Moal said the game of acceleration of growth is no longer just for mature markets — with bigger mergers and acquisitions (M&A) taking place in emerging markets, he expects to also see truer valuations activities.
Because consumers won’t need or want multiple instances of wallets and digital form factors, consolidation in the space is necessary — and a 2017 reality.
Prediction #3: Funding and Valuations
When it comes to the FinTech phenomenon, Le Moal said the industry can expect to see signs of a slowdown in terms of funding in 2017.
According to him, the peak of funding in this area has come and gone, and any investments that do take place will begin switching to later stages. This may have a significant impact on valuations as well, driving them down and making the ventures with those lofty valuations more affordable.
“We are starting to gear up to do more funding in the FinTech space,” Le Moal explained, “because we see the other VCs [venture capitalists] and investors not able to do so as they have already overinvested in the mature market.”
As many FinTech companies globally acquire scale in consumer adoption market share, Le Moal said this is when they will need even more funding to get to the next level, but it won’t be coming from the traditional western VCs.
“We think that it’s going to come from the local players,” he added. “Here we see even more opportunity for the local champions to become even bigger.”
If Le Moal’s predictions are correct, he said by 2019 there will be a lot of companies in emerging markets that are actually buying out U.S. FinTechs.
Prediction #4: Globalization
The idea of “going global” is something that gets talked about a lot, but what it really means is not just expanding across borders but actually going into local markets and developing capabilities and infrastructures locally. From there, it’s figuring out how to make those offerings interoperable.
There’s no global magic formula when it comes to payments. Instead, it’s about mastering local markets and payment preferences.
In conversation with global payment companies, Le Moal recognized that they are starting to feel the pressure of global mergers, noting that intelligent payment methods are key to consumer growth. He explained that in many of these emerging markets, alternative payment methods represent one-third to two-thirds of all payments, even those made online.
“Giving access to alternative payment methods is going to be one of the key focuses of merchants, but also one of the drivers of consolidation, scale, efficiency and breadth of payment options,” Le Moal said.
“Payments are very local, which is why alternative payment methods have become more important.”
These trends suggest the key things necessary for emerging markets to become digital payments powerhouses. But it also must be assumed that new technologies are available in these markets and consumers in them have both the interest and capability to transact with digital payment methods.
The biggest success and disruption in the industry, Le Moal said, will be around the consumer play. That’s going to be true for both the Chinese and Indian markets.
Consumers today want more than just the cutest or sleekest form factor and are demanding more as well.
Le Moal is confident that the best way to truly crack the consumer angle, is with the homegrown approach — something emerging markets have the opportunity to do very well.