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Building backend services – Banks as online payments providers

Developments in online payments platforms have focused on optimising the frontend experience and increasing the options for consumers to use their payment method of choice. For Nordea, the goal is to leverage the knowledge, data and insights at the bank to provide companies with an optimised experience in the backend as well.

The onset of EU regulations capping Visa MasterCard interchange fees to issuers was designed to limit transaction handling fees for merchants and therefore lower costs for consumers. Despite an overall decrease in merchant fees, in many cases payment acquirers received a higher margin than prior to the regulations by gaining an increased share of the reduced merchant fees as the interchange fees came down. This increase in revenue for acquirers led to a wave of consolidations across Europe, with many payment acquirers becoming much larger companies in order to take advantage of economies of scale.

Malin Holmqvist, Head of Commercialisation at Nordea Connect, says: “A couple of years after the EU regulations originally designed to limit interchange fees came into force, we can see this has had a big impact on the payments industry. Merchant fees are generally lower across Europe to varying degrees in different markets. What we have tended to see is the larger merchants have benefited from the regulations and the smaller ones still have quite high fees. With a larger share of fees going to acquirers overall, increased margins on the acquiring side have resulted in some dynamic consolidations in recent years. Many smaller acquirers have been absorbed by the larger ones across Europe.”

With a larger share of fees going to acquirers overall, increased margins on the acquiring side have resulted in some dynamic consolidations in recent years. Many smaller acquirers have been absorbed by the larger ones across Europe.

Malin Holmqvist, Head of Commercialisation at Nordea Connect

More choice in online payments

As payment acquirers have grown in size and scope, the shift in influence from issuers to acquirers has also been one of the factors that has enabled the growth of new innovative payment methods, leading to an increase in choice for consumers in the digital checkout. The rise of new online payment providers has signalled a change in the consumer experience with a focus on giving consumers as many payment type options as possible.

Malin says: “Nowadays consumers have the power in the digital checkout and are dictating the way they want to pay online. Previously, discussions used to take place about how to keep the options to a minimum on a web shop checkout so that we didn’t confuse consumers with too many payment types. Now a consumer expects to be able to pay however they want, whether that’s with mobile payments, cards, invoice or other payment methods. It’s not up to the merchant to decide, it’s up to the consumer. So it’s an interesting shift in the online payments industry.”

Now a consumer expects to be able to pay however they want, whether that’s with mobile payments, cards, invoice or other payment methods. It’s not up to the merchant to decide, it’s up to the consumer.

Malin Holmqvist, Head of Commercialisation at Nordea Connect

Creating a good back end as well

While the heavy focus in an evolving industry has been on improving the front end consumer interface, the need for improving back end functionality has also become more urgent, due to increased optionality in the front end. With in-depth knowledge of the payments landscape, strong advisory competence and access to a vast array of data, banks are particularly well placed to become market leaders in providing backend services for online payments platforms. In particular, banks are looking at ways of offering backend services that can support larger companies with often complex payment reconciliation needs as well as helping to decrease the administrative challenges faced by smaller companies.

Malin adds: “Many of the things the newer payment providers do really well is at the consumer interface. The whole industry has changed so that the consumer interface is of a certain standard now versus where it was in the past. However, with the increased number of payment methods that merchants have to offer their consumers today, it means that the backend can be quite messy. Here we’re talking about reconciliation, which is really a core offering from a bank. Banks are in the right place to bring value today because the merchants are already speaking to their Cash Management advisers about just that thing. We see what is going on in the backend and are able to provide support in the background that can be super important. This is where I think we can make a big difference for our customers.”

Many of the things the newer payment providers do really well is at the consumer interface. However, with the increased number of payment methods that merchants have to offer their consumers today, it means that the backend can be quite messy.

Malin Holmqvist, Head of Commercialisation at Nordea Connect

Innovation at the back

With innovation in online payments mostly focused on the consumer interface, the focus now turns to how banks can help companies develop more intuitive backend payment solutions.

Malin says: “At Nordea we are looking at how to make the backend become as savvy for corporates as it is for the consumers to shop, especially with the help of all of the data and insights we have as a bank. If we look at it from a corporate perspective, our own online payments platform Nordea Connect will be part of a wider solution that provides leading reconciliation and backend services. Really looking at core corporate banking is something where we have an obvious advantage and can bring value.”

Corporates choosing a bank as their online payments partner can already benefit from having full visibility of every transaction, regardless of the payment method or channel used. They are able to access everything in one place, from the order and payment through to reconciliation.

At Nordea we are looking at how to make the backend become as savvy for corporates as it is for the consumers to shop, especially with the help of all of the data and insights we have as a bank.

Malin Holmqvist, Head of Commercialisation at Nordea Connect

Malin concludes: “The opportunities ahead for creating a best in class solution are really big. We are already looking at how we can leverage the data we have to build even better services for our corporate customers. Looking at different segments such as insurance, utilities, etc, we can already ask ‘how do you pay your bills?’ It’s not going to be by invoice in the future. It’s going to be by payment link or something else. Looking at how you pay when you change your car tyres. That’s also very likely not going to be by invoice anymore. You probably won’t go into the store either to pay with a card but rather you’ll receive an SMS with a payment link that you press, then you pay with Swish or something else in one click. Its super interesting and there’s a lot of exciting stuff in this area. This is not just a small chunk of what corporates do, this is going to be their core and we want to be there supporting them.”

For more information about online payments at Nordea, write to Malin at malin.holmqvist@nordea.com.

You can read more about choosing banks as an online payments provider here.

Find out about Nordea Connect here.

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