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The Payment Megatrends: Platform Economy

By Markus Eichinger

Digital platforms are currently disrupting business models in all countries and industries, ushering in the new era of the platform economy. What central advantages does this megatrend bring for providers and consumers, and why has payment always been a pioneer in this area, now building the basis for an all-round successful shopping experience and redefining retail? Find out more in this article, published as part of our "Payment Megatrends" series.

Do you know what the six largest companies in the world*, have in common? Apple, Amazon, Google’s Alphabet, Microsoft, Facebook and Alibaba - as different as they are, their business model is based on powerful, sophisticated digital platforms.
*) As of May 2018, based on their market value, source: Statista

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Let's take a brief look at the early company history of today’s #6, the Chinese giant Alibaba (who is also well-known for Alipay) – and listen to the memories of Jack Ma, Alibaba Group’s co-founder and key executive, from 1999:

„In the beginning, I just wanted to survive. For the first three years, we made zero revenue. I remember many times when I was trying to settle my bill, the restaurant owner would say, ‘Your bill was paid’. And there would be a note saying, ‘Mr. Ma, I’m your customer on the Alibaba platform. I made a lot of money, and I know you don’t, so I paid the bill.’“

Source: Bloomberg

Global players also start small - this is the early Alibaba team 1999 working from Jack Ma’s private apartment

Global players also start small - this is the early Alibaba team in 1999, working from Jack Ma’s private apartment (source: Baidu)

This shows us that setting up a digital platform doesn’t immediately create profits, but requires a lot of investment and endurance. However, even though the first years were tough, Ma’s vision was confirmed, and today he is one of the wealthiest people on earth.

Most notably, we are currently experiencing how the platform economy is disrupting not only retail, but business in general all over the world. Launching a digital platform is a strenuous process – but it pays off eventually.

A veritable megatrend – but not only in payment

For payments, the rise of platform economy is another megatrend that will shape the industry in the upcoming years. Today there are hotel platforms that do not own any real estate (Airbnb, 9flats etc.), mobility platforms without cars on their balance sheets (Uber, Lyft etc.) or food platforms that don’t employ a single chef (Grubhub, Deliveroo etc.). What they all have in common is that they bring supply and demand together and thus create value for suppliers and customers alike.

What are a digital platform’s major benefits?

The following four advantages in particular explain the great success of digital platforms:

  • There are massive economies of scale, allowing even SMEs to access powerful and professional-grade tools, and thus opening up business opportunities to all-new segments of society.
  • The value of an offer increases in line with the number of consumers using the same solution, i.e. the so-called network effect. Or in other words: the more active users a hotel and restaurant rating platform such as TripAdvisor has, the the higher the value that platform generates for each individual user
  • Third, platforms generate vast amounts of data from both the supply and demand side – which allows the platform providers significant profitability optimization.
  • Finally, platforms make it possible to scale quickly even in traditional markets: As there is no need for extensive CAPEX, invested money can flow into the platform distribution, allowing for much quicker scaling than the platform members’ original businesses.

Why is this platform-based disruption happening right now?

In short: today, all the technological prerequisites are in place for such platforms to function very successfully and efficiently. These are:

  • Virtually infinite computing power
  • Data residing in the Cloud
  • Highly efficient technology for data analysis

This allows to gain real customer insights and to offer a frictionless, personalized customer journey.

Platforms are taking over business worldwide - only for payment that's not news

So wherever you look, platforms are taking the lead today. But surprisingly, cashless payment has been based on platforms for decades already. Long before the term "digitization", a virtual platform was the basis for payment with credit cards, for example, which quickly and securely connected the players involved with each other:

Copyright: Wirecard

Copyright: Wirecard

While technical processing fees were the main business driver in the payment ecosystem for a long time, now - as shown above - added value starts to be created through better interconnectedness of retailers and consumers: Data analytics enables churn prevention and personalized customer targeting, digital loyalty solutions, consumer credits that are available online as well as in-store and dynamic pricing in brick-and-mortar shops. Unsurprisingly, this results in considerable potential for sales growth of merchants.

The "fuel" for such a customer experience is data. Using the Wirecard ecosystem, you can see how all the data collected via the payment process flows together:

Copyright: Wirecard

Copyright: Wirecard

A look behind the scenes of the digital platform pioneer Wirecard

In 1999, the same year as Jack Ma started building his online trading platform, Wirecard also began laying the foundations for a digital platform in the field of cashless payments and has continued to expand it over the past two decades.

Let's take a closer look at what makes up the Wirecard platform, which the German magazine Focus recently described as a "convincing example" of a globally successful digital platform - this animation sums it up well:

So to put it in a nutshell: The platform architecture brings suppliers and customers together and creates value for both sides.

This is Wirecard's Digital Platform architecture - with open APIs and modularization for global deployability

This is Wirecard's Digital Platform architecture in the overview- with open APIs and modularization for global deployability

Platforms revolutionize the customer journey

Let's look at a very simple example of what such a platform makes possible - here, for example, how fast shopping is possible because you can completely avoid queuing at the checkout. Wirecard was able to build this solution together with SES-imagotag, the market leader for digital shelf labels, within just a few days by using Wirecard’s all API-accessible digital platform:

Conclusion: Go platform – or become a part of another platform

In summary, digital platforms today offer retailers huge opportunities to offer customers a new and great shopping experience and to tap completely new sales potential. Stationary retailers are therefore well advised to exploit the potential offered by platforms for their businesses. However, even more important is to develop their own business into a platform approach, engaging customers more deeply and leveraging their own reach. For weak players or corporations that miss out on adapting to the age of platforms, there is a high risk that they end up as a supplier on a larger platform – ultimately with the risk of losing their margin.

These are the other articles of the Payment Megatrends series:

Get our Payment Megatrend e-book now - it's free and exclusive for blog subscribers!

The Wirecard Blog Newsletter - and the exclusive payment megatend e-book

To learn more about the topic of digital platforms, watch the recording of our webinar "From Payments to Commerce Enablement - Platform Economy in Payments" in which our expert and the author of this article, Wirecard's EVP Group Strategy Markus Eichinger, shows and discusses further aspects of the topic.

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