The future of payments

From the ruins of Wirecard emerges an opportunity for an innovative and agile payment provider to replace it as the market leading payment provider, writes Julian Buhagiar. Unfortunately, no provider seems to be stepping up.

At some point in the near future Netflix will almost definitely commission a documentary about the rise and fall of Wirecard. Possibly even a miniseries; there’s enough juicy stuff in there to fill seasons’ worth of jaw-dropping material.

It may not be at Elisabeth (Theranos) Holmes-esque levels of entertainment yet, but we’re getting there. Marcus Braun and Jan Marsalek had built enough notoriety between them (and quirkiness; black turtle-necks a la Steve Jobs – check, deeper voice in meetings – check, supporting rebel uprisings – check) to contribute to one of the fastest imploding verticals in the industry.

The truth is that – alongside the distractions of the ongoing pandemic – the fuller, wider impact of Wirecard’s collapse is yet to be fully understood by the world.

It’s hard to fully comprehend the damage unleashed by the collapse of a single payment solution provider on the fintech, e-commerce and – especially – gambling industries. In many ways, we’re yet to even feel the impact.

The situation was already pretty dire before June this year. For a start, it was becoming increasingly harder to manage any form of payments and reconciliation in most European territories.

This is partly because of increasing legislation, but also down to the payment providers themselves. Scrambling and fighting to claim an ever-shrinking size of an over-regulated market, PSPs have largely let their customers, and the industry they serve – down. And it’s gotten even worse from there.

Since June, one enterprising PSP has rapidly capitalised on the demise of their competitor by pushing up prices for a good portion of the customer base, for example.

Elsewhere on the credit card front, conversion rates of 7995-based cards are now at an all-time low. This, in a year which is supposed to facilitate as much remote commerce as possible to prop up rapidly deteriorating economies, does not bode well.

Whatever future economists make of the financial effects wrought by the pandemic, it’s clear that as 2020 came to a close the future of payments was also looking pretty dire.

Specifically, for the gambling industry, this is an even more serious issue than the prospect of socialist levels of regulation. Whilst there are still some forms of payment providers around, the solutions are immensely fragmented per territory, slow to respond, and the on/off-ramp costs incurred – ludicrous.

Of course, that’s also assuming they’re working most of the time, as in recent years even their uptime availabilities have started to falter.

Moreover, the choices themselves are decreasing, and it’s only going to take a tighter form of legislation here, or a platform-wobble there, to freeze an entire territory’s takings for a weekend, or a quarter, or perhaps indefinitely.

So, what does the landscape look like for gambling payments, and indeed the rest of the e-commerce industry?

Clearly something radical needs to be introduced, it cannot be a YAP (short form for Yet Another PSP – yes, there’s even an acronym). Such a solution needs to finally acknowledge – nay embrace – the use of cryptocurrency for internal/external transactions.

In 2020 there’s now sufficient crypto-adoption by gambling operators to support mainstream usage and use as a store/hold currency for spot transactions. Furthermore, the solution needs to be able to integrate into any existing PSPs to facilitate adoption, or a meta-PSP aggregator.

Think Curve, but on a PSP level. Only by combing the best of localised solutions, and injecting a bit of crypto and aggregator magic, can the revolution truly happen.

Whilst it’s hard to pinpoint exactly where (or from who) it will come, we know it will need to have at least the following features:

First off, there would need to be a seamless e-wallet experience that integrates multiple endpoints. This wallet would need to support numerous territories upon launch and will gradually increase over time, putting pressure on local banks and legislation in turn to adopt or at least endorse them as preferred solutions. This is less of a legal, and more of a sales and marketing point. Demand creating supply, if you will.

Secondly, the solution would need to be cryptocurrency-led, with localised support for a blend of coins and currencies, to encourage fluid intra-wallet exchanges or spot payments depending on currency movements.

Additionally, and more pertinently, there would need to be an immersive UX with intuitive workflow for all on/off-ramp activities. This is where the magic should happen. A user should be able to seamlessly open their wallet in any territory, connect to a local exchange and buy/sell coins or currency respectively.

Furthermore, the need for seamless deposit into operators using multiple merchant gateways. This is where the use of stablecoins and QR codes becomes prevalent; a user should be able to easily deposit in this form, such as CNY with an (Asian) operator.

This can be as easy as scanning a QR code using either a pegged currency or a blend of crypto-currencies in their wallet, whichever they prefer as it means they don’t lose out on spot rates.

Finally, and perhaps most significantly, we need to think about the use of own-named accounts to facilitate withdrawals irrespective of territories. In other words, a unique IBAN for each user, which will also enable daily use of funds as per any normal bank account.

Sounds too ambitious or lofty to properly pull off? Possibly not – at least one major player is already working on such a solution, and a first global release is slated for later this year.

Such a solution honestly can’t come soon enough – operators have had their margins eroded and/or revenues slashed by inadequate PSPs for far too long now. Something truly radical needs to reshape gambling payments, or else we risk seeing the rapid implosion of a once opulent industry.

The (billion dollar) question is, who will be the one to usher in a new chapter for gambling payments?

Co-founder of RB Capital, Julian Buhagiar is an investor, CEO and board director to multiple ventures in gaming, fintech and media markets. He has led investments, M&As and exits to date in excess of $370m.