Feb 11 2019
Digital payment processing software systems have revolutionized the ways in which consumers perform online transactions and merchants accept payments. The first online payment processing system to gain mainstream market acceptance was PayPal, operated by PayPal Holdings Inc., which continues to be a leader in the Online Payment Processing Software Developers industry (IBISWorld report OD4521) with a market share above 40.0%. However, high-growth startup companies such as Square Inc., with an estimated market share of nearly 15.0%, have emerged as new challengers in the industry, gaining a competitive advantage over more established operators by catering to brick-and-mortar and e-commerce businesses of all sizes. Similarly, Stripe, the most valuable private financial technology company with a recent 2019 valuation of $22.5 billion, has expanded rapidly amid high growth in digital transactions.
The rise of online purchasing
The industry’s online and mobile payment processing platforms are primarily used by merchants to process transactions in the E-Commerce and Online Auctions industry (45411a). Overall, Online Payment Processing Software Developers industry revenue has risen at an annualized rate of 7.9% to total $22.2 billion over the five years to 2019, supported by favorable growth in demand drivers. These include a rising percentage of services conducted online and heightened private investment in computers and software, which have both encouraged a growing number of merchants to use payment processing software. Additionally, as businesses have rapidly moved toward implementing mobile commerce platforms, growth in the number of mobile internet connections over the past five years has further stimulated industry demand. Lastly, growth in per capita disposable income and consumer spending over the past five years has contributed to industry growth, as an increasing number of consumers has spent more money on online shopping.
With consumers increasingly making purchases online and requiring reliable electronic payment methods, online payment processing software has revolutionized the way transactions are processed. Credit and debit card payments are essentially substitutes for the industry’s services; however, industry services have increasingly merged with those of the Credit Card Processing and Money Transferring industry (52232) as operators such as Visa Inc. have sought to build successful large-scale payment processing systems targeting their existing user base. Exemplifying the types of multinational e-commerce, technology and banking companies that participate in both industries, credit card processors have sought to capitalize on growing demand for online payments by leveraging their substantial clientele and brand recognition to establish vertically integrated payment platforms. Similarly, operators in the Credit Card Issuing industry (52221) have benefited from rising consumer and business demand for contactless payment methods. Credit card issuers are downstream partners of
contactless payments, which include services such as Apple Pay and Google Wallet. As contactless payment methods continue to proliferate on consumers’ mobile devices, credit card issuers will benefit from increased transaction frequencies.
Security and data analytics
Furthermore, security software is required to safely facilitate online payments. While a major online payment system has yet to suffer a significant security breach, industry software platforms must demonstrate the ability to fully protect sensitive financial identity information from theft. In particular, security concerns surrounding the relatively recent
concept of mobile commerce have created opportunities for operators in the Security Software Publishing industry (51121f), who partner with online payment processing software developers to add security features to mobile payment processing platforms. Additionally, services provided by operators in the Data Processing and Hosting Services industry (51821) are increasingly integrated with online payment software developers. In particular, large merchants, categorized by the Federal Reserve as processing more than $10.0 million in electronic sales volume and represent a major market for online payment platforms, have a vested interest in exploring data analytics with regard to the payments they are processing. To better understand customer behaviors and better adapt business and marketing efforts toward their client base, large merchants seek out data analytics services provided by operators in the Data Processing and Hosting Services industry. Online payment platform software developers are increasingly implementing such services into their own suite of offerings.
Operators in the Commercial Banking industry (52211) have attempted to capitalize on rising demand for online payment processing platforms through the introduction of the “Zelle” payment service, which is collectively owned by Bank of America Corporation, BB&T Corporation, Capital One Financial Corporation, JPMorgan Chase & Co., PNC Financial Services Group, US Bank National Association and Wells Fargo & Company. However, industry software developers remain largely at the forefront of technological innovation in the payment processing sphere. Overall, as explosive e-commerce growth is anticipated to persist over the five years to 2024, the Online Payment Processing Software Developers industry is expected to continue its upward trajectory, with revenue rising an annualized 4.1% to reach $27.2 billion.
Edited by Emily Lidstone