TRENDS AND CHALLENGES IN THE PAYMENT SERVICES MARKET

Abstract

The payment services market is in a phase of significant transformation as a result of the new global
environment, which has especially accelerated as a result of the emergence of the Covid-19 pandemic. The
pandemic and the complete closure of the states led to a faster change in the way economic entities function and a
transition to an increased volume of electronic commerce (e-commerce), and electronic payments (especially instant
payments). The daily activities that people had before Covid-19 have significantly shifted them to the online world.
Payment services are increasingly considered a product with 24/7/365 availability and instant settlement, further
differentiating traditional cash or card payment methods from online solutions available on any mobile device. This
represents an absolute challenge for financial institutions: constant search for efficiency, improvement and provision
of products and services in correlation with users' needs. At the same time, for traditional banks, new competitors
are poised to significantly enter their market and at the same time "challenge" their customer base. The digital future
of finance, the concept of open banking, mobile payments and mobile wallets, instant payments, fintech innovations
in payment services, increasing awareness of financial technologies are new trends that put payment systems back in
the spotlight. The rapid transformation of the market of payment services leads to the transformation of the entire
financial system to which the banks are adapting. Changes in the market for payment services, changes in customer
behaviors, changes in business models, changes in technology and the emergence of fintech, have imposed the need
for banks to reorganize, to change their mentality as major players, to overcome the fear of being under external
influences and with the need for digitization to start cooperation with fintech companies. On the one hand, banks
have capital, customer base, development resources, satisfy regulatory rules, while new startups have creative ideas,
product solutions and new business models. Now the banks are the ones who have to quickly analyze the established
methods of payment, make faster compliance with the regulation and cooperation with fintech companies, telecom
operators, big-tech companies (Google, Facebook, Apple, Amazon) and other market players with the aim to remain
competitive in the payment market. And on the other hand, to contribute to increasing the feeling of security for
their use, i.e. trust, whether people will believe that the information that is exchanged between mobile phones,
through the Internet, through payment cards and terminals or blockchain technology, has a certain value. As a
process to remove barriers in order for non-banking financial institutions to gain access to the data and accounts of
bank customers, open banking is the basis of new eco-systems in which customers will receive innovative services
and value-added services, which in turn represents a huge challenge to banks for finding the right strategy and active
involvement in the eco system. Adoption of the payment regulation (PSD2) is an instrument for opening up the
banking ecosystems and encouraging the development of innovative payment services by Fintech companies, but
banks should cooperate with Third Party Providers (TPPs) in creating eco systems with given the changed
expectations of customers. The use of mobile applications and the Internet increases the possibility for customers to
make correct financial decisions, to use services with lower prices, however, appreciating the potential risks created
by open banking, regulators in the European Union have developed technical standards, which specify the
conditions for a secure connection, security certificates for users with a high level of identity verification and
security measures to protect the confidentiality and integrity of payment services.