Financial Transaction Processing
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 3,500 financial transaction processing companies provide payment processing, reserve and liquidity, and check or other financial instrument clearinghouse services. As intermediaries between buyers and sellers, clearinghouses validate, settle, and finalize financial transactions. Payment service providers (PSP) act as middlemen between banks, merchants, and card networks and aggregate credit card and other forms of electronic payment processing for tens of thousands of small to medium-sized businesses. Peer-to-peer (P2P) payment systems, which include money transfer applications, allow users to send money directly to another user through a linked bank account.
Extensive Regulation and Oversight
Because financial transaction processing deals directly with money and private accounts, the industry is subject to extensive regulation and oversight by government and other organizations.
Industry Concentration and Competition
The payment processing industry is highly competitive and dominated by large companies.
Industry size & Structure
The average financial transaction processing services provider operates out of a single location, employs about 40 workers, and generates about $30 million annually.
- The financial transaction processing industry consists of about 3,500 firms that employ about 134,000 workers and generate over $100 billion annually.
- The industry is concentrated; the top 50 companies account for over 85% of industry revenue.
- Automated Clearing House (ACH) operators include the Federal Reserve, the Reserve Banks, and the Electronics Payment Network (EPN). The EPN is part of The Clearing House (TCH), which is owned and operated by the world’s largest commercial banks. THC also owns the Clearing House Interbank Payment System (CHIPS), the primary clearinghouse in the US for large banking transactions.
- Owned by the Depository Trust & Clearing Corporation (DTCC), the National Securities Clearing Corporation (NSCC) clears nearly all corporate equity and bond trades in the US. The Options Clearing Corporation (OCC) specializes in equity derivatives clearing for 20 exchanges and trading platforms.
- Large companies with payment processing and/or peer-to-peer (P2P) payment operations include PayPal (Venmo), Block (Cash App, Square), Stripe, and Fiserv.
Industry Forecast
Financial Transaction Processing Industry Growth
Recent Developments
Aug 18, 2024 - About Half Of US Consumers Use P2P Apps To Send Money
- About 51% of US consumers use Peer-to-Peer (P2P) apps to send money, according to financial transaction processing news site PYMNTS. P2P payment has been dominated by FinTech players like Venmo and Zelle, but consumers are increasingly expecting their primary financial institutions to offer P2P capabilities, according to PYMNTS. The appeal is clear: convenience, speed, and the added security of dealing with a trusted financial partner. Banks that fail to provide P2P services risk losing customers to FinTech disruptors, according to PYMNTS.
- The integration of artificial intelligence in fintech has enhanced personalization in payment apps, according to financial transaction processing news site PYMNTS. Machine learning algorithms are used to analyze user behavior, spending patterns, and preferences. This allows payment service firms to provide consumers with tailored recommendations, personalized promotions, discounts, and rewards. AI-powered personalization raises conversion rates and income for sellers and payment service firms, according to Finance Magnates.
- More banks will have to sign on to instant payment services like The Clearing House’s RTP Network and the Federal Reserve’s FedNow Service to enable faster payments, and services must be interoperable to accelerate growth of instant payment systems, according to Cory Barnes, senior product manager at payment technology platform provider Form3. Payments initiated on one system today must travel and settle within that system. A payment or remittance can’t travel from a bank on one system and land with a bank on another system. Barnes likened the situation to the mobile phone landscape a few decades ago, where Verizon subscribers could not call someone on the AT&T network. That changed over time, Barnes says, and we’re headed to the same flexibility with instant payments. Increased participation and interoperable systems will in turn will spur a “network effect” and growth in the number of endpoints. “The expectation with instant payments is that they are frictionless,” Barnes said. “It’s all about the end user.”
- Financial transaction processing industry employment was unchanged during the first six months of 2024 while average wages for nonsupervisory employees increased significantly, according to the US Bureau of Labor Statistics. Financial transaction processing industry sales are forecast to grow at a 1.66% compounded annual rate from 2024 to 2028, slower than the growth of the overall economy.
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