From 7 May 2024, The North East Evidence Hub is a project of the North East Combined Authority. Find out more at northeast-ca.gov.uk/north-east-lep
Payment Processing
Payment processing market refers to the facilitation of secure and successful transaction between a bank and the merchant, usually using a payment gateway. The transaction can be using online channels, card processing or app-based applications.
This is one of the 16 market profiles produced as part of the Economic Market’s foresight study commissioned by the North East LEP. It provides an overview of the future growth prospects for the Payment Processing market globally, a summary of the enterprise base serving the market in the North East and relevant regional assets, and an analysis of how the continued convergence of global trends will affect future market development.
These markets were selected as those most likely to present opportunities for future regional growth in the North East LEP. This was done based on a trends analysis conducted by Frost and Sullivan, which identified 37 high impact trends driving continued change and growth in these markets globally. A shortlist of markets from this trends analysis was then cross-referenced against the current North East position by Cambridge Econometrics. This analysis identified the most significant opportunities for the North East LEP.
Each of these profiles also uses findings from the Data City platform to quantify the number of firms serving the Payment Processing market in the North East. This platform links companies house data to companies’ websites and uses the website text and machine learning to classify firms into Real Time Industrial Classification Codes, which can allow analysis of markets often too emergent to be precisely measured in SIC codes. The data from this platform has been triangulated against ONS data to consider a variety of perspectives on the market.
More detail about the methodology can be found here for the 16 market profiles.
Emergent status
in the North East and associated value chain
National scope
in terms of firm activities and ownership
Moderate presence
sightly more firms with locations in the North East than the national average
Description and global outlook
Payment processing market refers to the facilitation of secure and successful transaction between a bank and the merchant, usually using a payment gateway. The transaction can be using online channels, card processing or app-based applications.
The key technology enablers which are driving the adoption payment processing market are mobile wallets, biometrics, AI, blockchain, real-time payments, omni-channel payment processing, and Application Programme Interface (API).
Market drivers
Payment processing has become a key development area for facilitating the cross-border payments and remittance due to its potentially lower cost over traditional methods. The increasing demand from the retail consumers, ecommerce segment, and inclusive platform for non-banked areas, and growth in mobile-based QR payments is driving the overall market growth.
The push for cashless transactions during COVID-19 across several cash oriented economies, such as Japan, provided new growth markets which were earlier limited in terms of opportunities.
The payment processing market is often faced with challenge of ensuring card security and frauds using data thefts. Cross-border payments and multi-currency payments are also an area of concern where transactions are often slow and expensive. For SMEs, integration with payment processing channels can be expensive and difficult to manage.
Scale and scope of global market
In 2020, the payment processing market was estimated to be US$74 billion, with the growth rate forecasted at CAGR 11% for the period 2021-2025. In terms of market size, Asia-Pacific (APAC) is expected to emerge as the largest payment processing market owing to exponential adoption of online and digital payments across developing economies including India, China, and Malaysia.
These markets have benefitted from lower cost of providing financial solutions to their largely unbanked population and higher rates of smart phone adoption. The UK, in 2020, witnessed a fall in the volume of payments due to COVID-19 induced restrictions on travel, shopping and several other commercial activities.
However, the market for Fast Payments continued to grow with increasing adoption of online payments. Some of leading global companies in the payment processing solutions market are Galileo Financial Technologies, PayPal, Due, Stripe, Amazon Pay, Adyen, Square, BitPay, Razor Pay, Google Pay, Samsung Pay, etc.
Capital flows and FDI
Nationally, VC, PE and Buyout deals for private sector capital into financial services has fluctuated over the past 4 years. Fintech has accounted for a large proportion of the private and VC deals completed, with a larger balance of international investment into UK firms than any other market in this report.
The majority of capital flows in financial services are however expected to come from corporate group investments into regional hubs from larger banking coroporates wishing to relocate or invest in existing North East locations. These corporates are themselves funding R&D and providing extensive capital for development of Fintech IP, both internally, and with local firms and research organisations.
UK government-backed funds for R&D associated with Fintech and broader Financial Services remains an accessible option for innovative ventures.
North East presence and capabilities
Regional overview
There is a significant financial services sector in the North East LEP area, which includes traditional banking, building societies, as well as online banking and fintech. Payment services is on of five fintech sub-sectors are thriving in the region: payments; software; data analytics; platforms; and cybersecurity.
Many leading fintech companies are located in the North East. Global company Sage, Newcastle Strategic Solutions, Kani Payments and True Potential are all headquartered here, as well as Atom, one of the UK’s foremost neobanks, which is based in Durham. Major banks such as Virgin money, TSB, Newcastle Business Society, Tesco Bank and NS&I are based in the North East. HMRC has its digital delivery headquarters in the region and employs specialists across various technical digital fields to deliver new digital technologies to its customers.
The region is also home to several enterprise software development companies that have tech teams embedded in top-tier investment banks.
The region is also home to several enterprise software development companies that have tech teams embedded in top-tier investment banks.
Fintech companies moving to the North East have a huge choice of dedicated office accommodation and innovation hubs, including Sunderland Software City, TusPark and Salvus House all nurturing fintech, insuretech and cyber businesses.
The National Innovation Centre for Data (NICD) was created in 2019 with £30 million of funding from the government and Newcastle University. Based in the state-of-the-art Helix science district in Newcastle, its mission is to transfer data skills to the UK workforce.
Its team of PhD and Masters-level data scientists work to ensure that organisations across the country are equipped to reap the benefits of the global data-driven revolution. The Centre for Doctoral Training in Cloud Computing for Big Data at Newcastle University is an innovative and highly prestigious programme. Newcastle University also offers a PG Cert, PG Dip, MSc Data Science course.
North East LEP area has a strong and diverse university sector, with over 85,000 students studying at four universities: Durham University; Newcastle University; Northumbria University and University of Sunderland. In 2018/19 there were 31,475 enrolments in the four universities in the North East LEP area.
It has been a priority of the North East LEP to increase the enrolment in STEM qualifications.Overall, the change in total graduates between 2014/15 and 2018/19 and who studied a STEM related subject has been roughly in line with the UK average at around 10%. However, some subjects have experienced a much faster increase in graduates, most notably in computer science, where the number of graduates increased by over 40% in the space of four academic years, compared to 19% in the UK as a whole.
According to the North East LEP local skills report, 3.5% of employment in the area was in digital occupations, comprising 42,700 people - a smaller proportion than England as a whole (4.4%). However employment in these occupations has grown faster in the North East LEP area between 2015 and 2020 than nationally (Growth of 24% in the North East LEP area compared to 18% nationally). Notable occupations at the three digit level that grew faster than England excluding London between 2015 and 2020 were Information Technology and Telecommunications Professionals (grew by 39% in the North East compared to 19% in England excluding London) and Research and development managers (140% growth vs 27%)
According to the North East LEP local skills report, 3.5% of employment in the area was in digital occupations, comprising 42,700 people - a smaller proportion than England as a whole (4.4%). However employment in these occupations has grown faster in the North East LEP area between 2015 and 2020 than nationally (Growth of 24% in the North East LEP area compared to 18% nationally).
Notable occupations at the three digit level that grew faster than England excluding London between 2015 and 2020 were Information Technology and Telecommunications Professionals (grew by 39% in the North East compared to 19% in England excluding London) and Research and development managers (140% growth vs 27%).
FinTech North is a not-for-profit, collaborative project conceived and created through the partnership of White Label Crowdfunding and Whitecap Consulting.
The FinTech North initiative aims to
generate collaboration and knowledge share by building a FinTech community across the Northern Powerhouse
enhance reputation of the Northern Powerhouse as a FinTech region
generate tangible economic benefit for the region and the cities within it
They do this by
managing a predominantly event-based FinTech entity focused on the the Northern Powerhouse
providing a platform for sharing best practice
showcasing regional talent and facilitating connections
They also engage with key public and private sector organisations and higher education establishments in the region.
Analysis of GVA and employment by SIC sectors
The tables below summarise the findings from socio-economic data and economic forecasts for the IT Services sector and the Financial and Insurance sector. These are the most relevant SIC classification industries for payment processing.
Both sectors are large employers in the North East LEP area, with IT Services employing 24,400 and Financial and Insurance industries employing 17,800. Both location quotients are at or below 1, highlighting that neither sector is particularly concentrated in the North East. Similarly, productivity rates are near or at the average for England less London. Both sectors have demonstrated high rates of historic GVA growth, and are forecast to grow strongly in future years.
IT Services
Financial and Insurance
The Data City findings
The Data City provides company data based on an AI-driven taxonomy search of terms and content on company websites. This is then connected to companies house data for each company – and allows an aggregate analysis for new industry and market definitions. The data captures the number of business branches in the North East LEP area.
In the North East LEP area the data suggests that were 17 active payments processing firms with a location in the North East LEP area in June 2022, 2.7% of the total payments processing firms in the UK.
Location quotient
The findings from the Data City platform suggest that there is a strong cluster of payments processing firms in North Tyneside. North Tyneside had a very strong location quotient and was also ranked in the top 5 UK local authorities on this measure. Newcastle also had a moderate location quotient suggesting a slightly above average number of firms in payments processing. The rest of the local authorities in the North East LEP had location quotients below one meaning that they had fewer firms in this sector as a proportion of their business base than the national average, and there were no firms with any locations in Gateshead and South Tyneside.
Out of region locations
The locations data from the data city suggests that the payments processing industry in the North East LEP is relatively focussed in the North East, only 6% of firms with a location in the North East LEP area had an additional location outside of the wider North East region. In contrast, 26% of UK firms in payments processing had locations in at least two NUTS regions.
This is also reflected in the wider location data. Only two locations were recorded for this market outside of the wider North East region. Compared to the overall distribution of firms the North East had very few links to London and the South East, where most payments processing firms in the UK are located.
Sector crossover
One of the innovative features of the Data City methodology is that it allows firms to be classified in multiple sectors. The platform does so through real time industry classifications (RTICs), which are constantly evolving classifications generated by an AI from companies’ websites. Firms can be classified under multiple RTICs at any one time.
This means the data can be used to demonstrate interdependencies where sectors overlap. In terms of the North East LEP payments processing sector there are two other RTICs in which over 10% of the sector also operated in, Fintech and Food tech. Of these Fintech was by far the more common, with over half of the firms in the North East also operating in this sector, although this was still lower than the proportion of payments processing firms in UK that also work in the sector.
Overall payments processing firms in the UK operated in 15 different RTICs, of which firms in the North East LEP operated in two.
Subsectors
The Data City methodology also includes individual subsectors within the RTIC taxonomy which allows detailed analysis of the North East LEP’s focus within the immersive tech sector. These subsectors show that the North East LEP has a stronger focus food tech and buy now pay later technology than the sector overall, but a relatively low focus on payment technology.
Overall, payments processing firms in the UK operated in 40 different subsectors, of which North East LEP firms operated in 5.
Locations map
As suggested by the location quotient data, payments processing firms are concentrated in North Tyneside and Newcastle upon Tyne in the North East LEP area.
Regional prospects
A critical part of this study is to shortlist which emergent markets represent “hot prospects” for the North East economy in the future. Using the findings from the study, and the assessment framework below, Payment Processing is rated as a market with:
Emergent status in the North East
National scope in terms of firm activities and ownership
Moderate presence in the North East, with 2.7% of firms in this market having a North East LEP location (compared to 2% of firms in all markets)
Demand for Financial services and related technologies is expected to continue to grow in tandem with the world economy. Financial services are also a traditional strength of the UK, so it is anticipated that the UK in general will be at the forefront of this growth. The challenge for the North East is to develop a distinct offer in a market where other regions including London, Leeds and Manchester have core strengths.
A specific opportunity exists to align Fintech with Payment processing to develop a competitive niche in Financial services. Several innovative cross-over business models are beginning to emerge from the interaction between the traditional financial services sector and these new digital capabilities. The intersection of Fintech and Payment Processing, both markets where the North East has a particular focus, could allow the North East to develop a competitive advantage relative to other regions.
The key dependencies for the market are digital capabilities required to store and protect data especially in Software development, Cloud computing, Data analytics, and Cybersecurity. The North East must be mindful to develop the required support capabilities if it is to develop a regional specialism.
