We've been surveying the fintech landscape as we head into Q4 of 2018. We've looked at the future of lending and trends in insurtech and insurance using a crowdsourced content model where we went directly to the Tearsheet community for guidance. The articles have been received well, so now we're turning our sights to payments and what 2019 has in store for the sector.
We received so many contributions that we had to split this series in two -- our first article focused on the future of payments and the evolving transaction, while this one looks at the changing payment ecosystem.
Alastair Johnson is the founder and CEO of Nuggets: “Financial institutions are custodians of some of the most sensitive customer information – with such responsibility they must be held accountable. The laws around data handling are tightening globally (take initiatives like GDPR, for instance), so it’s refreshing that something is being done in this regard. Although overlooking security measures is chiefly to blame, it may be time to reconsider the models these firms use – as centralized entities, they aggregate data from customers into large data silos that become incredibly lucrative targets for malicious actors. I’d go so far as to say it’s a systemic issue. We need to use protocols that remove this incentive. I’m a proponent of decentralization storage to these ends. Fragmenting, encrypting and then distributing customer information across multiple isolated containers is one way to minimize the severity of a breach. Better yet is using a blockchain network, combined with zero-knowledge storage, so that individuals remain in complete control of the information (which never touches an attack surface). As biometrics become widely available, I believe they should become a standard – there’s no shortage of research pointing to the inefficiency of the username/password pairing. Methods like fingerprint authentication are vastly higher in entropy than lengthy, randomized passwords. Besides, users don’t have to worry about forgetting their index fingers.”
Tara Eriksen is the channels and strategic integrations manager at Paytronix Systems: Collaborative partnerships between fintechs and digital marketing platforms will become increasingly important as technology companies continue to disrupt the payments industry. While retail merchants upgraded their payments hardware and software to comply with new regulations, symbiotic fintech innovations like mobile and P2P payments transformed customer experience expectations. Payments are becoming increasingly frictionless and fast. And customers now expect any part of the payment experience to be similarly frictionless and fast, including marketing actions like redeeming coupons, purchasing a gift card, or earning a free coffee. We’re already seeing collaborative partnerships forming between fintechs and marketing platforms. For example, at Paytronix we’ve integrated our loyalty programs with Apple Pay and Google Pay. What used to be a multi-step process (identifying oneself in order to earn points or collect on an offer) is now streamlined through the same, single tap a customer uses to pay with his/her mobile device.
Herman Man is vice president of product at Xero: The number one trend in the payments ecosystem will be increasing collaboration between fintech companies and banks. This is possible because of the growing ability to integrate and automate the flow of data across a business -- from accounting, to their payments solutions, to access to capital. Ultimately, this means organizations have a much better financial view of the business. On a basic level, this integrated flow of data eliminates work and saves business owners time. But the more important benefit is that it creates a rich set of data that is the basis for financial services innovation making it a win-win for both the business owner and the financial services providers. This is a two-sided equation because:
Scott Mullins is head of worldwide financial services business development at AWS: “Heading into 2019 the global payments landscape is shifting. From the rise in mobile and new, non-bank payment service providers, such as Stripe, Zelle and others, the payment industry is in the midst of a major transformation and consumer demands are only helping push new innovations forward. With agility, turning to the cloud enables established and new payments players to deliver fast, frictionless payment services globally and at scale. For example, PayU India, one of the top-three payment gateway providers in the country, implemented a cloud-based database and associated systems on the AWS Cloud, which resulted in the ability to bring new products to market in less than two weeks. Nubank, a financial services startup based in Brazil, introduced a no-fee credit card, managed with an app, built and deployed on AWS in just seven months. Based on conversations with our customers, which include Stripe, Travelex, Razorpay, and iZettle, in the year ahead, payments companies will likely focus on enhancing accessibility, security, simplicity, personalization, and speed. Specifically, multifactor authentication including biometrics, geo-location based verification, and cryptography will help companies to mitigate fraud, cyber threats, data breaches and comply with new payment regulations, like PSD2 in Europe. Additionally, with the continued adoption of smartphones, cloud computing and the acceptance of alternative payment channels, such as Square and wearables, merchants will be able to accept in-app, online, voice initiated commerce, IoT and in-store payments while scaling to meet demand – leading to a more unified and simple experience for customers.”
Gary Roboff is a senior advisor at The Santa Fe Group: "U.S. regulators will follow through on The Treasury's recommendation to establish a regulatory sandbox, and payments and products successfully passing through the sandbox will provide substantially higher levels of security. It's not unreasonable to expect that a sand box seal of approval will become a competitive advantage for those seeking to provide new products and services to the financial services community. Regulatory sandboxes are designed to provide testing grounds for fin-tech firms and others to put new products through their paces under regulatory supervision. The process has the ability to assure that new applications meet standards for security, privacy, etc. The Financial Conduct Authority (FCA) in the UK has led the sandbox pack with four cohorts of participants (mostly non-bank providers) during the last two years, and other sandboxes have been established in Singapore and Australia. In fact, an international consortium of regulatory sand boxes is under development and includes the United States."
Biometrics-ville
Joseph Pham is senior director of identity and risk products at Visa: The general sentiment among most people who use technology is that traditional passwords used to access online accounts, make payments or purchases, or confirm transactions are difficult to remember and cumbersome to use. Visa expects 2019 to be the year more financial institutions test using one or more forms of biometric authentication (fingerprint scanning, facial/voice recognition, iris scanning, etc.) to replace passwords for improved speed and security. It’s not science fiction anymore as the technology is already used today and integrated into various aspects of our lives including mobile devices, airports and sports arenas.Alastair Johnson is the founder and CEO of Nuggets: “Financial institutions are custodians of some of the most sensitive customer information – with such responsibility they must be held accountable. The laws around data handling are tightening globally (take initiatives like GDPR, for instance), so it’s refreshing that something is being done in this regard. Although overlooking security measures is chiefly to blame, it may be time to reconsider the models these firms use – as centralized entities, they aggregate data from customers into large data silos that become incredibly lucrative targets for malicious actors. I’d go so far as to say it’s a systemic issue. We need to use protocols that remove this incentive. I’m a proponent of decentralization storage to these ends. Fragmenting, encrypting and then distributing customer information across multiple isolated containers is one way to minimize the severity of a breach. Better yet is using a blockchain network, combined with zero-knowledge storage, so that individuals remain in complete control of the information (which never touches an attack surface). As biometrics become widely available, I believe they should become a standard – there’s no shortage of research pointing to the inefficiency of the username/password pairing. Methods like fingerprint authentication are vastly higher in entropy than lengthy, randomized passwords. Besides, users don’t have to worry about forgetting their index fingers.”
Big data
Matt Oppenheimer is CEO of Remitly: "We will see a rise in big data to make decisions and innovate to better service a market sector that has often been overlooked and disadvantaged by financial services -- immigrants. Including updating systems to track behavioral events and signals -- site visits, app downloads, failed login attempts, length of time in review risk, pricing and treasury -- helping guide experimentation with foreign exchange pricing and payment models, making services faster and saving customers more money. Currently, Remitly uses big data to raise the bar on trust and transparency -- leveraging our sophisticated system and data to calculate an expected arrival date and time a customer receives their money, known as their Delivery Promise. Companies like UPS, Amazon, and even the United States Postal Service allow you to track packages no matter how small or large. Remitly believes people should be able to track the hard-earned money they send also, given the people we serve often send for necessities we take for granted in the U.S. About 95% of Remitly’s estimated delivery time is on target, a hard feat when most of the factors that go into a money transfer delivery are out of their control, controlled by compliance policies and regulators, the foreign exchange market, overseas banks, and cash pickup partners SLAs. It took our team about two years to improve and refine this complex system from ~70% to 95%. It seems pretty common sense to ensure this benefit for customers, but the bar has been low in this industry for centuries. No other players in the digital remittance space provide this type of guarantee."Coming M&A wave
Mitch Siegel is financial services strategy leader at KPMG: “Mergers and acquisitions will remain robust in the payments space next year, driven by several factors, such as establishing global P2P capabilities, extending the physical footprint of point-of-sale locations, and more seamlessly bridging online and offline transactions. Consumer demand for easy, secure and instant transactions – whether it’s purchasing a cup of coffee, receiving a paycheck or shopping online – is accelerating the need for a more consolidated ecosystem that can support real-time payments for B2C and B2B transactions. The number of intermediaries in our current payment system, along with the rise in commerce channels across the digital and physical world, make moving money around the world difficult – and mergers and acquisitions can be a way to remedy this.”More transparency
Ian Wright is the founder of Merchant Machine: "I think the biggest trend in the payment industry going into 2019 is the move towards more transparent and democratic payment systems. Examples of these systems include Stripe, Square and iZettle. These companies all offer transparent pricing, which is something the industry still struggles with. They are also democratic in the sense they have low to no-setup fees, so even the smallest of small businesses can now start accept card payments. These companies are going to continue to increase market share at the expense of legacy, opaque, high-cost incumbents."Open APIs
Darren Hutchinson is head of commercial, Americas for WorldFirst: "Banks have had it their way for so long with regards to owning the whole process of payments. But, with the ever-increasing disruptions from fintechs, we are experiencing banks providing a higher level of engagement, especially with recent regulatory changes such as PSD2 and the desire for transparency. Open APIs will provide greater visibility to the process and data associated with the transactional flow. The net result will deliver faster transaction speeds and challenge the desire for real-time payments rails. Another benefit is open APIs will challenge the friction associated with all steps of the client journey from the acquisition, to KYC and then the execution and release of payment. As we looking to support the increased expectations of merchants and consumers, the spiked interest and desire to adopt these technologies from banks will drive a deeper collaboration between both parties and take a closer step to real-time payments and transactions."Fintech partnerships
Debbie Barta is svp, innovation management at Mastercard: “We all know that open innovation is the goal in the payments industry. In a world of distributed knowledge, companies cannot afford to rely entirely on their own R&D. For 2019, they will benefit even more from partnerships with Fintech startups. Startups are nimbly addressing friction points throughout the commerce landscape but can benefit from the scale and mentorship that corporate partners can provide. Yet, corporates are keen to be agile amid legacy infrastructure and prioritization challenges that can make these relationships more complex. To advance commerce dramatically during 2019, a successful payments technology ecosystem will seek ways to move past “window shopping” with startups and begin addressing the opportunities to test and learn, taking thoughtful risks to manage different capabilities and enable meaningful collaboration. The keys will be: starting the difficult internal conversations about risk tolerance; experimenting in trusted environments; and realizing the compounded magic created by working together. Scalable solutions that achieve commercial objectives will be the main criterion of success. 2019 is the year of partnership advancement for startups and corporates.”Tara Eriksen is the channels and strategic integrations manager at Paytronix Systems: Collaborative partnerships between fintechs and digital marketing platforms will become increasingly important as technology companies continue to disrupt the payments industry. While retail merchants upgraded their payments hardware and software to comply with new regulations, symbiotic fintech innovations like mobile and P2P payments transformed customer experience expectations. Payments are becoming increasingly frictionless and fast. And customers now expect any part of the payment experience to be similarly frictionless and fast, including marketing actions like redeeming coupons, purchasing a gift card, or earning a free coffee. We’re already seeing collaborative partnerships forming between fintechs and marketing platforms. For example, at Paytronix we’ve integrated our loyalty programs with Apple Pay and Google Pay. What used to be a multi-step process (identifying oneself in order to earn points or collect on an offer) is now streamlined through the same, single tap a customer uses to pay with his/her mobile device.
Herman Man is vice president of product at Xero: The number one trend in the payments ecosystem will be increasing collaboration between fintech companies and banks. This is possible because of the growing ability to integrate and automate the flow of data across a business -- from accounting, to their payments solutions, to access to capital. Ultimately, this means organizations have a much better financial view of the business. On a basic level, this integrated flow of data eliminates work and saves business owners time. But the more important benefit is that it creates a rich set of data that is the basis for financial services innovation making it a win-win for both the business owner and the financial services providers. This is a two-sided equation because:
- Business owners benefit from a real-time view of their finances and deep insights into their performance, and
- Financial services providers benefit from a deeper understanding of their customers and, therefore, the ability to expand services they provide, such as unlocking access to credit.
Public cloud
Paul McMeekin is a director at ACI Worldwide: “Five years ago, or even two years ago, I did not imagine I would write this sentence: Banks and players in the ecosystem are deploying their payments infrastructure in the public cloud. The previous questions of scale and safety (for the brand and consumer) have been answered. The biggest driver behind the move to the cloud is a different economic model. With scale elasticity, businesses don't have to commit to large internal infrastructure costs for peak volume. Additionally, cloud based solutions can be moved outside of the core infrastructure, built in weeks and enable the business to become more agile and generate revenues faster. The move to the public cloud is an unstoppable force and all major banks will have some of their payment infrastructure in the public cloud by the end of 2019.”Scott Mullins is head of worldwide financial services business development at AWS: “Heading into 2019 the global payments landscape is shifting. From the rise in mobile and new, non-bank payment service providers, such as Stripe, Zelle and others, the payment industry is in the midst of a major transformation and consumer demands are only helping push new innovations forward. With agility, turning to the cloud enables established and new payments players to deliver fast, frictionless payment services globally and at scale. For example, PayU India, one of the top-three payment gateway providers in the country, implemented a cloud-based database and associated systems on the AWS Cloud, which resulted in the ability to bring new products to market in less than two weeks. Nubank, a financial services startup based in Brazil, introduced a no-fee credit card, managed with an app, built and deployed on AWS in just seven months. Based on conversations with our customers, which include Stripe, Travelex, Razorpay, and iZettle, in the year ahead, payments companies will likely focus on enhancing accessibility, security, simplicity, personalization, and speed. Specifically, multifactor authentication including biometrics, geo-location based verification, and cryptography will help companies to mitigate fraud, cyber threats, data breaches and comply with new payment regulations, like PSD2 in Europe. Additionally, with the continued adoption of smartphones, cloud computing and the acceptance of alternative payment channels, such as Square and wearables, merchants will be able to accept in-app, online, voice initiated commerce, IoT and in-store payments while scaling to meet demand – leading to a more unified and simple experience for customers.”
The fight against interchange fees wages on
Lauren Crossett is the head of fintech at Quovo: "More merchants, utilities, and vendors are looking for alternatives to credit and debit cards in an attempt to combat high interchange fees. One viable alternative that I’m interested in is ACH-based payment. It is the least costly form of payment from a retailer’s perspective but also the least desirable for most consumers, given the lack of rewards and convenience of a single swipe. However, we should expect to see new workflows implemented using a combination of ACH processing with financial account connectivity. This method may enable businesses to enhance digital consumer discovery, personalize marketing, and inform their competitive strategy, as the consumer’s financial account is directly connected. In turn, customers could receive similar benefits to credit cards from the special discounts and rewards that merchants may offer to incentivize payment via ACH rails, as opposed to credit or debit cards."Ambient accounts
Stani Kulechov is founder and CEO of Aave: "As we move into 2019, I believe one of the biggest trends we will see is the shift towards ambient accounts. The ability to plug into a customer’s day through ambient intelligence will provide meaningful, actionable data to redesign their journey from top to bottom. The focus will be on creating a deep understanding of the customer’s daily rhythms, pain points, and needs, to create a completely personalized, invisible experience. We currently have plans to integrate ambient computing so that we can serve the gig economy and micropayments industry. With freelancing, remote work, and entrepreneurship on the rise, a smartphone app is the bare minimum requirement when it comes to digital banking. Banks that incorporate ambient accounts will have the ability to create a more functional, intuitive “on-the-go” experience, significantly distinguishing themselves from institutions that still rely centralized legacy infrastructure. Ambient banking removes the need for a third-party payment processor, keeping transactions contained within an application and enabling true peer-to-peer payment, even across international borders. This increases opportunities for users to participate in the global economy, pursue ventures outside traditional employment, and move money with complete flexibility. As we continue to evolve towards the ambient paradigm, we’ll be able to gather incredible insights into customer behavior and psychological habits, which will allow banks to further anticipate and fulfill their customer’s needs-- sometimes even before the customer knows they have them. While ambient banking is still in its beginning stages, we believe that those that take advantage now can lay the groundwork for a world-class customer journey that goes beyond devices. Ambient accounts will ultimately lead to a banking experience fully integrated into how customers conduct their daily lives, “banking in the background.” I feel that is how banking should be working right now."Regulation in motion
Mike Jordan, CISSP, CRISC, CTPRP is a senior director at The Santa Fe Group: "Prediction: Regulators will shift in focus beyond operational management and resilient business operations at critical vendors, to also focus on privacy concerns. Third-Party Risk Management (TPRM) in the payments ecosystem and across financial industries is dominated by two major trends, Standardization and Regulation. Standardization in TPRM is about having a common set of requirements and practices between outsourcing companies and their vendors. The huge volume of vendors at most financial institutions require streamlined processes to even keep up with new vendors, and nearly all optimization efforts like automation and assessment sharing start with agreement on a set of practices and requirements. Regulation is one of the main drivers for many of the requirements in TPRM programs. Regulation in TPRM began with operational risk management requirements stemming from the financial crisis of 2008, such as those that required verification of resilient business operations at critical vendors. However, recently the focus in regulation has shifted to Privacy concerns, driven by mass proliferation of consumer marketing data and some very public breaches of that data. European data privacy requirements such as GDPR and their penalties made managing consumer and employee data a critical function internally and at vendors that handle that data. U.S. state and federal requirements are starting to follow suit with proposed legislation with more rigorous requirements than ever before."Gary Roboff is a senior advisor at The Santa Fe Group: "U.S. regulators will follow through on The Treasury's recommendation to establish a regulatory sandbox, and payments and products successfully passing through the sandbox will provide substantially higher levels of security. It's not unreasonable to expect that a sand box seal of approval will become a competitive advantage for those seeking to provide new products and services to the financial services community. Regulatory sandboxes are designed to provide testing grounds for fin-tech firms and others to put new products through their paces under regulatory supervision. The process has the ability to assure that new applications meet standards for security, privacy, etc. The Financial Conduct Authority (FCA) in the UK has led the sandbox pack with four cohorts of participants (mostly non-bank providers) during the last two years, and other sandboxes have been established in Singapore and Australia. In fact, an international consortium of regulatory sand boxes is under development and includes the United States."