Shaun Puckrin, Chief Product Officer, Global Processing Services writes for Payment Expert on the current state of play for apps and what COVID-19 has taught us about their role in the market.
Fintech, which seeks to deliver financial services by leveraging innovative technologies, is now ubiquitous, disrupting the way in which services like retail banking, wealth management, payments and cross-border transfers are delivered to customers.
While COVID-19 has highlighted fintechs’ ability to be nimble and to rapidly respond in times of crisis, it has also accelerated the digitisation of financial services, with more and more banks forced to close their doors. With contactless payments on the rise due to the transmission risks associated with handling cash, technology has become vital to powering the digital economy.
The global fintech market is expected to grow to $310 billion at a compounded annual growth rate of 24.8% through to 2022, with the Asia-Pacific region expected to see the biggest development. Mobile wallets in particular stand to transform payments, with more than one billion shoppers expected to make a mobile or digital wallet payment in 2020 and smartphones increasingly becoming wallets. These apps aren’t just limited to retailers but are also integrated into the offerings of tech platforms, device manufacturers and financial institutions.
So, what role do embedded financial services and payments-as-a-service play, and how important are partnerships in commanding market share?
The rise of the “Super App”
Consumer demand for frictionless experiences has led a number of companies to provide “an app to rule them all” driving the evolution and integration of fintech beyond the traditional banking space, into other verticals including retail, travel and gaming. In other words, fintech is becoming part of the native user interface of non-financial products, no longer functioning as a standalone feature but instead becoming embedded.
A McKinsey report hit the nail on the head, stating that “by creating a customer-centric, unified value proposition that extends beyond what users could previously obtain, digital pioneers are bridging the value chains of various industries to create “ecosystems” that reduce customers’ costs, increase convenience, provide them with new experiences, and whet their appetites for more.” And the tech behemoths of the world have taken notice and are closing in on this opportunity.
Google, Amazon, Facebook and Apple, with their intimate customer knowledge, have developed payment products which help make their applications and services more attractive to consumers. While Apple Pay is set to account for 10% of global transactions by 2024, Microsoft has integrated payments technology into its Office Suite and Google is now looking at launching its own debit card and affiliated payments solutions to compete with Apple. Whilst these developments are impressive, they are eclipsed by the success of Alipay and WeChat Pay in China where Tencent and Alibaba have really delivered the super app vision to their customers, allowing them to live within their ecosystem along with a payment wallet that can be used across merchants in China and beyond.
Previously, we would have talked about payments in terms of ‘top of wallet’ but with the uptick in tech adoption, we are now looking at ‘top app’ mentality as people move away from using plastic – or even cash – to relying on making and receiving payments via their mobile devices, whether it’s through Apple or Google Pay, or through their favourite apps such as Uber or Amazon.
What these companies have in common is this: They’re looking at consumer behaviours and using this as a guide on how to best integrate new technologies. By integrating Apple or Google Pay as a payment option when consumers are shopping via their mobile, these businesses are removing one barrier at a time to e-commerce. Similarly, contactless payments have never been more important during the COVID-19 crisis, when people are wary of touching payment pads on POS terminals in shops. Ultimately, tech providers are streamlining the customer journey, both online and offline.
Will payments-as-a-service be the ‘new normal’?
Fintechs looking to compete with these large tech companies are now turning to marketplace models, which offer consumers a range of plug-and-play services to best fit their lives. Among these services is “payments-as-a-service” (PaaS).
PaaS, broadly speaking, is the integration of payments technologies – or paytech – into existing tech stacks of various businesses, financial or otherwise, to provide seamless payment options to end users across online and mobile channels. PaaS has swiftly become the norm for many businesses who do not have the ability or regulatory tolerance to develop their own payments systems in-house and will continue to evolve as consumer demand does.
Currently, customers have to choose between a ‘one stop shop’ which simplifies their online options, but can be limiting in terms of flexibility and geography; or a full setup, which involves a more bespoke selection and integration across multiple partners and APIs to provide processing, card manufacturing, and know your customer (KYC) checks.
What has become clear is that the playing field is changing: Fintechs are no longer competing with just banks, but are also going head-to-head with retailers, tech companies, and other businesses getting into the payments space.
This relationship, however, holds the potential to be symbiotic, as companies can now partner with those who have more appropriate strengths in various parts of the payments ecosystem. This year alone has seen the completion of a number of strategic mergers (including FIS’ $43bn acquisition of Worldpay and Fiserv’s $39bn purchase of First Data) which have consolidated the payments space and further strengthened companies’ propositions, lending them invaluable firepower.
The future is partnerships
As retail, travel, gaming, and other consumer-facing verticals continue to implement tech solutions to make the customer journey more frictionless, high street traditional banks will also be forced to innovate in order to remain relevant, but to do this in-house is far too time consuming and costly to the business. Enter partnerships.
Acquiring or partnering with digital leaders and challenger brands can be a much more cost- and time-effective way to achieve a competitive advantage, without having to go through the tedious process of replacing legacy IT infrastructure. The uncertainty caused by COVID-19 has accelerated the demand for these types of agile partnerships to allow non-tech or financial businesses to continue providing services and products that consumers need and want.
While a lot remains unknown about the acceleration of fintech adoption, what’s certain is that its use is set to become ubiquitous in line with consumer demand across sectors. And as technologies like PaaS become more readily available, we should continue to see companies looking to integrate fintech into their products and services – whether as an option for customers, or a backend application that becomes ‘native’ to the business itself.