Writing for Payment Expert, Ivo Gueorguiev, Co-Founder and Executive Chairman of fintech Paynetics, details the advent of BigTech in the finance industry and the need for a new breed of ‘regulated fintechs’ to drive both innovation and stability in the sector.

This year, all businesses have seen immense disruption in one form or another due to the far-reaching effects of the COVID-19 pandemic, and those in the finance and payments sectors are no exception. But whilst the events of this year have been unexpected, the now accelerated trend towards digitisation in these areas is not a new phenomenon.

In payments specifically, even before the pandemic, cash withdrawals were plummeting as consumers moved to digital alternatives and were both responding to and driving businesses’ push to provide contactless or mobile solutions. More recently and in the UK alone, cash withdrawals decreased by 60% during lockdown, and recent figures from charity Be the Business show that small businesses achieved three years of innovation in those three months.

But these businesses have also been the hardest hit in recent weeks, as confirmed by a report from Mastercard. Obviously, this is due to a number of reasons, but payments do represent a key stumbling block as many did not have an online offering before the pandemic and many aren’t able to accept digital payments in a world that is increasingly cash free.

It’s within this context that WhatsApp recently launched its latest payment service, this time intended to cater to the Brazilian market. This new offering seemed well suited to this specific market for a number of reasons, not least because WhatsApp claims to have 120 million users in Brazil – not bad for a country of just over 210 million – and it has already garnered significant societal traction more broadly. You only have to look as far as coverage of the 2018 election to see its strong influence on the country. 

Furthermore, whilst McKinsey figures show that up to 65% of Brazilians do not use formal financial services, 46% of users in Brazil have bought products through the platform, resulting in a huge opportunity for ecommerce providers.

For WhatsApp and those using the Pay product, there were also some important advantages to this particular market, driven by things such as the country’s individual tax systems, the high level of remittance – Brazil’s remittance flows are currently valued at $2.5 billion – as well as nuances associated with the Brazilian currency. 

And then there’s a lack of competition: lack of demand has meant that many of the established payments services which are now part of a consumer’s everyday life in the West, do not have a presence in Brazil or the LATAM region as a whole. 

But what has since made this move by WhatsApp most interesting, is that the service was pulled a week after launch, with the country’s national bank citing competition-based grounds as a reason. At time of writing, the antitrust ruling has been officially lifted, but WhatsApp still faces central bank objections which make the future of its service hazy, to say the least.

The introduction of WhatsApp Pay in Brazil is a great example of how BigTech is approaching this industry. But its withdrawal shows that, despite this sector providing an obvious area of growth for tech behemoths such as Apple, Facebook, Google and Rakuten, their offerings can be unsuited to the complexities that come with it. Whilst they have seemingly unlimited resources and user bases that reach into seven figures, coupled with the reasons listed above as to why WhatsApp Pay should have flown in the Brazilian market, this still isn’t enough to create a viable product offering.

What I take from this is that any successful counters to the market ambitions of BigTech in payments require close collaboration between fintechs and more traditional players in the finance industry. In fact, I’m seeing the insurgence of these companies as a catalyst for this cooperation. 

Through working together, companies can bring ‘best in breed’ solutions to market which can compete with the tech giants, but which will have the adequate regulatory and supervisory frameworks in place in order to make them successful, and drive innovation in the sector as an added bonus.

Through these partnerships, the payments community can push the boundaries of our solutions to support consumers and businesses at what is a challenging time for us all. And we can do so in a way that adheres to the complexities of the industry we know is full of opportunity right now. 

Ecommerce, including wallet solutions and mobile payments, are just some of the specific areas in which I have seen a huge amount of opportunity and innovation arise over the last couple of months, in part due to businesses having to reevaluate their payments offering to their consumers as they pivot to be based more online.

An example of this kind of evolution is the network of interoperable wallets built by phyre and currently used by telecoms companies A1 and Vivacom, which brings together Apple Pay, NFC, QR codes and IBAN transfer payments into one app. Employing and offering a flexible and broad payments menu to customers could be a crucial element to the future success of some businesses. 

Taking a step back and looking at the payments industry as a whole, what is really needed is a new breed of “regulated fintechs”. These companies will be able to effectively mediate between creative, disruptive ideas and the restrictions of the industry which come from complex regulatory frameworks. Only then will we see successful solutions come to market that have adequate regulatory backing but which can bring exciting new products to our customers. 

It’s only a matter of time before we see another move from BigTech into the payments industry, and next time it will no doubt be more successful than WhatsApp’s latest attempt. But we can’t compete against them alone: we must collaborate to drive true change.