The FinTech revolution is flourishing. A new era has arrived that is currently changing the entire corporate world and is gaining strength. A range of companies from various industries will presumably soon build financial technology solutions in their businesses. Where does this assumption come from?
There is currently an appropriate infrastructure on the market that enables such actions. Therefore, providing financial services will not only be a new way to generate another revenue stream but will also personalize the customer journey and improve the overall user experience. Thanks to FinTech solutions, corporations will be able to achieve their goals and meet the expectations of their customers.
In this article we will outline the requirements that enterprises should consider to implement this kind of solution, and we will present companies that have already used it in their businesses and the financial services they offer.
Let us explain what FinTech really means. According to Investopedia, the term FinTech (a combination of the phrase “financial technology”) is used to describe new tech that seeks to improve and automate the delivery and use of financial services. At its core, FinTech is utilized to help companies, business owners, and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones.
The main players of this technology are startups, many of which were so-called challengers, but now FinTech also refers to business enablers that offer other companies their financial services. This term also touches upon banks and various financial products provided by corporations from different industries.
FinTech startups, one of the most willingly financed industries, are still growing and are constantly raising funds from investors despite the economic situation caused by the current coronavirus pandemic. According to CB Insights, after a pronounced pullback in investor activity during the early days of Covid-19, the second quarter of 2020 has seen renewed signs of activity as funding increased after two straight quarters in decline. And this situation continues, especially in North America, where growth in the third quarter increased by 5.6% compared to the previous one. Although there is no doubt that the Covid-19 outbreak has harmed fintech financing, Venture Capital investors who mostly fund FinTechs want to continue investing money in them as the enormous potential of these companies is still apparent.
And this potential can be confirmed by data on customer preferences. Take a look at this example: GlobalWebIndex points out that 45% of American and British millennials are willing to switch their bank in the next 12 months. What’s more, a Bain customer survey report reveals that 63% of Americans want to invest their money in a bank with a big technological company.
Another important part of the financial ecosystem where large behavioral changes are taking place is payments. It is worth noting that, due to the Covid-19 outbreak, interest in the use of proximity mobile payments has increased all around the world. Before the pandemic, it was expected that more than 1 billion people worldwide would make an in-store mobile payment in 2020. Currently, contactless adoption is predicted to increase on a global scale from between 6% and 8% compared to previous predictions, and 110 million contactless payment cards are expected to be issued by the end of 2020.
Moreover, during the last couple of months, BNPL (Buy Now Pay Later) FinTech companies have seen enormous growth. And the proof of this is in Worldpay’s new ‘Global Payments Report: The pathways of people and payments’, which revealed that Buy Now, Pay Later companies such as Klarna, Afterpay, or Affirm are growing at a rate of 39% annually in the U.K and will double their market share by 2023. It is worth noting that Buy Now Pay Later is not just a pandemic-driven trend, but seems to be constantly developing. Nowadays, e-commerce is booming as technology continues to advance. Even though Covid-19 has clearly given BNPL it’s peak, this model will outlast the pandemic and allow many spiraling companies to bounce back at full value.
So what does this mean for traditional financial institutions? As we can see, customer interest in incumbent banks keeps falling. Yet new waves of banks such as N26 and Revolut or companies such as Klarna offer financial services in a different way - more clearly, transparently, and friendly. They guide clients seamlessly through all of the steps, plus use good UX practices and technology to simplify those processes. Thus, financial services that are provided by FinTech startups, corporations, and tech companies seem to be more desirable. Does this mean the end of banks as we know them? Not exactly. Since banks represent a conservative approach to finance, they will have to adapt to changing conditions and start to cooperate with FinTech companies or they will have a lot to lose. But, on the other hand, it is good to notice that a new era is coming - the era of open banking.
This term is known as “open bank data”. It is a banking practice that provides third-party financial service providers open access to consumer banking, transactions, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs). Companies that have a great mutual relationship with their customers will be able to offer them financial services, and then there is a risk that traditional banks might become only infrastructure or white label providers if they do not start operating in a faster and more agile way. Finally, it may turn out that companies with no banking products of their own will have better ideas on how to meet the expectations of customers who expect convenient technological solutions.
Let’s consider how it is possible for a company to offer financial solutions? How about all of the applicable regulations? Do you need to open a bank to offer financial services? No, there are some FinTech companies that propose an alternative. They just provide “finance-as-a-service”. This term may also be used interchangeably with “banking-as-a-service”. Both refer to situations where companies aim to offer banking products through the use of APIs, and not to become another traditional banking institution.
For instance, Bond offers APIs to connect banks with companies looking to offer financial services. Infinicept works in a similar way, delivering a set of automated services and APIs that allow companies to become payment facilitators. Also, Finix provides payments-related services to other companies. Its technological development helps other entities set up their own payment processing infrastructure systems in-house.
Another one - Stripe - a technology company that originally offers payment processing, but their vision is to build an economic infrastructure for the Internet. And the best example is the recently launched Stripe Treasury, which provides Stripe's platform users with powerful APIs to embed financial services, allowing their customers to easily send, receive, and store funds, pay bills, earn interest and manage cash flow.
The next example is First Data (Fiserv), which offers its clients access to a modern payment platform. Thanks to it, a company can build its own mobile payment system, because Fiserv provides tokenization of cards added to the wallet, user authentication when adding cards, as well as settles transactions and transfers funds to the merchant account.
One of them also will be providing a credit check - Credit Karma is doing so. Another one will be offering the required banking license, like Plaid in the USA or TrueLayer in the UK do. Next, performing your client checks with Onfido, an AI-based ID verification platform that recently became our business partner. Know Your Clients method can also be used to sell products that require identity or age verification. If you are interested in delving more into their technology read our article here.
As we can see, there are loads of alternatives that can be delivered by companies from various sectors. To be honest, all of the above companies can build different financial services and this is a good sign for corporations that would be willing to offer their financial services to their own customers. For them, It will be a new line of products that could be found in their offer. But you have to know that this is just happening. Keep reading to see the best examples of such services and what the main benefits for their companies are.
As we wrote above, the BNPL model is gaining popularity all the time. Take a look at the aforementioned Klarna that provides online financial services and gives the opportunity to defer payments spread over convenient installments, as well as offering its clients online credit and many more. All of those activities at no extra charge to buyers. Both consumers and sellers can benefit from the proposed solutions.
Similar services are also available on local marketplaces. For example, PayPo is a modern form of payment designed for online stores, consisting of deferred payment for the consumer by 30 days without additional costs. Those days are the period during which the customer may decide to spread their payment over 4 convenient installments without additional verification.
Also Amazon, as an example of a big tech company that is able to build financial products. For instance, its a “Pay Monthly” service that allows you to spread payment for purchased goods over up to 48 installments. The payment loan offered to consumers is no longer a novelty in Amazon’s offer. In the United States, the company has already issued its own credit card, the so-called private label. It can be said that Amazon is attacking financial services from every angle without applying to be a conventional bank.
When it comes to mobile payments, this model has gained momentum recently and a good example of it is from a well-known company - Tesco. It provides a Tesco Pay app which is operated by Tesco Bank, where you can open an account and buy a card. The British application allows you to check your transaction history on the account or make transfers, and also allows you to make convenient mobile payments. But to be honest you do not have to open your bank to provide a mobile payment system. All you need to do is to establish cooperation with Fintech enabler. Take a look at the example below.
At Future Mind, we helped Żabka Polska to implement a FinTech service. Żappka Pay was created to possess its own payment system, which serves as a base for transactional services in the żappka app. This application was created with the support of the aforementioned First Data, which has provided its financial solutions.
Also, Walmart, the world's largest company by revenue according to the Fortune Global 500, have created Walmart Pay. It just used payment cards and implemented its own mobile payment system.
These companies will largely benefit from it because they will have full control over the system and therefore save a lot of money due to a reduction in fees.
The Scan & Go function is not that popular yet, but some companies have already managed to launch such services, particularly in countries where mobile payments are popular such as Poland. For example, Empik - one of the biggest Polish commercial chains selling books, international press, and media products - has already introduced a completely fresh mobile self-checkout service. It has a Pay & Go feature that will allow you to scan products and pay for them using a smartphone, without having to visit the cash register.
Also, Rossmann - the largest drugstore chain in Poland - has a new feature in its mobile app now available. Rossmann Go works identically to the Empik Pay & Go module. All you need to do is scan selected products using the application, and then complete the order at one of the special payment points located in-store.
The next example from another category is Sunmi. It is a company focused on providing intelligent equipment - among others, mobile or desktop terminals that can be used in retail or the courier and delivery industry - that aims to make payments faster. It is worth mentioning that Sunmi meets the needs of the so-called new retail by creating an ecosystem of connected mobile services and devices as well as providing a seamless experience.
What’s more, the implemented FinTech solutions can give corporations the opportunity to grant loans to, for example, their franchisees or employees, which can be more cost-effective, faster, and easier. There are many advantages then of fintech solutions and possibilities that depend of course on the type of business and users’ needs but currently, there are appropriate ways to design this kind of solutions at each stage of the customer journey.
To sum up, FinTech solutions offered by companies or big corporations will definitely personalize the customer journey and revolutionize the way we use financial services. Other benefits for FinTech companies are high-speed transaction execution and an improvement of the overall user experience. If they also focus on engaging customers and building a brand identity, they can count on ever greater revenues.
Unfortunately, those companies that don't implement this solution presumably will simply sell fewer products, because consumers will tend to opt for brands that offer them a more advanced and personalized experience.