Can payments be easier, faster, and more secure?
There’s probably nothing more fundamental in financial services than the need to safely and securely make a payment. But payments are far from simple, and global changes are transforming the payments sector. Recently, BBVA’s Fintech University in San Francisco put a spotlight on the topic. At the forum, a panel of experts discussed payments from a Silicon Valley perspective.
The panelists included Rich Aberman, Co-Founder and Chief Product Officer at WePay, Dickson Chu of Ingo Money, and consultant and former Visa executive Susan French, who created and launched Visa Developer, the program to open up the Visa network and its capabilities (via APIs and SDKs) to developers.
The discussion started with a reference to Goldman-Sachs’ equity research that 15% of global payment revenues, amounting to $4.7 trillion, are vulnerable to disruption by fintech companies. Although this statistic is of course debatable, it points to an important question. Where are the opportunities for fintech companies to position themselves as change-makers?
What are the challenges?
The forum revealed that Silicon Valley investors have three major challenges on the radar: payments are cumbersome, they’re often slow, and they’re limited by national currency borders that inhibit an increasingly mobile, globalized population.
Cumbersome payment processes occur in both peer-to-peer (P2P) situations, as well as when businesses need to make or receive payments. Merchants may not accept a certain form of payment, particularly when we think about digital wallets, digital currencies, or other emerging payment options. Imagine how nice it would be for payments to be streamlined and efficient!
The challenge of speed faces payment processing today. In the United States, the Federal Reserve launched a special Faster Payments initiative with the goal of providing:
…leadership in the form of stakeholder coordination, public policy perspective and analytical support to assess approaches to implementing faster payments capabilities that meet end-user needs for faster authorization, clearing, availability of funds and/or settlement.
Why focus on faster payments? As the Fed notes, “Despite high levels of innovation in the U.S. payment system, a lack of coordination is creating fragmentation, inhibiting ubiquity and creating confusion.”
Authentication and verification may slow down the process, creating problematic delays in transferring funds. As digital transactions become increasingly commonplace, and the customer experience emphasizes simplicity, customers expect their transactions to clear quickly and easily.
Finally, the world is more mobile, both literally and figuratively. There is a greater need for payments that can occur across national borders. In the digital age, who wants to incur the hassle and expense to exchange currency, carry traveler’s checks, or rely on other increasingly outdated practices?
How does fintech address these challenges?
The panel was clear on one point: fintech companies are not poised to take over payment processing completely. Banks, credit card companies, and other providers of the payment “rails” already have robust and mature systems in place. They are aligned with government regulations and meet the high hurdles imposed by compliance. In short, they are equipped to serve global payment needs at scale. In reality, the experts agreed that these traditional players aren’t going anywhere. So the opportunity will be for fintech companies to work with them, forming partnerships that harness the capabilities of both parties, and build upon the existing payment infrastructure.
Additional insights from the panel
Banks like Chase, Capital One, and of course BBVA have shown they’re pursuing partnerships with fintech by devoting time, energy, and people to that end. In fact, because entrepreneurs can solve functionality gaps within existing offerings, banks are not only working with startup entrepreneurs, they are taking guidance from them.
In the case of BBVA, we actively invest in startup companies, help to identify innovators through our Open Talent competitions, provide technology building blocks in the form of APIs available in our API Market, and actively participate in the wider fintech ecosystem.
The panel discussed the need to be strategic when pitching banks. Some FIs may be apprehensive about ideas or technology that is brand new, and hasn’t been fully
tested. They advised that you demonstrate how your idea will integrate with the bank’s existing infrastructure, and how it will help both parties to prosper.
· Traditional players and existing infrastructure will still play a part in innovative payment solutions of the future
· Develop a comprehensive strategy to partner with banks
· Take the time to find the right partner
· Build credibility to gain the bank’s interest and engagementbb
The challenges above highlight market opportunities that fintech companies can address.
*This article is one in a series from BBVA about the latest in fintech and banking.
You can read more here.
Sign up to the BBVAOPEN4U newsletter and receive tips, tools and the most innovative events directly in your inbox.