Q&A: The past, the present and the future of fintech
The rise of fintech is no longer a new phenomenon, with the battle between agile tech providers and traditional big banks hotting up all the time.
We spoke to the CEO of one such provider. Anna Tsyupko is the boss of Paybase, developer of an end-to-end solution for payments, compliance and risk.
1. Would you say that there is a shift in power taking place? Is this something for traditional industry to be afraid of, or an opportunity for them to take note and adapt?
Although there has been a shift of power away from traditional banks towards fintechs, there is absolutely a place for both. The relationship between banks and fintechs is a really interesting one and has gone through a number of different stages.
Initially, fintechs weren’t taken seriously by banks, but as they began to prove themselves and their reputation increased, banks began to see fintechs as a threat. We’re now entering a new era where fintechs and banks alike are accepting that they can exist alongside one another and, in fact, need one another to prosper.
Each has their strengths and limitations. Banks have the core financial infrastructure but can’t be as lean and agile as fintechs, so it makes sense to divide the labor between them. This relationship will become even more mutually beneficial for all parties, including the end user, as the banks open their APIs under PSD2 (the Second Payment Services Directive). The banks will be able to focus on core banking services and fintechs will be able to utilize the open APIs to create innovative products and services to develop the ideal customer experience.
2. What companies or technological developments have paved the way for the new era of Fintech that we are seeing today? Have any companies or people been particularly inspirational for you and Paybase?
Stripe, a forward-looking payment gateway, is one company that we would single out as a major game changer in the Fintech space. Stripe is a tech-first company and takes the best technology and applies it to a payment gateway, producing an excellent, easy-to-integrate product.
Stripe was one of the first payments companies to openly display their API documentation on their website and to make payments accessible – it is this type of transparency that has inspired Paybase’s own values. Companies like Stripe enable businesses to focus on their products rather than worry about how to take payments in the most cost- and time-efficient manner.
What Stripe has done to the payment gateway world, Paybase is doing to the eMoney world - reducing, cost, complexity and knowledge barriers with the help of technology. The key difference is the scope and application of eMoney versus that of a payment gateway.
A payment gateway allows merchants to take payments online for purchases, e.g., buying a pair of shoes. It is essentially the online version of a card terminal. EMoney infrastructure, on the other hand, allows for the easy opening of eMoney accounts – lightweight financial instruments – in-app or directly on your website. This is because, with eMoney, individual balances are recorded in an electronic ledger, whilst all funds are held in one single bank account. The application of eMoney accounts is manifold: they can be used as escrow accounts, for peer-to-peer transactions, can have pre-paid cards attached to them, and much, much more.
3. How do you see these structural changes in ethos and technology developing over the coming years?
The payments and financial industries have been less affected or influenced by innovative technology because they are such ‘serious’ industries. Handling money comes with many responsibilities and organizations can’t afford to make mistakes.
As such, it’s not surprising that many banks and payments companies haven’t changed their technology in years, or even decades. Risk avoidance takes prevalence over the wish to innovate.
But things are changing. Emerging Fintech and PayTech companies have the luxury of not having to worry about their legacy systems and share the mission to make payments a tech-first industry in order to adapt to the ever-increasing demands and expectations of the consumer.
Whilst banks, as previously mentioned, will probably concentrate on core banking infrastructure, young, innovative companies will focus on providing the best in class financial consumer products.
However, a gap still remains. At the moment, there is a lack of tech-first eMoney infrastructure providers and next-generation processors – both incredibly important for adaptable, intuitive and ‘in-product’ payments. It is this gap that Paybase is closing by offering end-to-end eMoney infrastructure with our highly flexible eMoney processor at its core.
4. What does this ‘new’ era mean to startups and SMEs?
This means start-ups and SMEs finally have access to payments infrastructure and won’t have to pour endless time, energy and money into dealing with countless payment partners. They will be able to be truly lean and be steered by their customers' needs and product design instead of applying for licenses and reporting to the Financial Conduct Authority (FCA).
So much innovation originates in start-ups, SMEs and younger businesses – if payments are no longer holding them back they can focus on their core offering and spend their time doing what they’re best at. It frees them up to listen to their customers and be inspired by what they want, and focus on making things better.
5. What are the main Fintech pitfalls today?
It is so difficult to balance product development and listening to your customers at the same time as trying to build a secure payments structure. There are so many elements to take into account, from anti-money laundering to risk management, which can be all-consuming for small underfunded teams – as start-ups often are.
Another crucial issue for Fintechs is monetization strategy. Many start-ups focus solely on user acquisition, without a clear plan of how to monetize later on. User acquisition is extremely expensive and you will need hundreds of thousands of monthly active users in order to start making money if your basic product is free.
This is a massive upfront investment without a clear guarantee of return. If going down this route, it’s crucial to have a very clear idea of how to make money once you’ve reached a certain amount of MAUs. Running a Fintech is expensive and it is important to always have your business goals, and your strategy to achieve them, in mind.
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