Fintech has significantly altered the landscape in the payments industry. It has changed how, where and when payments are made. Current players include startups as well as well-established tech firms like Apple and Facebook. As innovation continues in different payments sectors and markets, there is much more transformation in retail payments where several financial services have been unbundled. For instance, non-bank players are exploring the foreign exchange sector and taking advantage of available cost-saving opportunities. Similarly, in the corporate and wholesale payments sector, industry-wide initiatives such as TARGET2 and SEPA have encouraged innovation and new solutions by increasing payments harmonization and establishing market standards.
In response to the increasing roles of fintech in the payments sector, financial institutions are collaborating with fintech startups or investing in their own technology capabilities to provide fintech payment services to their clients. Below are some of the salient features of fintech payments industry.
The emergence of the smartphone and its wide usage the world over has encouraged innovation in mobile wallets. It is now possible to make payments using your mobile phone. You can have a digitized version of your credit card stored in your mobile wallet and banks will link the card to your account making it possible for you to pay for goods or services through the mobile phone.
P2P Mobile Payments
Peer-to-peer mobile payments have made it possible to transfer value from one person to another through a mobile phone. P2P may also involve transactions between individuals and institutions.
Foreign Exchange and Remittances
More and more non-bank players are investing in foreign exchange and remittances sectors. The ability of fintech firms to send money in real time has reduced the risk of exchange rate fluctuations. Consequently, fintech players are charging very low fees to customers.
Real Time Payments
Fintech has made it possible to make almost instantaneous payments without using a credit card. Companies such as PayPal provide payment services to people in various parts of the world. The introduction of XML standards and ISO 20022 has made it possible for banks to work together towards a common goal. Additionally, many countries are encouraging real-time solutions which are making it easier for finance institutions to meet customer expectations.
Digital Currency Solutions
Digital currencies provide an alternative to the traditional “fiat” currency as a means of storing and transmitting value. The most widespread digital currency is Bitcoin which makes use of Blockchain technology to enable P2P transactions without the need for an intermediary. Once a payment is made, the change in the ownership of the bitcoin used is recorded in the Blockchain ledger. Bitcoin payments are subject to much lower fees compared with the traditional credit card payments.
More than 68 million people pay for music subscriptions through fintech payment methods. This enables them to purchase albums as soon as they are released instead of ordering and having to wait for shipment. The subscription economy uses the pay-as-you-go model which offers desirable customer experience.
Clearly, fintech payments provide much better experience as it is instant and much cheaper. Further, the various initiatives that are aimed at addressing the security risks have won consumer confidence and many people are preferring this new technology.