2015 has undoubtedly been a great year for FinTech, and the payments landscape in particular has seen innovation, evolution and improvement.
Apple Pay launched in the UK, interchange fees experienced a shake up and FinTech players continued to flourish. In fact, Standard & Poor has estimated that global investment in ‘non-bank’ financial services will be worth $24 billion this year, double the figure in 2014. As we look ahead to 2016, I expect the momentum in this space to continue, particularly in three core areas:
FinTech players benefitting from a change in interchange feesOne trend that I expect to see gain momentum in the payments arena is the end to ‘free’ bank accounts. This will be spurred on by the capped interchange rates. At the beginning of December, the European interchange fee cap was introduced, resulting in interchange fees charged by issuing banks being reduced to as low at 0.2%.
Banks will have to move to more transparent pricing models – including regular monthly charges for their current account services, in order to account for the loss of revenue. This will ultimately benefit the consumer. Whilst banks claim to offer a ‘free’ bank account, they actually cost on average £125 a year, with hidden charges such as overdraft fines.
Along with consumers, alternative banking providers will benefit too. FinTech players, such as APS, have been operating under a completely transparent, paid, model for years, but it has been hard to scale when banks have been able to hide fees under this supposed ‘free’ offering. As banks are forced to be increasingly open with their pricing methods, we’ll see FinTech alternatives, already accustomed to fee-based models, flourish. For the first time they will have the upper hand on banks who will have to adapt to this open way of doing business.
The evolution of Apple Pay and the digital walletIn 2015 we saw the rollout of Apple Pay in the UK, and whilst many thought that this would shake up the payments landscape I was, and still am, hesitant. Whilst I am in no doubt that mainstream mobile payment adoption is a matter of "when" rather than an "if", I believe that we will only very gradually see the UK population becoming more accustomed to mobile payment, and thus, Apple Pay. New payments technology takes years to break into customer adoption, for example, NFC was first patented in the US in 1989, and the tap-and-go solution is only just becoming second nature. Whilst I don’t anticipate this length of time for the wide scale adoption on Apple Pay, as we become a more technologically advanced society, it won’t be an overnight phenomenon.
Others in this space, with different revenue models, such as Samsung Pay, Android Pay and the potential re-emergence of Google Wallet, will create wider consumer awareness of these alternative mobile payment solutions. The winner in this space will be the one that not only creates the best user experience (likely Apple), but the one that makes the payment transaction simple and transparent (which in my view, is not Apple). The dominant player will do both well, but it’s not just about the wallet itself, it’s about the ‘killer app’ that comes with it. A best in class combination of all three competencies will create the next billion dollar Unicorn company.
Banking APIsAs we enter into 2016 with requirements from PSD2 (Payment Services Directive) firmly agreed by the politicians in Brussels, there will be heated debates around standardising banking APIs. This new directive requires banks to provide FinTechs with access to banks’ customer data. Its premise is based on the belief that FinTech will enhance the customer banking experience and will provide wider access to alternative banking products, which will be easier to access and cheaper to get.
I’m excited about the potential of this banking marketplace and the integrated offerings that could result through the development of APIs This open technology will create make it easier for FinTechs to market the niche products or services they believe create true differentiation from the bank offering. The premise of a banking marketplace is great and I’m excited about this possibility. But I am also keen for this process to be managed as carefully as possible. In order to benefit the ecosystem in the long-term. FinTechs will have to prove their security capabilities, if consumers are to trust them with their data in the same way they do a bank. I expect this is what we will see in 2016: FinTech companies showing themselves to be reliable and secure options in a bid to access banking APIs. At least I hope so. If they don’t, banks will win, and then we’re back to square one in terms of what the industry is delivering to consumers.
2014 and 2015 were years of FinTech hype and excitement. In 2016, we will see a consolidation of services – those that offer the strongest solutions will thrive as the environment continues to evolve to support FinTech players. Moreover, as the traditional financial industry is forced to adapt to the new era of finance – it will be the FinTech players that have been running transparent, seamless services that flourish.
Rich Wagner is the CEO and Founder of Advanced Payment Solution (APS)