This editorial was first published in our Online Payments and Ecommerce Market Guide launched on 1 November 2017. The guide features several important thought leadership editorials from ecommerce and payments industry professionals, which makes it a top-reference source for anyone involved in the payments ecosystem.
The payment industry, an evolving industry
The origins of banks trace back to the ancient Babylon, with the existence of the merchandise loan. With the creation of coins during the seventh century, money loans and deposits have seen the light of day. Until the Middle Ages, banking activities were limited to simple transactions: cash deposits and withdrawals. The first bank was created in Venice, Italy, in 1151. Afterwards, the Renaissance era was marked by the advent of international institutions like the Fugger in Germany, the Medici in Italy, and others.
However, the bank, as we know it, was created in the early 19th century. The rise of banks was possible thanks to the development of fiducial money (bills), scriptural money (checks) and the use of stock market to finance companies. During the 20th century, governments imposed a better regulation with the creation of Central Banks all around the world.
For decades, banks and huge financial institutions have ruled the payment industry. Until Fintechs were created. At a conceptual level, Fintech is a contraction of finance and technology, and this word appeared for the first time in the eighty-nineties in the Anglo-Saxon press. This term was widely used after the financial crisis in 2007 to describe young and innovative companies using digital technologies – mobile, artificial intelligence, etc. – to offer less expensive and more efficient financial services. To summarise, the word “Fintech” gathers mostly startups of the payment industry, even if some historical payment leaders also like to be called by that term.
“2015 was the year when Fintech became popularised” evaluates KPMG. That year marked a massive explosion in investments: USD 47 billion were invested in startups. Still, according to a survey conducted by Deloitte, 83% of French do not know the word Fintech and only 4% roughly know what it is. Although Fintech is a well-known term in the payment industry, it still needs some exposure for the general public.
We generally distinguish several Fintech categories such as:
B2C Fintechs (business-to-consumer) which directly target general public such as banks without physical agencies (Fortuneo), digital money pots (Leetchi), apps for managing personal finances (Bankin), etc.;
B2B Fintechs (business-to-business) which offer financial services to companies, such as alternative payment methods or payment service providers like HiPay;
B2B2C Fintechs (business-to-business-to-consumer), generally crowdfunding platforms that gather project leaders and investors.
Fintechs are not banks. Nonetheless, most of them benefit from a banking license delivered by a financial regulator, such as the status of Payment Institution.
Why Fintechs disrupt the industry
Traditional institutions do not fit well with many companies’ needs: lack of immediacy, flexibility and price transparency. Their validation procedure is too heavy and partitioned. This is why Fintechs were originally created: to answer those new market expectations.
Nevertheless, banks should not perceive Fintechs as frontal competition. They are filling a gap by adapting their offering to their clients’ needs. A niche activity, a business model in constant evolution focused on clients, more flexibility, innovation - these are the main common points of Fintechs.
At the beginning, Fintechs displayed a real revolution from the user’s perspective. They reinvented the user’s experience by exploiting mobile, developing simple and ergonomic back offices and offering attractive price ranges. Now, they are looking for technical innovation, especially in terms of data analytics and security, machine learning, blockchain, etc. Besides offering transactions management, fintechs go over their basic task and give multiple options to their clients, in order to satisfy the customers’ needs.
As a relevant example, HiPay is able to manage entirely the online merchants’ transactions - an expertise that henceforth goes offline. To go further than that, we also help merchants make the best decisions. We offer a full dashboard comprising data analysis with HiPay Intelligence and a new tool to efficiently fight against fraud through the use of machine learning, called HiPay Sentinel. Fintechs quickly understood that merchants want more options and strategies for a continuous improvement of their business performances.
What’s next?
Fintechs are constantly challenged to be more technical. With respect to user experience and transparency, banks might catch them up in the long run, as Fintechs will not be able to continue playing on low cost prices. They will have to find more innovative solutions to give a huge added value to clients. Their main strength? Having small teams, sharp methods (thanks to their digital background), but also by staying focused on precise subjects. Banking services are in mutation and Fintechs are part of this change.
Agility is not part of all traditional banks’ DNA, but they are adjusting. Rules are changing and they have to face more competition. At first acting distant, banks now understand the importance of Fintech and start paying more attention to this trend. Some of them even collaborate with the Fintech industry. Fintechs inspire traditional banks!
Between competition and collaboration, we are living an exciting time. It is still complicated to know how many partnerships have been signed between Fintechs and traditional actors, but one thing is certain: the payment landscape is evolving. Let’s see where this goes in the coming years!
About Nabil Naimy
Nabil Naimy joined the online payment industry in 2003 at Paynova. After stopping by Ogone and GlobalCollect, he quickly realized that the market was missing a full service PSP. It is in this context that Naimy joined HiPay in 2012. He is now COO.
About HiPay
HiPay processes more than EUR 2 billion annually, across 150 countries and 220 payment types. By harnessing data analytics we help deliver valuable customer insights that enable our merchants’ businesses to succeed.
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