Global deal-making and investment in the fintech space is heating up
You thought the fintech buzz is fading away? Not at all. This year`s Paris Fintech Forum reflected on the growing European fintech ecosystem and beyond.
Visa's recent acquisition of Plaid highlights the corporate interest in fintech startups and shows to the importance of data access and connectivity across traditional financial institutions and fintechs. Visa also took part in TrueLayer’s USD 35 million Series C. The partnership will enable the fintech to work with a network of businesses and banks to help them develop Open Banking services and applications.
Meanwhile, PayPal invested in the Series D of Tink, allowing companies to connect to users’ banks and institutions with their permission. And British fintech startup Bud had secured USD 20 million in a funding round co-led by HSBC and Goldman Sachs, proving the shift from a focus on competitive services to a digital-oriented customer experience and a marketplace banking model.
We can visibly observe how fintech has been exploding in recent years, disrupting the financial sector and attracting billions in investment on a global scale. According to EU-Startups.com, over EUR 2.7 billion was invested in European fintech across 104 rounds in just the first quarter of 2019, and so we can expect that 2020 will be another year in which the fintech sector gets the attention of media and investors.
It’s also safe to predict that 2020 will continue to show an increasing appetite for deals and fintech growth. Incumbent banks have also been active in the last couple of years acquiring and investing. In 2020, this strategy is expected to reflect an increasing funding pipeline for fintechs.
Cross-border payments need a revamp
Word on the grapevine in Paris this year is that the global payments business also continues to grow, stimulated by the accelerating move away from cash to electronic and mobile payments. Moreover, new payment providers are challenging incumbents for market share, using technology to disrupt traditional networks and business models across retail and wholesale payments. Regulation is also increasing, while payments platforms and market infrastructures are consolidating, renewing and re-designing.
The most important game changer in the payments landscape are the changing customer expectations based on digitalised services in a more Open Banking environment, where speed and transparency are key. Instant payment services are an industry response to changing customer expectations will quickly become the new normal, with services now available in many markets across the world.
Paris Fintech Forum was a good chance to address trends in cross-border payments in Europe and beyond, the challenges of moving money around the world. The physical transportation of cash is declining, so new digitised ways of making transfers cheaper, quicker and transparent are on the rise. For digital payment technologies to be embraced by industry players, they must be agile enough to facilitate high-volumes of cross-border B2B transactions.
The philosophy of payments and what should be expect in 2020+
Among the lessons taught in the vivid discussion taking place at Palais Brongniart this year, a couple stood out. One of them is that challengers, the disruptors and unicorns in payments, fintech and digital banking that were just piercing their way through the thick webbings of the incumbents’ marketshare are now full-on household names. As Brett King was discussing with David Birch, 1 in 20 brittons has a Monzo account, this shows that people are beginning to see the advantages, from a customer experience perspective. In China, of course everything is a lot bigger. AliPay, Tencent, WeChat Pay have fundamentally changed the dynamic between cash, plastic and digital. The most fundamental change, as experts put it, is a mental model one.
“Five years ago, people were standing on this stage, saying that we’ll completely change the industry and overthrow the banks. And that’s all gone now. This year, the dialogue revolves around how can we overcome challenges, how can we work together? A couple of years back everyone was placing bets on who are going to be the winners of this fintech, banking competition. Now question arise around who is going to be left within the ecosystem created around banks, fintechs and tech giants working together?”, Brett King was arguing. And he was right. Whatever panel you went in, whoever you struck up a conversation with, the common denominator seemed to be cooperation. The problems are always around us all, be it regulatory, economical, technological, but the biggest success stories came from strong partnerships lately and that says a lot to people looking for what to bring with them into this year as they’re looking for strategies to build and to grow.
However, there is the matter of scale. If one could argue that most of the stringent problems encountered by consumers and companies having difficulty moving money in a fast and cost-efficient way is – if not solved – substantially improved, payments and their cross-industry transcending nature did not cross over to other niches where they need to be accessible and seamless (pensions, financial health, telco, utilities and so on). So it goes, as the book says.
Open Banking – moving beyond the honeymoon phase
Talking Open Banking, Paris Fintech Forum this year looked at use-cases that are either in planning/ development stage or haven’t been built yet, including payments API, moving money frictionless, identity, and lending. TPPs and banks are drawing closer than ever to going beyond regulatory compliance to finding solutions and turning their focus back to the consumer.
No doubt, banks and fintechs sure know how to find new open data use cases. For instance, very recently, the French startup Bankin` has launched Bridge Pay, an API that allows you to initiate payments through bank transfers from your application. The launch of Bridge Pay means Bankin’ is expanding its data integration capabilities for developers beyond banking data and into payments, enabling those developers to add payment initiation capability within their own solutions.
In another initiative reflecting the embrace of unlocking data in the financial services sector, Crédit Agricole announced the acquisition of data aggregator Linxo Group, which provides bank data aggregation and payment initiation services compliant with Europe’s PSD2 regulations.
José Manuel Campa, chairperson of the European Banking Authority, suggested that the honeymoon period for non-compliant banks and TPPs will be over soon and is perhaps weeks away.
In this stringent chronological context, history is being written as we speak. And the key component looking in the timeframe of the next couple of years is that PSD2 be in full application, every member of the ecosystem has clarity on how to comply to the regulation. That should be part of the new normality. “As that process comes into shape, of course, we need to nurture, to maintain an environment of trust in the way payments are handled. Furthermore, now that we can talk about competitiveness, we need to make sure that all the services coming through to the consumer are qualitative and aligned with what they need. The third aspect to keep in mind is safety of systems and avoiding loopholes that foster fragility”, Campa went on to summarise.
Conclusions. Data is where the value is
As we look at data, a couple of things peak through as a logical chain of paradigms that define how data is perceived in the present financial and economical environment.
Enabling data-driven innovation in consumer markets has the potential to help vulnerable consumers as much as it can present itself as a threat. It became important that a conversation take place where the actors of the ecosystem take on the correct roles and understand that banks or TPPs are simply custodians of data and that the ultimate power will remain in the hands of the consumers. This being the axiomatic case, proper standardisation, achieving compliance and the importance of consumer education may have never been more important so that trust is safeguarded throughout the evolution of consumer-centred solutions born out of the open data economy status quo.
Buzzwords such as PSD2, KYC, SCA compliance, AML5, consent management, and so forth need to become more than legal frameworks and proverbial bureaucratic pain points in a company’s road to financial success. Going back to cooperation, trust and security, Paris Fintech Forum put together in the same ‘room’ people that need to sit down and talk about how they can work together for the greater good.
And without meaning to sound too theatrical, we dare say they did.
About Alexandra Constantinovici
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