The future of payments is integrated fintech

The payments industry has been disrupted during the past 15 years by startups that focused on integrating payments directly into applications. The next wave of transformation will be led by startups that integrate fintech into applications.

We may call the last 15 years in payments ‘The Era of Integrated Payments’. Capital and customers flowed to the vendors promising innovative ways to integrate payments into applications. Integrating payments into an application – either a POS, mobile app, accounts receivable system, or order-management system – creates more convenience and a better experience for merchants and customers. It also enables businesses to streamline back-office processes by auto-reconciling and recording payments directly in their systems.

Competitive disruption from startups, such as Square (50%+YOY growth), Braintree (10X volume growth), Stripe (USD 35 bln valuation) and Adyen, have all led the boom in integrated payments and created a new industry dynamic that values speed and agility delivered by easy to integrate APIs. These competitive forces along with a rapid globalisation trend have now led to the wave of mega-mergers by the incumbents – which is signalling that a new era is dawning.

The cross-border wave demands an expanded approach

The boom in cross-border commerce is writing the next chapter in payments. 57% of global online shoppers are now cross-border shoppers. By 2023, retail ecommerce sales in Asia-Pacific (APAC) are projected to be greater than those from the rest of the world combined. In the B2B sector, cross-border payment flows are growing from USD 17 trillion in 2017 to USD 24 trillion in 2020.

So what’s challenging commerce leaders in this globalisation wave? As business becomes more global, it simultaneously needs to become more local. Global customers have high expectations when it comes to local commerce experiences, including paying in local currencies and locally preferred payment methods, and they want to use sites written in their native language. 33% of shoppers are likely to abandon a purchase if the pricing is only listed in US dollars and not in their local currency.

Local payment methods, in particular, are flourishing globally, compounding this new complexity for merchants. The idea that there will be four or five major global payment networks over the next ten years is misguided. National governments and regulatory bodies are incentivised to control money movement and support local payment systems that meet their country’s culture and sovereignty needs. Going local means digital business leaders need to go beyond the well-known digital payment methods discussed in industry press and take note that:

• The world is moving towards real-time payments networks. There are at least 56 real-time payment networks going live by early 2020, and networks like UPI in India have seen 7X growth over the previous year.
• E-wallets are growing across the globe and they dominate in many geographies. In 2019, there are 2.1 billion mobile wallet users globally, a 30% increase from 2017. Growth is coming from e-wallets in APAC frontier markets, outpacing the growth rates from China and India.
• Only 18.4% of the global population has a credit card. Most cards outside North America and Europe do not work across borders.
• Cash is the most utilised payment method around the globe. It will continue to reign supreme well into the next decade. 83% of global transactions still happen in cash (down from 85% ten years earlier).

Integrated fintech: the next evolution of integrated payments

The proliferation of local payment methods and cash coupled with cross-border growth is pulling the industry to a new era called ‘Integrated Fintech’. More effective local experiences for consumers and merchants require a host of services such as FX, compliance, and reconciliation to be integrated into the payment flow. Just as integrated payments created a streamlined experience for customers and merchants, integrated fintech solutions enable local experiences and solve the complexity that inherently comes with cross-border sales.

An integrated fintech strategy supports cross-border payments agility in the following ways:

• Presenting relevant local payment methods to local customers. Integrated fintech providers enable payment options for each country and maintain the integrations with each method on behalf of the merchant. In some countries,- there are over 12 different bank re-direct methods, networks of hundreds of thousands of over-the-counter cash drop-off locations, and an abundance of bank transfers and e-wallet options that customers will want enabled to do business. Keeping track of all these methods should no longer be the work of internal commerce teams, but rather outsourced to an integrated fintech provider.
• Managing exposure to currencies and FX. An integrated fintech solution provides support for the entire FX workflow and FX programme automation. Treasury teams need tools that optimise their currency holdings. As sales expand into new markets, multi-currency risk exposure grows. Manual FX hedging processes become unsustainable and finance teams need solutions that are integrated with their transactions and will scale with global growth.
• Maintain compliance with local regulations. An integrated fintech provider acts as the official payment regulatory interpreter across all jurisdictions that a company conducts business in. Even KYC/AML requirements vary from jurisdiction to jurisdiction. Having a partner managing the changing patchwork of local regulations and laws becomes a necessity for cross-border success.
• Streamlining reconciliation and reporting. An integrated fintech solution harmonises reporting and reconciliation across a company’s global transactions. As cross-border sales grow, treasurers need solutions that integrate into existing treasury management systems and help mitigate the threat of human error, streamline data input, and achieve compliance requirements.

The editorial was originally published in the Cross-Border Payments and Commerce Report 2019 – 2020, which depicts the major trends driving growth in cross-border payments, cross-border commerce, and marketplaces.

Arik is the CEO of Rapyd, a Fintech-as-a-Service platform makes it simple to integrate local fintech and payment capabilities into any application so you can scale globally. He is experienced in building high-growth technology companies. Prior to Rapyd, Arik founded ITNAVIGATOR, a cloud-based contact centre, acquired by Avaya.

About Rapyd 

Rapyd helps businesses create great local commerce experiences anywhere. Innovative ecommerce, technology firms, and marketplaces use our Fintech-as-a-Service platforms: Collect, Disburse, Wallet, and Issuing to integrate fintech and payment capabilities into their applications. The Rapyd Global Payments Network connects to over 900 local payment methods in more than 100 countries. Investors include Oak HC/FT, Tiger Global, Durable Capital, Üoatue, Stripe, General Catalyst, Target Global and others.