Fintech is having a transformative impact on businesses and the economy. New technologies such as cloud analytics and the blockchain are reshaping the financial services market, allowing day-long operations to complete within minutes.
Trust remains an ongoing concern though. Recent studies have exposed lingering doubts about the long-term role of fintech in the financial services market. They’ve been accompanied by warnings from banks about the risks of decentralising the economy. Consumer-oriented technologies are also proving divisive, with many older users remaining unconvinced about the benefits of fintech.
Digital Journal caught up with Matthias Setzer, chief commercial officer of global fintech provider PayU, to learn more about how trust concerns are impacting on the fintech industry. According to Setzer, resolving the trust problem will require fintech firms to embrace collaboration and recognise regional needs.
Digital Journal: Fintech adoption is growing amongst financial institutions but concerns around trustworthiness persist. What are some of the challenges fintech providers will face over the next year?
Matthias Setzer: Trust takes a while to build, regardless of what industry you work in. But, with many new fintech applications addressing real problems, any current lack of trust shouldn’t be seen as a reason not to invest or to innovate.
The best way to build confidence is to create collaborative partnerships between established, reliable brands and startups answering problems in innovative ways. The challenges fintech providers will face in 2018 will centre on overcoming the challenges common to these practical partnerships.
To my mind, there are two persistent challenges: the culture clash that sometimes occurs when two businesses come together and overcoming issues with integrating innovative tech with legacy infrastructure. Overcoming both challenges requires patience, creative thinking and, most importantly, the belief that doing things differently can lead to the ability to better serve your customers.
DJ: One application where fintech is already being deployed is cross-border trade. We’ve seen several examples of blockchain-powered commerce platforms recently, with many launches stating an intention to improve industry transparency. Can these initiatives succeed if merchants and consumers don’t trust the platforms?
MS: Cross-border payments trade represents a huge opportunity to merchants across the globe. Indeed, the cross-border market is expected to grow from $401 billion in 2016 to $994 billion in 2020, with nearly two-thirds of cross-border business coming from high growth markets like Asia and Latin America.
While trust in more open platforms may take a while to grow, I believe ambitious merchants will focus, first and foremost, on the business opportunities available. At PayU we’ve experienced this appetite first-hand, especially since launching our PayU Hub platform.
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The Hub platform’s state-of-the-art “API first” design and globally distributed architecture provides our merchants with access to 2.3 billion potential new customers in the major high growth markets across the world. Markets – and consumers – many of our merchants are thrilled to reach.
In terms of blockchain-powered commerce platforms I believe that, while some of these are making impressive waves, they are often the most mistrusted. In my opinion, that’s largely because blockchain itself isn’t fully understood. As understanding increases, so too will trust – and, ultimately, success.
DJ: How is trust affecting fintech investment? Are providers remaining optimistic, or are they having to adjust their strategies to build trust?
MS: Trust is a critical concept when it comes to investing in, and adopting, new technology. That said, I feel that providers remain optimistic and open to new investment – and ultimately, partnership – opportunities. Indeed, recent stats from PwC predict that we will see an 82% increase in partnerships between financial institutions in the next 3-5 years.
With collaborative partnerships becoming such a cornerstone of the fintech industry, the importance of teams and personalities is paramount. Working with the right people, those who want to achieve the same goals can be seen as the key ingredient to success.
Take our recent investment in Remitly, for example. We share the same goal – to improve financial access for underserved companies through innovative technology. We are so definite in what we both want to achieve and that is very powerful: having two companies wanting to achieve the same end goal.
DJ: What about consumer fintech? How are technologies such as mobile payments affecting users across the world? Recent reports have revealed these products aren’t reaching every user, which seems like something that could impede the overall development of the fintech markets.
MS: We are in a unique position at PayU, in that we frequently face the opposite problem. This problem is really influenced by the market being considered.
In the high growth markets we operate in, alternative payment methods – which refer to payments made using something other than a credit card such as bank transfers or cash – still represent as many as two-thirds of all payments, even those made online.
Payments systems that have worked for some time in the Western world aren’t totally suitable for other markets. A consequence is that we are seeing some markets traditionally regarded as less mature leapfrogging countries with more established infrastructure.
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Free from the burden of legacy banking systems and motivated by increasing customer demand, favourable regulation and a collaborative spirit, countries in high growth markets are leading the pack when it comes to large scale payments innovation. Providers should really engineer solutions that fit local needs, because this will help encourage users that their product is worthwhile.
A great example of this leapfrogging trend can be found in India. As the country’s leading payments services provider, we are seeing first-hand that India is fast becoming a hub of payments innovation and disruption at scale, fuelled by the country’s intense smartphone growth.
DJ: Could partnership with banks be the key to solving the trust issue? Might fintech providers be more effective if they work with the wider financial services industry?
MS: While it is encouraging to see more and more banks engaging with startups, collaboration must occur between all players in the payments ecosystem for innovation to truly flourish.
DJ: How do you expect the fintech market to develop in 2018? Will we see increased acceptance or is trust going to remain an ongoing concern?
MS: I believe that regulation will be a key trend for the fintech industry throughout 2018. As well as PSD2 in Europe, there are many other pieces of regulation that are continuing to change the global payments landscape.
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With such large regulatory changes taking place, it’s inevitable that some companies will feel more exposed. And with that in mind, it’s likely we will see companies coming together to develop strong partnerships that shield them against changes that could impact their business.
For this very reason, it could be argued that trust might remain an ongoing challenge in need of addressing. On the other hand, I think we’ll see startups stepping up to the plate to meet the demands of new regulatory changes. And I think this will enable potential investors and partners, consumers and merchants to see them in a positive light; essentially, building that trust.
