The Impact of FinTech: Why This Benefits Payment Companies?
Investment in financial technology (FinTech) increased in 2016, with 839 deals, worth $15.2 billion (£12.2bn) in the first nine months of the year. Globally deals slowed down in Q2, but the amount and value of investments have increased compared to 2015.
FinTech investments can benefit everyone: from consumers to financial sector players and banks. In London most of the £20bn annual revenue from FinTech is generated by ‘traditional FinTech,’ according to an Ernst & Young report, with only 18% from ‘emergent FinTech.’ The EY report, commissioned by UKTI, notes that “Traditional FinTech [are] ‘facilitators’ (larger incumbent technology firms supporting the financial services sector) and Emergent FinTech as ‘disruptors’ (small, innovative firms disintermediating incumbent financial services firms with new technology).”
Payments are the most active sub-sector, with approximately £10bn in annual revenues from tech firms in that space. This includes emerging peer-to-peer platforms, such as Transferwise and big player involvement in payments, including Apple, Samsung and Google.
In this post we explore how in London, FinTech companies are driving change in the payments sphere.
How Fintech Benefits The Payments Industry
Most established payment companies pre-date the FinTech revolution. Some saw this coming. It started with the financial crash. Consumer sentiment dropped and has stayed relatively low ever since, forcing banks to come up with new products to serve changing needs. Challenger brands are now trying to fill gaps the incumbents can’t. The UK, with a hyper-connected consumer base, is one of the most attractive markets in the world for launching new financial products and services.
At the same time, London is a talent magnet for those in financial services, technology and startups. It was perhaps inevitable that it was to emerge as a FinTech hub in a few short years.
Payments companies and their customers are already benefiting from these trends. The steady shift from web-based e-commerce to consumers shopping on smartphones has facilitated and encouraged developments in digital payments. Consequently, the name of the game is facilitating fast, convenient and secure multi-channel payment experiences. Innovation in security, from tokenisation to using biometric data has been an essential step in ensuring customers are confident using new mobile payment platforms.
The financial sector has always invested heavily in technology. With the rise of FinTech startups, innovation has accelerated. Payment providers are focusing more on the consumer experience, speed and security, to ensure they are providing the best service for their clients. A rising tide is lifting all boats.
Banks and incumbent financial institutions are also looking to solve a range of consumer problems. New international agreements, between Europe and America, and across Europe (TS2) are harmonising a fractured settlement system. Cross-border transaction costs and timescales could reduce dramatically. Other innovations, such as the introduction of ISO 20022, XML and ASN.1 standards are creating a common language for banks and payment providers, increasing process efficiency.
All of this means that merchants and consumers receive faster, more efficient services for lower costs. Everybody wins. Across the UK, the role London plays as a FinTech hub means that British customers have their pick of new financial solutions and platforms.
In 2017, we expect to see more upstream investments and market consolidation, further improving the quality of payment solutions for consumers and businesses.
Find out more about the technology that is making payments more secure by downloading our whitepaper on tokenisation: Payment Tokenisation – The Future of Payment Fraud Prevention