From the world of cash and cheque, when the payment service evolved to credit & debit cards, consumers and entrepreneurs found it simple, convenient and timesaving. However, card payment initially involved the physical presence of the cardholder at the point of sale, clunky online interface and a whole lot of paper intensive process for setting up an account with a bank for business owners.
But the growing popularity of buying and selling product and services through an electronic system, such as computer and mobile, using the Internet has witnessed the payment segment undergoing a sea change. Also today a merchant company can set up an online payment mechanism overnight with the help of FinTech companies such as Stripe, Braintree, Adyen, and Worldpay.
Today, a consumer can place a request for any product or a service from anywhere in the world and get it delivered to one's choice of time and location. Today, it takes a few seconds to pay for a product or services at the cheapest transaction cost. Besides, one can pay to anyone from anywhere in the world in real time and with lower transaction cost as compared to earlier.
The credit goes to financial technology companies, which have innovated in the areas such as payment gateways, payment processes, and application program interface to bridge the distance and travel time between a buyer and a merchant or a receiver and a payee.
How FinTechs have transformed payment services???
Whenever a customer buys a product online, he is only concerned about paying for the product in a secure manner and getting the timely delivery. But the process of submitting the payment button till product delivery is just mind-boggling.
FinTechs dealing with payment gateways and payment processes play a vital role in completing the whole transaction, and without them, the operation of e-commerce will remain incomplete.
For instance, whenever a consumer visits an e-commerce website and places an order to buy a product, the e-commerce company takes the credit/debit card details of the buyers and hands over to a payment gateway company. Sometimes a payment gateway company accepts credit/debit card details of consumers directly on behalf of the merchant.
The payment gateway company converts the customers' card info into code to mitigate fraud and forwards it to a payment process company which sends it to the merchant's bank. Sometimes the payment gateway company sends the customer's detail to the merchant's bank directly. The merchant's bank then crosschecks the details with the customer's banks, and if the details are correct, the merchant's bank inform it to the payment gateway company. Finally, the payment gateway company directly or through the e-commerce site communicates the completion of the payment process.
In the case of money remittance or personal finance, the transaction processes may be a little different. However, the involvement of various FinTech players is often involved in completing the transaction seamlessly.
It's the constant innovation in the field of payment gateways and payment processes that have made payment an effortless and timesaving experience. Payment through the smartphone using applications of mobile wallet companies is another emerging sector, which has thrown tremendous innovation opportunities.
Consumer-led innovation is mantra of Payment Startups
A consumer might not be concerned with all the elements of the payment eco-system but one component is dependent on the other, and innovation in all the components enhances overall user experience.
For instance, a consumer may not be concerned with the functions of the payment gateways, payment process or application program interface however when the technological enhancement reduces the time and cost of each transaction; it ultimately benefits the consumer. Many find techs are trying to integrate various steps of a transaction into one to make the payment system more efficient.
Today, payment FinTechs are innovating not only to make the electronic payment efficient and cost-effective, but they are also trying to enhance the front-end process to make payment an easy and simple exercise. If a consumer has to go through several complicated steps to complete a transaction, he will lose interest in online buying.
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Experts believe that there is a huge scope to innovate and modify the front-end process. Experts also believe that the major benefits of electronic transactions are convenience, efficiency, transparency and security. Today, a consumer doesn't need to carry cash to buy a product as he has options available to make payment electronically and keep track on his money movement as well.
What kind of service FinTechs in payment segment offers?
Broadly payment segment can be divided into four types ? Mobile Payments, Streamlined Payments, Integrated Billing and Next Generation Security. The emerging payment areas are cryptographic protocols, P2P transfer and Mobile Money.
Further subdivision of the existing payment segments shows that online payment, point-of-sale payments, personal payment, billing automation, cryptocurrency payments and money transfer services are some of the payment areas in which FinTechs are offering services. They help the consumer, entrepreneurs, business houses, friends, family members and professionals to pay each other without involving any cash transactions.
Hundreds of FinTechs are vying to provide simple payment platform to help people pay or get paid faster. Companies are offering a number of applications for seamless user experience. Whether it's electronic billing, online bill payment or accepting a variety of payment methods, companies have made payment a process that needs a push of a few tabs on your computer or mobile.
Major startups in Payment Segment:
Companies like PayPal, Master Card, Square, Visa, American Express, NCR, Stripe, Bitcoin, Venmo, Western Union, Braintree, TranferWise, LevelUp, Verifone etc have been into payment landscape offering a variety of services such as e-commerce, mobile payments, transaction processing, financial services, cloud data services etc.
On the other hand startups like WePay, GoCardless, CheddarUp, Openbucks, CurrecnyCloud, Payzer, snapCard, SplitIt, Coinbase, Fortumo, Wonga, Dwolla, Bitstamp 2C2P, Billtrust, Clinkle, Coin have come up with variety of new facilities in point of sale solutions, secure payment processing, peer to peer to payment, remittance, mobile wallet etc.
Companies working in payment segment are competing with each other to bring better services and faster deliveries. For instance, WePay which started in 2010 has challenged the payment giant PayPal with the lower fee and better customer experience.
Regulatory Institutions are supportive of Payment startups
Realising the importance of electronic payment transactions, various countries have come up with such regulations, which will encourage competition and innovation. The countries, which have taken the lead in bringing in the regulatory mechanism, are being followed by other nations to encourage payment companies in their countries. For instance, the government in Australia is working on long-term payment restructuring initiative whereas the Honk Kong Monetary Authority is harmonising the rules for retail payments system. While Australia, Thailand, Hong Kong, China are trying to make innovation-focused regulations, US and Europe are relying on stability-focused regulations.
Future of Payment startups is bright
According to the World Payment Reports 2016, the global non-cash transaction volumes have grown by 8.9%, touching 387.3 billion during 2014. This growth rate is unforeseen over the last decade. While the developing market contributed to 16.7% increase in a non-cash transaction in 2014, the mature market economy showed a growth rate of 6%. Among developing world economies, Asia showed the highest growth rate of 31.5%, followed by Central Europe, Middle East, and Africa.
The report suggests that the use of cheque has been on a constant decline for the past 13 years, cards have emerged as the fastest growing payment instruments in the past six years starting from 2010. 47.5% of all global non-cash transactions were made through the debit card. The use of debit card also witnessed a growth of 12.8% in 2014.
Experts believe that the way digital wallets are consolidating digital payment platform, it has posed a big threat to the financial institution, which may lose their control over the customers' transaction experience. The future of payment will witness cash transactions losing out to electronic transactions for a simple reason of convenience and time saving.
The electronic payments will create a data of customers' financial behavior, which will help all the stakeholders of the financial system to understand the financial need and psychology of a person. Banks or any financing entity doesn't need to spend time and resource on customers background check. This will help financial institutions disburse more money to people with stable and honest financial behaviour.
Brian Powell