In payments, there are evolutions and revolutions. The pace of change can be lightning-quick or glacial.
And if you play the long game, the payoffs can be grand.
In the latest Data Drivers, PYMNTS’ Karen Webster spoke with CurrencyCloud CEO Mike Laven to get a sense of where innovation is headed. In FinTech – as all types of firms scramble to change the way payments have “always” been done – where innovation makes a mark, profits follow.
One field ripe for digital transformation? B2B payments.
Data Point Number One: 55 Percent
Among 70 executives from 37 countries that CurrencyCloud polled in a study marking its third year, this is the percentage that saw the greatest profit potential in B2B, and in the likelihood of changing the way back offices process payments.
A few caveats: The B2B market is very different than the consumer or peer-to-peer markets, said Laven, because B2B payments are actually harder to conduct. Laven pointed out that the challenges are technical in nature, and that much of the data in business payments is never presented in consumer or peer transactions. Payments may be tied to payroll, or to receivables or loans. That news means data is complex and may be sporadic, with payments conducted as one-offs or only a few times a month. Think of the logistics behind “one-to-many” or “many-to-many” transactions, which can number in the thousands.
Against this backdrop, the business services component – as defined by Laven as being “dominated by banks and independent companies” – has a lot of room to provide value to enterprise customers.
But, as Webster noted, businesses are loath to change the way they do things. It’s never easy to turn a battleship. But, ah, the rewards: As Laven illustrated, cheap and fast are good when it comes to payments, but for enterprises there are value sets that extend beyond speed and price. Compliance and data integration are valuable services for those firms, he said. As a result, customer retention remains high, which pays dividends to the bottom line over time.
The discussion turned to specific technologies that might aid adoption of new payments practices within B2B. And as Laven stated, in his own firm’s purview, APIs focus on cross-currency payments. APIs can be tricky when it comes to integration, he said, harkening back to the myriad aforementioned data sources. One way to sidestep the trickiness is “integrating your app, whatever that app happens to be, into the payments module.”
For CurrencyCloud, where Laven said 250,000 to 300,000 transactions are conducted every month, twice as many are done by developers “playing around in the sandbox” as they work with apps.
Regulation plays a role here, encouraging creativity as firms grapple with everything from PSD2 to new money laundering rules. Firms should not view regulations, or regulators, as hindrances to success, but rather as immutable facts of life within financial services moving forward. Companies across all swaths of payments – smaller to intermediate firms providing services to regulated companies, for example, or services through API – can simultaneously benefit from the transformation of the banking industry, agreed Webster and Laven.
Speaking of regulation, any worldview of finance would necessarily include some discussion of Brexit, which was the case with the latest Data Drivers interview.
On the ground in London, said Laven, the conversation has shifted from “whether this is a good thing or a bad thing to, what am I doing about it?” Companies must accept Brexit as a fact of life. And for firms like CurrencyCloud – currently regulated in the U.K. but with the whole of the European market open to them – at some point, he said, “we will have to be re-regulated in one European market.” That’s nothing new given the backdrop of, for example, being regulated by each of the 50 U.S. states.
Data Point Number Two: 64 Percent
That’s the percentage of executives surveyed by CurrencyCloud who believe that Asia is the global leader in payments innovation. Webster deemed that finding a surprise. But, said Laven, one might walk into a restaurant in China, scan a QR code on the menu, order on a phone and even pay for the meal with that phone. That type of technological interaction is leagues beyond other countries and regions, he said, across initiatives long spearheaded by Alipay and Tencent. Infrastructure is key, he said, and enables countries like China to move a lot faster when embracing new payments innovations.
Data Point Number 3: $36 billion
This is the dollar number doled out by investors to invest in startups in global FinTech funding activity last year. Payments companies got 40 percent of that tally, noted Webster.
With all that money in enthusiastic hands, what comes next? The next steps in banking innovation, said Laven, are likely to be related to Big Data and APIs, and will help make the leap from the financial environment of 25 years ago “when the only thing that you could do was start a bank.”
Now, there is substratum within financial services, ranging from asset management to other opportunities. The venture firms are spreading their bets across many players, as bank functions beyond deposits and lending will no longer be monolithic (although banks will still manage to grab a piece of the action) and will move to FinTech firms.
What is evolving, he said, is a different structure to the market. The reason anyone is regulated, he told Webster, is because “you touch the money.” If you’re a pure technology vendor without funds flowing through the firm (i.e., not touching the money), “then you have a very different regulatory position.”
The upshot is that technology firms are providing services to a smaller number of regulated companies. “On the one hand, you could look at regulation as a barrier to entry,” he said, as regulation might stop small firms from going forward. But Europe provides a type of template for intermediate technology firms with platforms that provide compliance and a series of services to regulated firms.
Opportunity, he told Webster, “will continue to mushroom as the banking environment becomes more open.”