FinTech

FinTech vs The Status Quo

There is an old wisdom story about a truck that gets stuck under a bridge. The details vary, but the gist is that all conventional [old school] thinking fails to solve the problem, but out-of-the-box thinking [a young girl/boy] gets the job done.

If you’ve not heard this overused (and yes, [pun intended] ‘tired’) analogy, the premise is that:

  1. a truck get stuck under a bridge/overpass;
  2. all the best [old] engineers around cannot solve the problem, and their solutions include:
    • force the truck through, likely damaging both truck and bridge;
    • drag truck back out so it won’t reach destination; and
    • raise the entire bridge.
  3. a child [young/fresh] comes along and says to take air out of the tires, thereby lowering the truck just enough to pass under the bridge.

Call it common sense, call it obvious, but the solution was only clear to someone with a completely fresh pair of eyes and no preconceived notions of the ‘right’ way to do something.

This is where we find ourselves in the world of FinTech. Defined as; “the new technology and innovation that aims to compete with traditional financial methods in the delivery of financial services.”, FinTech as a buzzword has been out for over 25 years, but what has it achieved?

If you see ‘invisible payments‘ and seamless feature-rich ancillary services (loyalty points / rewards for example) as the ultimate goals of FinTech, where are we in 2019?

We have the technology [most of it anyway], we have a growing interest, but what we still DON’T have is the support of those with a vested interest in the status quo.

Hardly surprising, right?

From banks, to payment card brands, to payment terminal manufacturers, and even regulators, it in their best interests to keep things the same. But the brave new world that IS coming has no place for those unprepared / unwilling to change or adapt.

There’s no denying that management and transfer of value (a.k.a. money) in 2019 is both massively complex and monolithic, but that’s really no excuse, not with the billions being invested in innovation. And while I do not want to trivialise the truly enormous effort required to effect the necessary changes, I resent the active obstruction.

On BOTH sides.

Instead of working together, both sides are doing their damnedest to grab the biggest piece of the pie. Like there’s not billions of £/$/€ to go around. Capitalism and sheer greed are ensuring that the best ideas are not being made available to the end consumer. And it’s OUR money their playing with!

The prevalence of the buzzphrase ‘disruptive’ is the perfect indicator that FinTech has little interest in bringing the old school along for the ride, so is it any wonder that the old school wants to ‘defend’ itself? All the old-school have to do is lobby the regulators and FinTechs run out of money before their ideas make the light of day.

It’s us that lose.

I want access to MY money wherever, whenever, and HOW ever I want. I also want as many features as possible around the use of my money as I deem relevant. From loyalty programs, to instant coupons, to money management, to whatever comes next, the old-school has proven its inability to innovate [adequately], which is WHY we have FinTech in the first place.

Clearly I have no solutions in this rather useless blog, but if one person comes over to the light-side (sustaining innovation), I’ll consider this worthwhile.

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PSD2: The Race to the Consumer


The following things have been clear for a while:

  1. The three and four party models represented by the card schemes are in real danger of being disintermediated as mobile technology advances;
  2. The use of plastic will only begin to fade when consumers have a compelling reason to move, mobile payments alone is insufficient;
  3. Retailers are desperate to engage consumers much earlier in the buying process, as well as for a long time after it;
  4. Identity Management and Authentication will take their rightful place in payments and beyond; and
  5. The average consumer has no idea what they want

What has NOT been clear [to me anyway] is what will be the impetus for thing to actually change, and I never thought it would be a regulation.

But that is exactly what is happening here in the EU. Even a cursory examination of the Payment Services Directive 2 (PSD2) makes it clear that the established order is changing. It has already been adopted by the European Parliament, and adoption by the EU Council of Ministers is only a pending formality. Once published, each of the EU countries has just 2 years to write the Directive into their laws.

If you had to distill the PSD2 into its major players, they would be;

  1. Account Servicing Payment Service Provider (ASPSP) – Usually the banks, these guys will need to open up account data once they have received permission to do so from the consumer.
  2. Account Information Service Providers (AISPs) – Aggregators of data received from ASPSPs
  3. Payment Initiation Service Providers (PISPs) – Can initiate a payment, but can only provide a ‘Yes’ or ‘No’ in terms of funds availability.

It’s the AISPs that are truly the new guys on the block. Imagine it; a non-bank Third Party Provider (TPP) can, once properly vetted / ‘licensed’ request all the information from all of your banks / financial institutions and display it to you in a single location! The possibilities to money management alone are enormous, but it’s retail that will be the big winners. Well, some retailers.

The reason that retail and TPPs alike should be dribbling at the thought of this is that these centralised ‘Money Managers’ (MMs) are the perfect location to begin the buying process.

You want to buy a TV, so you open your MM app which has already gone through the effort to combine feeds from all of the following:

  1. Retailers – If retailers do not provide feeds of stock, deals, locations, terms and so on, these will not be presented to the consumer as an option
  2. Ratings & Reviews – Few people realise what goers into those 5 stars you see on Amazon and the like, but you’d be surprised how much influence they have
  3. Your Finances – No point looking if you can’t afford it

Then, once you have gone through a nice friendly wizard to narrow down what you are looking for, your MM goes out and looks for the best deal, AND offers you the best payment terms from all of your lenders. And the WAY you pay? What do you care, the MM has already determined the best way and took care of the detail?!

Those steps may not sound all that radical, but there are two incredibly important facts here:

1) the holder of your money has become far less relevant, so even the banks themselves are losing the Race to the Consumer, and

2) consumers will stop caring HOW they pay in terms of channel, making every other intermediary in the current payment ecosystem irrelevant.

This is what your money is, a stored value, why SHOULD you care if it’s direct debit, standing order, or branded card as long as it’s the best deal for you. It all comes back to you anyway.

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Invisible Payments, Are They Real?


In short, yes, they WILL be, but like everything worthwhile there is a significant cost involved. In this case, the currency will be your identity, and the more invisible you want payments – or any transaction for that matter – to become, the more of your identity you will have to spend. In this case, there is a direct correlation between your identity, and your privacy.

First, what is an invisible payment? Seeing as Wikipedia hasn’t even got a listing yet, I’ll take a stab at defining what invisible payments are to me;

A payment can effectively be called invisible when there is limited to no interaction required by the payment initiator (consumer) to complete the authorisation and settlement of a transaction.”

Any fan of Star Trek has seen this in play for decades. When was the last time you saw Captain Kirk reach into his pocket for a 10 spot or a credit card? Did he have to use biometrics or a swipe card to get onto the bridge? Maybe, but we saw none of it, and that’s the point.

Imagine this scenario; You walk into Sainbury’s and pick up a basket, then walk up and down the isles choosing your items. Once you have finished shopping, you walk out to your car [optionally] without any further interaction whatsoever.

What was the process?

  1. As you walked in, any number of authentication mechanisms were at play; from smartphone proximity (NFC), to facial and/or gait recognition, to whatever biometric innovation comes next;
  2. Both the shopping carts and the baskets could be easily be fitted with fingerprint, vein, hand geometry recognition sensors in order to assign the subsequent basket contents to you;
  3. As you place items in the basket, they are scanned and optionally listed on your mobile device for a running total / loyalty benefits / instant coupons and the like;
  4. Walk through a final scanner into a bagging area, or just go straight to your car, either way your final tally is calculated and the funds directly charged to the payment option of choice. It’s up to you if you want to authorise the final payment with a PIN number and/or biometric on your smartphone; and
  5. Everything you just purchased is now available on your home database for tracking of ingredients for a meal, expiration dates and so on.

While the majority of the technology behind this transaction is more in the realm of the Internet of Things (IoT), the payments aspect is an extremely simple form of Identity Management on smartphones. What’s more, all of this technology is available today, the only thing missing is the demand.

There will be 2 extreme camps to the above scenario; 1) Where do I sign-up!? and 2) Never in a million years!

Most of us will be somewhere nearer the middle, and it should be clear that the further you get in to the ‘sign-up’ camp the more of yourself you have had to share. When it comes to invisible payments – and IoT for that matter – the convenience described above came at a cost to your privacy. And until security catches up with technological innovation, that cost is seen by most to be too high.

That’s the demand I mentioned above, and while scenarios like this will be common place one day, we’re not quite there yet.

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New Payment Technology: A Race to the Bottom?


In a recent article on PYMNTS.com; 68 PERCENT OF PAYMENTS PROS SAY NEW TECH INCREASES RISK; “68 percent of [payment-systems professionals] say pressure to migrate to new payment systems puts customer data at greater risk instead of making it safer, according to a new survey by Experian and the Ponemon Institute.” This relates to EMV and mobile payments, but it is unclear exactly to which technologies they refer.

What it does not say is whether the insecurity is due to the pressure of the migration itself (which is implied), or to the inherent insecurity of the underlying technologies. These are two radically different concepts, from which the reader can draw wildly different conclusions.

As in any business, the pressures of maintaining a competitive advantage can lead to some very poor business decisions, and without a robust governance function unsecure systems can easily find their way into production untested. However, if the article is suggesting that it’s the new payment systems themselves that are the issue, we would strongly challenge that argument.

There exists today payment technologies whose security is far in advance of those possible for the legacy non-cash and non-chip based payment infrastructures. Mobile devices alone are capable of multiple multi-factor authentication mechanisms through every-day use. Integration of this technology is held up by many factors, but perceived insecurity of the data should not be one of them. EMV is also far more secure than mag stripe (for example), and the combination of chip and PIN is even more secure.

It is difficult to understand how you could introduce EMV unsecurely given its self-contained nature, but mobile payments is something altogether different and is easily addressed by the implementation of appropriate products and due diligence. This may well be what is of the most concern to those surveyed.

With regards to technology in general, and retail especially, neither the payment method itself nor security are core functions. Being paid for the goods is. It’s not surprising that that; “Only 51 percent of the Experian/Ponemon respondents agreed that “the security of electronic payments is a top priority issue” for their organizations.” In fact, we suspect the only reason it’s that HIGH is because Experian/Ponemon were talking to payment-system professionals and not the CEOs.

EMV roll-out in the US was never going to be completed by this October, and even 2020 is doubtful. The reasons for this are myriad; from the expense (which is significant), to investment only in technologies that are not future-proofed, to analysis-paralysis related to loyalty and value-add services, and to a trend toward competitive edge based on customer service alone all play a part in a decision that can quite literally make or break an organisation.

A payment, in its simplest terms, is a transfer of value from one place to another. Getting those payments transferred is a multi-trillion €/£/$ industry which has yet to provide the kind of leadership merchants are looking for. In the end the only thing that matters is that the consumer is able to securely authenticate themselves and make the transfers they want, when, where, and however they want, and it’s clear that current technology falls short.

EMV and tokenisation are security patches while the payments ecosystem transitions to mobile, and delays in implementation of either of these technologies is a direct result of retail’s inability to double their investment in payment acceptance channels, as well as their inability to know which of the technology horses is going to win the race.

[Ed. Written in collaboration with www.myPINpad.com]

Payments Innovation Should NOT be Disruptive!


By now I think everyone has heard the phrase ‘Disruptive Innovation’, as defined by; “an innovation that helps create a new market and value network, and eventually disrupts an existing market and value network (over a few years or decades), displacing an earlier technology.“. This phase is especially bandied around in payments.

But how many of you have heard the phrase; ‘Sustaining Innovation’, which; “does not create new markets or value networks but rather only evolves existing ones with better value, allowing the firms within to compete against each other’s sustaining improvements.

So if you accept that a payment itself is just a way for you to access your stored value (what we call money) any time / place of your choosing, why is everyone so interesting in disrupting the existing payment ecosystem? And by “everyone” I of course mean those who are trying to either break into market, or those trying to wrest even more control for themselves. Non-cash payments work [for the most part], and you have a large degree of faith in your bank’s ability to protect your monetary assets, do you really want the whole thing to change? Do you even know what it is that you want that’s different from what you have today?

Do things even need to change? Yes, they do. Are there innovations available NOW that make the payments process easier, cheaper, and more secure for the consumer? Yes, there are. Can we expect the entire payment industry to throw out everything they have spent billions on over the last few decades, are used BY billions, just to make room for every start-up with a good idea? No, we can’t, and that’s the real issue here.

In the last 10 years there have only been 2 true disruptors in the payments industry; the mobile phone, and block chains (Bitcoin et al), neither of which has achieved anywhere near its full potential. Yet. Not because the technologies are flawed [necessarily], but because the introduction OF the technologies was done poorly. For mobile devices, the payments challenges included the ‘fight’ between NFC and BlueTooth, the numerous options for security on the device (Secure Elements, Trusted Execution Environments and so on), and the presumed insecurity of the technology overall. For block chains is was, and still is, the almost complete lack of understanding of how they even work in the first place. I’ve looked into them and I still find the concept nearly incomprehensible.

But even these disruptors need current context, and they represent a fundamental shift from our overly complicated view of payments back to its basics; I go to work to earn value (money), the value gets stored somewhere (a bank), and I access the value when I want it regardless of time or location (mobile payment). This would suggest that the only disruption we really need is the disintermediation of some of the players. There are simply too many middle-men whose only input to the new world of payments will be value erosion. Thank God the Mobile Network Operators (MNOs) are too busy bickering amongst themselves or this would be even more complicated!

As a consumer who has a very good idea of what he want to see change, I know that only those who help the payments industry evolve will have a lasting positive impact, and this will only be though collaboration and fair competition.

The greedy can stay home.

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