With the myriad of fintech and start-up companies entering the financial field, it becomes harder for people to predict which ones will make the grade and which will fall off the radar. No businesses, particularly banks, will invest in something that will disappear in 18 months. Patrick Brusnahan writes
Fintech is in the middle of a boom. Forbes recorded a quadruple-fold rise in investments for fintech, going from just over $3bn in 2013 to over $12bn in 2014. With so much attention being poured into the sector, it is hard for one new company to garner attention, let alone investment, all by itself. However, CEO of myPINpad Phil King believes that he has cracked the code.
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When speaking to RBI, King said: "You’re right to point out that there isn’t a day that goes by without a new payments process or new company or new method of authentication. There’s no question that there is a lot of innovation.
"However, the reality is that innovation which cannot be applied simply and to immediate benefit, at a low cost and at the convenience of the customer is never going to succeed."
Without these factors in place, banks are always going to be reluctant when approaching a new entrant to the market.
King said: "I think the banks and the retailers are rightfully cautious at the speed in which they choose to progress in innovation.
"They have customers that are exceedingly valuable to them. Customer acquisition is a costly process, they’re not going to risk losing them all because they decided to do something that has been poorly thought through."
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By GlobalDataOn the other hand, King believed that not all of the blame should be placed at start-ups’ feet. The banks and retailers also need to be more willing to embrace change in the market.
He said: "Banks are not known for innovation. They’re not known for rapid employment. They take their time. We’re in discussions with a number of banks and companies in the financial services sector and it takes a long time to get through. There is definitely a lag.
"However, there is a demand on the retailer side for things which will improve the position they’ve found themselves in. They are now being presented with a plethora of payment solutions and authentication options and they don’t have the time or money to tackle all of them."
A ‘pragmatic approach’ to overcoming this, according to King, would be to make sure that your piece of tech can fit in with existing legacy systems. While legacy infrastructure is ‘one of the issues’, being able to slot into that is key, so banks’ ‘investment in those legacy systems does not have to be thrown away’.
Another commonly stated stumbling block in technological development in banking is regulation. King commented: "I think it’s certainly a feature. Whether it’s a stumbling block depends from whose perspective you’re looking at it. There are certain technologies, particularly in the area of mobile, where the regulations have simply not caught up and there is a sense of uncertainty as to how to deal with some of those things.
"The regulators have an important role to play and the standards are in place for a good reason. The banks and the retailers rely on those standards and expect some form of compliance. When your solution can’t comply as it isn’t designed like that, that’s when you get some interesting conversations about how we go forward."
King stated that banks will need to look outside themselves for the innovation that consumers want, and are even driving.
He said: "I think the culture of a financial institution isn’t going to change and they are, by nature, not innovators. There are some banks in the world that are very innovative, as well as new banks which are not impeded by legacy systems or cultures that impede speed of thought, movement, and flexibility.
"There is no monopoly on a good idea. Every bank in the world is looking at mobile as an example. Everyone will have some people doing their own work, but the reality is that they can’t move fast enough.
"My view would be that most of the innovation is going to come from outside of the banks and it will need to be presented in a way that makes it easy for the banks to use. You can’t threaten the establishment; you have to take them with you unless you have a massive brand. Companies like ours do not, but companies like Apple are clearly a different category.
"However, even a giant such as Apple worked hand-in-hand with banks because you simply have to. I think the innovation will come from outside, but it will need to fit within the environment of the bank and there are certain things that the banks will never give up. Ownership of their customers, for example, is something that they are simple not going to give up for the sake of innovation."
A factor that is not to be neglected in the wave of innovation for the consumer is security. While it is not the flashiest of features, it could be considered to be the most important.
King concluded: "The consumer is absolutely driving this move towards mobile. All the research tells us this. The consumer carries their mobile with them every day and they don’t understand why they can’t get what they want through that device.
"On the other hand, they also want it to be secure. There is a balance to be struck and the newer generations are going to want it even sooner. They may not care about privacy, but they do care about security."
