In today’s rapidly evolving financial landscape, what elements create and deliver value in the payment space? Creating value in the industry involves a multifaceted approach that encompasses many factors. While the speed of transactions can be a critical aspect of value in fintech, it’s just one piece of the puzzle. Other factors such as innovation, security, accessibility, customization, cost-effectiveness, regulatory compliance, and integration all contribute to the overall value proposition of financial solutions.
Together with Christian Bergqvist, Revenue Operations Manager at Zimpler, we’ll analyze which crucial aspects of the industry can bring actual value and meet the evolving needs of customers and the market; we’ll debunk some common myths by highlighting the multifaceted factors that truly contribute to the value proposition in fintech.
The value of Fintech
In July 2023, publicly traded fintechs boasted a market capitalization of $550 billion, marking a two-fold increase since 2019. Notably, the fintech realm witnessed the emergence of 272 unicorns, collectively valued at $936 billion, a sevenfold rise from just 5 years prior. According to McKinsey’s research, the fintech industry is poised for a substantial growth spurt, anticipated to outpace traditional banking sector revenues by almost three times between 2023 and 2028.
The competitive landscape is evolving rapidly and the pivotal question remains: How can fintechs enhance client satisfaction to bolster attraction, retention, and their share of the payment wallet? To address this, fintechs must grasp the value of A2A (account-to-account) payments and understand what both businesses and end-users consider beneficial in the payment ecosystem.
Perceived value in the ecosystem of A2A payments: Is it speed?
The primary allure of A2A payments has traditionally been their ability to facilitate faster and more secure fund transfers, eliminating intermediaries like credit card companies and mitigating the risk of fraud and data breaches.
In a 2023 survey of UK end users, the main perceived benefit of open banking was its role in expediting financial transactions, with 53% of respondents endorsing this viewpoint. Larger businesses express a willingness to pay for speed, with $2.50 deemed fair for sending $1,000 and nearly $100 considered a reasonable fee for expedited transactions involving $100,000.
When asked about his view on the value of speed in A2A payments, Christian Bergqvist stated, “Is speed valuable? Of course. But speed in “pay-in” and “pay-out” processes has been a primary focus of innovation in the A2A payment space over the last decade; while speed remains a critical aspect, other factors are also important such as security, efficiency and user experience, which are important elements of a comprehensive payment system.”
Small businesses indeed prioritize more than just speed; they seek enhanced cash management, simplified payment processing, automated invoicing, and streamlined accounting processes. This divergence underscores that speed may not be the sole optimal benefit in the A2A payments ecosystem. Surveying end users in 2023, the second most significant benefit of A2A payments was ease of use. Notably, A2A payments are hailed for their security and reliability, according to a Token and Open Banking Expo survey across the United Kingdom, France, Germany, Italy, the Netherlands, and Poland.
Open banking is disrupting fintech and the banking industry as we know it. There are many reasons why fintech companies should explore their options regarding open banking applications, but this is more challenging than it might sound.
The magic intersection: Unveiling the true value of A2A payments.
While speed is a valuable benefit of A2A payments, it’s equally crucial to grasp the value they can offer for both end-users and businesses. This entails identifying the sweet spot where their respective needs meet – that’s where fintech companies can offer innovative services and potentially transform the ecosystem.
Christian shares his perspective on the end-users experience, “The immediate perceived value of A2A payments may not drastically differ from other providers, like cards or digital wallets. The fact that a new technology, such as A2A, is used doesn’t change much for the end-users, who in their payment experience are often interested in a straightforward transaction, the same you would get when using a digital wallet, for example”
With this nominal difference in mind, how do end users perceive A2A payments?
We’ve discussed how speed is a crucial benefit of A2A payments. At the same time, instant transactions are also considered more secure and reliable than card payments by a significant majority of end users across Europe. Leveraging open banking, instant bank transfers are entirely handled by the consumer’s bank, ensuring that no personal details are shared with third-party security providers.
On the other hand, what could be the businesses’ perception of A2A payments?
A key advantage of instant payments for companies is the streamlined transaction process. Users are spared the need to enter logins or payment details manually, eliminating the risk of errors during data input and, at the same time, businesses benefit from the expedited transfer of funds between accounts, facilitating quicker settlements and improving cash flow. This inherent security is further fortified by the mandatory implementation of strong customer authentication for all transactions.
Christian summarizes: “The magic truly happens when both consumer and merchant needs are seamlessly fulfilled. And this is where payment providers like Zimplers come into play: not only do we deliver a streamlined user experience for consumers, leading to enhanced conversion rates for businesses, but we also offer superior cost-effectiveness for FX transactions. In addition, our platform facilitates efficient disbursement of funds, coupled with best-in-class screening and AML processes. And this is how we are reshaping the industry as a whole.”
Fintech myths debunked: Unveiling the complexity.
We’ve analyzed how it’s crucial to develop platforms that could meet both end-users and business needs. Myths surrounding fintech often revolve around the misconception that open banking APIs can make the creation of such payment platforms very easy and straightforward. There are at least two prevalent myths, and with Christian Bergqvist weighing in, we will dig deeper into this complexity.
1. Payment orchestration.
Payment orchestration is a strategic approach to optimizing payment processes. It streamlines elements of the financial ecosystem for enhanced efficiency, reduced costs, and an improved overall payment experience.
Payment orchestration unites diverse payment service providers, acquirers, apps, and banks on a unified platform, commonly referred to as a Payments Orchestration Platform. Essentially, it is a centralized control panel catering to all your payment requirements.
Payment orchestration finds use in various scenarios, such as e-commerce transactions, subscription services, cross-border payments, mobile payments, point-of-sale transactions, B2B payments, digital wallets, in-app purchases, online marketplaces, payment gateways, multi-currency transactions, and high-risk payments.
Building a payments orchestration solution from scratch is a time-consuming and expensive process. In a fiercely competitive and highly regulated industry, crafting a performant, optimized, and robust payment orchestration solution poses significant challenges and costs.
Christian noted, “The challenges in this case are many: only larger entities like banks might have the resources to implement comprehensive payment orchestration. So, what’s left for the smaller players?”
While A2A payments can seamlessly integrate into orchestration platforms, they don’t necessarily rely on payment orchestration to function. Partnering with orchestration platforms facilitates the broader utilization of open banking infrastructure.
Christian added, “Partnership is at the base of A2A payments. The collaboration with other entities, such as banks and fintech companies, allows a payment platform to expand its reach and access a broader user base.
Even a collaboration with a proximate competitor might be considered at certain points.”
2. Open banking infrastructure.
A prevalent misconception in fintech is that open banking – a financial model enabling third-party developers to access financial data through APIs – translates automatically to a straightforward path for A2A payments.
Christian stated, “The foundation of A2A payments is built on a flow that leverages open banking APIs. Achieving economy of scale in A2A payments requires a robust system that can handle a large volume of transactions.
Some platforms may adopt or build new technologies, like blockchain, to enhance the scalability, security, and transparency of payments. Alternatively, A2A payment systems may choose to rely on existing technologies, such as traditional banking infrastructure or payment processing systems.
This case can be risky: inefficiencies in legacy systems may hinder the scalability, speed, and cost-effectiveness of A2A payments. You build a new system based on existing inefficiencies.”
Final thought.
A2A payments, amid the disruption of fintech and the banking industry, are valued for more than just speed.
As fintech continues to evolve, A2A payments are emerging as a preferred choice for end-users and businesses, reflecting the shifting of preferences toward enhanced security, simplicity, and overall improved user experiences. To truly understand the potential impact of A2A payments, it’s essential to find the intersection between end users and the businesses they interact with – finding value for both. And that’s where the magic happens.
