How Does Rise of FinTech affect the Payment Card Industry

David Smith, Independent Consultant at Smart Card Institute

28.06.2019 07:00 am

Payment

Technology applied to finance or Financial Technology or FinTech is the application of software, and modern technology, processes and/or business models to deliver financial services. The goal of a typical FinTech company is to provide convenient and reliable alternatives to traditional financial methods. Consumers may often be unaware that a simple mobile payment service they use is FinTech. The FinTech umbrella encompasses almost all new innovations and commonly used services in the financial sector like mobile payments, mobile wallets, international money transfer services, crowd funding, cryptocurrencies, online insurance, Robo-advisors and more. Across the board these services are making life easier for an individual consumer as well as businesses and there is no denying that these services are here to stay.

Payment cards including credit and debit cards had similarly revolutionized the payment industry back in the 90’s when it provided a quick and easy way to withdraw funds and pay for goods and services. Later, they also helped in promoting e-commerce by providing an option to pay online. Over the years, the card industry has successfully increased the security and usability of credit card transactions by introducing EMV chip cards, contactless cards, biometric cards and regulations such as PCI DSS that standardize payment technology processes. We will now explore how this revolution of the 90’s is affected by the current growth of the FinTech industry.

FinTech has certainly disrupted the banking and payments industry by providing easier options to cash transactions and international transfers. While consumers now expect the same standards and ease of use as they get through FinTech channels, traditional banks have lagged in providing the multiplicity of options. The payments disrupted report published by Deloitte predicts that non-banking players have the potential to disrupt the wider banking eco-system, including the banks’ ability to attract small business customers. Many banks have now partnered with FinTech players to create a win-win situation. A report published by Ernst and Young provides key steps for banks and FinTech firms to work together to partner together or perish.

While the impact of FinTech on banking and payments can be described as disruptive, the relationship between FinTech apps and Payment cards may be more symbiotic or complementary. There are examples of FinTech providers that rely on customers’ existing credit cards and there are those which have launched their own credit cards. Following are five distinct examples which illustrate the interdependence between FinTech and payment cards.

Mobile Wallet Apps: Mobile wallet apps like Apple Pay, Samsung Pay and Android Pay let you store information about multiple credit cards so that you don’t need to physically carry these cards in your pocket. This however does not mean the death of credit cards but instead an opportunity to carry multiple credit cards virtually.

In Conclusion, even though FinTech companies have shaken up the financial services industry, they can help to extend the services provided by banks, financial institutions and payment service providers. Customers are more likely to engage with FinTech providers if the ease of use provided by the FinTech is backed by the knowledge and experience of reputed banks and payment systems. With so many FinTech players entering the market, a regular consumer may find it difficult to compare, pick and choose and they would rather fall back on their trusted credit/debit cards. The FinTech providers listed above probably realized the importance of a known and trusted brand
and established systems that provide flexibility of new technology without detaching
completely from old and familiar methods.

Plastiq: Plastiq is a service which leverages existing credit cards to pay for virtually any expense including rents, taxes, business expenses etc while also helping you earn rewards.

Extend: Extend is an app to extend your existing credit card to your employees, freelancers or vendors. It allows you to register an existing credit card and then send an unique digital credit card to others with a defined spend limit and expiration date.

Brex: Brex has partnered with MasterCard to launch a corporate credit card for technology companies, to provide B2B financial services without the restrictions of legacy technology. It allows businesses to automate expense management and integrate with accounting systems.

Apple Card: Finally, Apple has announced its own credit card in March 2019, in collaboration with MasterCard and Goldman Sachs, which can be used through the Apple Pay wallet app or as a physical titanium card. The card itself builds on the ease and security of Apple Pay and can be used anywhere in the world.

In Conclusion, even though FinTech companies have shaken up the financial services industry, they can help to extend the services provided by banks, financial institutions and payment service providers. Customers are more likely to engage with FinTech providers if the ease of use provided by the FinTech is backed by the knowledge and experience of reputed banks and payment systems. With so many FinTech players entering the market, a regular consumer may find it difficult to compare, pick and choose and they would rather fall back on their trusted credit/debit cards. The FinTech providers listed above probably realized the importance of a known and trusted brand and established systems that provide flexibility of new technology without detaching completely from old and familiar methods.