The financial services industry is in the midst of one of the most profound shifts in history. Traditional banks – which have existed since the 18th century – are colliding with technology, making payments and banking more sophisticated and convenient with advancements in mobile payments, digitally assisted purchases via voice-activated speakers and complex biometrics and identification programs.
Fintech has flourished over the last decade, with hundreds of disruptors entering the industry every year and generating trillions of dollars in revenue. To date we’ve seen roughly 29 fintech “unicorns” valued in aggregate at $84.4B. Just in the first quarter of this year VC-backed fintech companies raised $5.4B across 323 deals globally (CBInsights).
Rapid industry growth has focused renewed attention on four key areas:
According to the 2017 World Payments Report by Capgemini and BNP Paribas, more than 30 different key regulatory and industry initiatives have been enacted over the last two years worldwide. While guidelines and regulations are needed to safeguard consumers and businesses, the onslaught of rules and requirements can hinder innovation and slow the growth of the payments industry. This is apparent in the United States where there are 19 different agencies regulating the payments industry, which creates a convoluted supervisory environment.
The regulatory sector within the payments industry has seen drastic changes over the last few years, with initiatives like PSD2, the Australia Payments Plan and more recently, GDPR. We can expect to see the industry issue similar KYC/AML initiatives as the payments space continues to increase in complexity.
With threats of identity theft, security breaches and fraud looming over every transaction, the payments industry must go to great lengths to protect customers’ information with each credit card swipe. The growing effectiveness of cyberattacks, has made this an increasingly difficult task for companies, organizations and governments.
Much like the financial services industry, cybercrime is a business, and one can expect to see this “industry” within the payments space, expand in the coming years. According to the Cybersecurity Ventures 2018 Market Report, global cybersecurity spending will exceed $1 trillion between 2017 and 2021. In addition to the massive amount of resources spent on cybersecurity each year, cybercrime damage costs are expected to hit $6 trillion annually by 2021.
Additional sobering forecasts from the Cybersecurity Ventures 2018 Market Report include the following:
- Cybercrime will more than triple the number of unfilled cybersecurity jobs, which is predicted to reach 3.5 million by 2021
- Human attack surface is projected to reach 6 billion people by 2022
- A business will fall victim to a ransomware attack every 14 seconds by 2019
Progress in the payments industry depends on the ability to freely innovate and collaborate with companies and great minds on a global scale. This collaborative innovation is what drives an industry and without it virtually all sectors – regulation, cybersecurity and financial inclusion – would tend to stagnate.
A prime example of an innovative partnership involves TSYS, a global payments provider headquartered in Georgia, and Featurespace, a U.K.-based world leader in adaptive behavioral analytics. Their recent creation, TSYS Foresight Score with Featurespace®, is the result of two international industry leaders joining forces to fight transactional fraud. This next-gen product helps stop fraudulent transactions at the point of sale while simultaneously reducing false positives and improving the cardholder experience through machine learning.
This innovation on a global scale is a testament to the success of collaborative efforts among companies in the payments industry. Innovation will play a crucial role in the evolution of payments and it is likely that financial institutions will make continual efforts to keep pace with technological advancements. In fact, according to Deloitte’s 2018 Banking Industry Outlook, the global banking industry will spend $519 billion on IT in 2018.
With more than four billion unbanked or underbanked individuals globally, there is massive potential for advancements in the payments industry. However, despite the global explosion of fintech, there has been little progress made towards tapping into this untouched market. Even in the U.S., where there are more than 4,800 commercial banks, almost 7 percent of the population is still unbanked.
As the payments industry continues to grow, banks and fintech companies alike will attempt to reach the unbanked and underbanked with innovative, new-age tactics specifically targeted to the unbanked.
Amazon, for example, recently rolled out its first-ever debit card in Mexico as part of a push to encourage shoppers without bank accounts to buy online. To date, 65 percent of Mexico’s population does not have bank accounts and 95 percent of all transactions are conducted in cash (QPAGOS). PayPal followed suit earlier this year by offering consumers debit cards linked to their PayPal accounts. The company said this new line of products is targeted directly to the unbanked.
Payments 20: An international alliance
Payments 20 – or P20 – is a direct response to the ever-increasing need for regulatory clarity, cybersecurity and collaborative innovation. Born last year in London between the American Transaction Processors Coalition (ATPC), government officials, regulators and leaders in the payments and fintech industries, P20 fosters thought leadership. The nonprofit group works year-round to support the development of the global payments industry through coordinated efforts with subject-matter experts from regulatory and legislative bodies.
The organization serves as the international arm of the ATPC links together Atlanta’s “Transaction Alley,” where 70 percent of all U.S. payments transactions are processed, and London, the financial services capital of the world, to help make payments accessible, affordable and secure for all.
Working groups on cybersecurity and regulation will present their findings and work at this year’s annual international conference on Oct. 9-10 in Atlanta where several hundred international leaders – from industry, government and regulatory agencies, and academia will convene.