The payment industry experienced some great modifications over the past few years, mainly because of the fintech revolution. Since the first bank appeared back in the 19th century, the way in which we make payments evolved continuously. Back in the day, banks’ evolution was possible thanks to the money as we know it: as bills and coins. Stock markets and checks also contributed to this development. With the rapid growth of the banking industry, governments imposed stricter regulations as well. Until recently, banks and other types of financial institutions ruled the financing environment. But in the current context in which fintech revolutionized the banking industry as we know it, things are about to change.
Simply put, fintech is a combination between banking and technology. First trends in the sector emerged back in 2007, after the financial crisis. In that context, new companies were searching for new and more affordable ways to offer financial services. The easiest way to accomplish this seemed to be a combination of financial services, online transactions and cutting-edge analysis capabilities.
Currently, fintech modifies completely the way in which consumers of all types manage and operate payments. However, while most B2B consumers seem to know what the term designates, private consumers still lack any type of general knowledge about it. But before we dive into some ways in which fintech companies make payments easier for businesses, we need to find out how the fintech consumer climate looks like.
How many categories of fintech are out there?
While it’s safe to say that the FinTech climate is a complex one, we can distinguish between several types of fintech categories.
- Business-to-Consumers fintech enterprises – these are targeted at the wide audience, at the public consumer. Here we can include products such as money and personal finances management apps, digital money pots, etc.
- Business-to-Business fintech services – unlike the previous category, these enterprises focus their activity, products and services of other banking institutions and their needs. In terms of payment operations, B2B fintech focuses on alternative payment methods and systems.
- Business-to-business-to-consumer fintech enterprises – here, we can include crowdfunding platforms that target investors and project leaders.
An important detail that we should remember is that fintechs are not banks but alternative financial institutions. These companies are contracted by banks, nonetheless, to help with the technological part of their activity. Also, they have banking licenses, in most of the cases.
How is fintech making payments easier for businesses?
Now, that we have a clear idea on how the fintech climate looks like today, we should have a closer look at some long-standing payment problems that fintech can solve.
- Blockchain technology and payments. Mainly, fintech companies disrupt the banking and financing industry through blockchain technology. As a shared digital ledger, blockchain is used today to record transactions or keep a better track of one’s asset movement. The great thing about blockchain is that if you have a steady internet connection, you can use it. Information is stored across a network of personal devices, and cryptography makes it impossible to steal. This solves the main issue that online transactions have today: security. Besides, blockchain technologies offer the prospect of more affordable and quicker payments. Unlike banks, fintech blockchain solutions cut intermediaries. For those who need to operate international transactions, this translates into reduced costs and timeframes. In this context, new perspectives open for white label banking and payments.
- Alternative payment methods. Normally, if you want to operate a payment, you have to log into your bank account and manage everything from there. While this isn’t necessarily an issue, many financial experts think that this solution is far from being the most effective one. For consumer’s convenience, Fintech companies currently develop alternative payment channels. In most of the cases, these solutions allow the user to make payments without logging into a bank account. Some Fintech companies allow their users to operate payments through social media accounts, like Facebook Messenger or Twitter, directly to their contact network. This is an easier and faster payment solution because when one of your contacts is asking for money, you don’t have to leave the app and log into your bank’s app.
- The revolution of mobile payments. Traditionally, people used to operate transactions through their physical credit or debit cards. But an issue with these transactions is data visibility. It’s incredibly easy for anybody to look at your physical card and see all the data. Besides, if someone sees you while you enter the PIN code at a terminal, this is the only information needed for fraud. Mobile payments solve this particular challenge. Generally, data confidentiality is seen as an issue specific to the consumer. But business activity is also influenced by consumer’s reluctance to pay in-shop with their physical cards. In the case of mobile wallets, all data is encrypted and this makes it impossible to steal. Another big advantage of mobile wallets is that these allow operating online transactions easier. This boosts online retailer’s revenue since it motivates the consumer to buy more frequently. Besides increasing payment security levels, e-wallets can also store other types of information, like loyalty reward program points.
Businesses are constantly challenged by the fintech revolution, and the recent developments seem to radically transform their activity. The agility with which the fintech sector is finding new solutions to age-old problems will, most likely, have a positive impact on businesses and their customers. But, in the future, traditional banks will be forced to adopt and implement similar systems to fill the gap.
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