Today’s generation of fintech companies has come a long way since the 1990s when startups focused on selling technology to the financial services industry. Now, in the flash of a mobile app, many are taking their products directly to consumers.
In 1998, PayPal spawned the online payments revolution to serve peer-to-peer commerce. In the era of mobile commerce, many companies have jumped in, ranging from Amazon to Apple and Stripe to Square.
The on-demand economy requires speed and transparency, which could upend banks’ role in the payment process. But it is also creating new opportunities for forward-looking banks and financial services companies.
Today, banks remain a critical part of the picture. The majority of transactions still get settled by wire, ACH, or credit card. Most payments startups are leveraging these existing networks to drive innovation around the customer experience. In fact, technology advancements are leading to even greater credit card use around the globe. Also, in this heavily regulated space, it’s difficult for new solutions to reach the market without having the funding and intellectual capital to help move ambitious ideas forward.
As a result, we are seeing new, dynamic partnerships developing among banks, credit card providers, and fintech startups. In payments, these partnerships offer mutual benefits: Startups gain access to the capital necessary to realize their ideas and the means to navigate regulatory hurdles. And the incumbents learn to adopt more nimble strategies and rethink their customer relationships, particularly with millennials. As one example, in 2014, Silicon Valley Bank and MasterCard jointly launched a payments startup accelerator, Commerce.Innovated. The accelerator has graduated 20+ companies, including Splitwise, Gone, and Cardflight.
From the CFO’s point of view, identifying and evaluating payments solutions will become even more critical with the explosion of new products and services and customer demand for seamless transactions. There are four core areas to evaluate: transparency, security, speed, and price.
Here’s what we are learning: The most successful business models won’t just offer a simple-to-use system (after all, swiping a card is second nature). The innovation comes from adding tangible value in the form of even greater simplicity in interactions. Innovation also comes from lowering costs and improving transparency to empower customers to make better financial decisions. Security, too, is top-of-mind among customers. It is not yet clear who the winners will be, either in the consumer or business-to-business space. But, to a large degree, merchants are instrumental here. They have proven abilities to influence customer behavior.
The potential for even greater payments disruption lies in new models that leverage data, technology, and marketing approaches designed to solve real problems. As an example, consider the need for speed and simplicity in the world of corporate payments. On the banking side, we are seeing innovations, including new services and industry standards that will allow for same-day ACH.
At the end of the day, the entire payments ecosystem will benefit from the most innovative solutions that make commerce more transparent, more secure, and faster for both customers and merchants.
Reetika Grewal is the head of payments strategy and solutions at Silicon Valley Bank. She leads the payments strategy team, which focuses on internal payments strategy and development, and works collaboratively with SVB clients and partners to help deliver their solutions to market. She also leads SVB’s partnership with MasterCard to run Commerce.Innovated, a startup accelerator.