The landscape of fintech has witnessed a remarkable evolution over the past few years after decades of marginal innovation in financial services. From the early days of card insertions to the latest developments in instant payments and biometric authentication, the journey has become nothing short of transformative. Amidst this evolution, Steve Mott, with 40 years of experience in the industry, has witnessed the rise and fall of companies and the steady climb of fintech innovation. He is currently the principal of the payments consultancy at BetterBuyDesign, and advisor to fintech startups such as AppBrilliance, Inc., Mica.io, and Olive Group.
In this article, Mott sheds light on the top three technology trends that are set to revolutionize the future of fintech development further.
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When I look at the trajectory of fintech evolution up to this point, I see three main problems with payments – along with the opportunities to fix them – emerging. Those are 1) real-time, instant payments use-cases and capabilities; 2) emerging alternative network business models and security options; and 3) better and synergistic identification and personalization of users.
Real-time payments (RTP) have been a long time coming. I first proposed a real-time debit use case in 2004 using existing networks; the United Kingdom introduced a full, purpose-built RTP platform in 2008. Over the next fifteen years, several dozen countries built and deployed faster payments networks and systems. Finally, in the U.S., The Clearing House, an ACH and wire processing consortium of 22 of the biggest banks, adopted the UK platform technology base and opened for business in 2017. And in the summer of 2023, FedNow opened for business.
Business in the U.S. has so far been sluggish, as many banks are only tentatively feeling their way about real-time risk and processing requirements, but there will likely be critical progress made in 2024. With RTP, individuals and businesses alike will be able to have payments initiated, cleared and settled within seconds, anytime and any day. This provides confidence and transparency, and making the process more efficient has the potential to decrease costs along with fraud and frees up time and processing resources while minimizing uncertainties for many users.
Besides greater speed and the efficiency that follows, RTP also offers a number of other advantages, such as greater financial connectivity and higher levels of automation through shared exposure of what can be extensive, formatted data related to a given transaction through a new global standard (ISO 20022). This data sharing is a god-send for remittances, receivables posting and reconciliation and just-in-time payables consummation.
In 2024, we should expect progress on the interoperability of infrastructures, fleshing out of regulations (especially liabilities), and enhancements in risk management and fraud mitigation needed to support the burgeoning demand for new payment use cases in North America.
The emergence of new network models and technologies is steering us toward a major shift in how people engage with payments. These are not just disrupting the status quo; they're providing alternative avenues for individuals and businesses to conduct transactions.
Digital wallets, PaybyBank, P2P – these are the torchbearers of the new era. They not only open doors for quicker and broader reach but also unlock intriguing possibilities for redefining the way we approach related value-adds, such as rewards and loyalty. This can include delving deep into the nitty-gritty of SKU-level rewards, even envisioning product-funded incentives that go beyond the norms.
Such new alternative network rails address many emerging user needs for flexibility, economic efficiency and reduced risk that can’t be met by ‘one-size-fits-all’ card networks. The combination of conventional legacy networks for physical payments is beginning a sustained market decline with faster, better, cheaper and safer digital alternatives that better serve user needs now and in the future. We're not just expanding our user reach; we're accelerating the value that transacting can provide us in our work and personal lives.
There are only a few dozen places where people conduct the vast majority of their transactions. Suppose you can tap into these merchants who have synergic offers spanning various industries, like insurance, groceries, pharmacy, etc. In that case, you can really start to understand the typical consumer’s individual transaction ecosystem. And then you can reap the values of knowing an individual and what their transacting preferences, behaviors, and inclinations might actually be. I transact, therefore I am…
By leveraging mobile technology and delving deep into personalized data, we can usher in a new era where interactions are accurately tailored to those individual preferences. Here's the kicker – for the privilege of entering into this personalized realm, where sellers are not just merely guessing at what I want, and I’m not unproductively distracted (or annoyed) at the bad guesses, consumers might just be willing to “pay” (e.g., by providing access to data; rewards based on concentrated loyalty; or even paying premium prices for optimized results). Value exchange can be a two-way street.
Until now, we really didn’t understand consumers as well as we had hoped to. Frictionless payments and new networks and rails are liberating consumer marketing, but just as that is happening, we’re drowning in scams, identity theft, synthetic identities, and growing fraud – confounded by the prevalence of fake data and bots (now turbo-charged by unregulated AI), leaving us navigating uncharted waters once more.
We can’t achieve the level of personalization that digital lifestyles offer without actual identity provision, creation and verification. The security industry has worked for decades (sometimes confounded by the card networks), trying to convince consumers that they are the key part of protecting the transactional ecosystem. It will be imperative to treat the consumer not as a supposedly predictable data entity (increasingly out of the ecosystem’s control…), but as a living, breathing individual. Regression models won't cut it.
We need to blend the digital tools at our disposal with the human element, embracing inputs from genuine human interactions. It's through this fusion that we can unravel the intricacies of consumer behavior, offsetting the pitfalls of bad marketing and online crimes that plague the digital world. We’ve finally figured out that transacting is NOT about payments; it's about understanding the essence of individuals and shaping a fintech future that resonates with real people where their actual experiences can be modelled, tracked, verified and monetized through the technology we now have, and enable them to direct how, when, and where – and with whom – the data of their lives can be mustered for the benefit of the entire transacting ecosystem.
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