Back in August of 2020, we highlighted some of the barriers to entry that emerging FinTech’s typically experience. As we get further into 2021, we take a deeper look at specific barriers we have faced and how we are working to overcome them. 

Legacy Systems are the Status Quo

The technology industry adage of “Nobody ever got fired for buying IBM” continues to ring true in many ways, particularly in the FinTech space. If you’ve never heard that saying before, the meaning behind it is that the safe bet never got anyone in trouble. Choosing the industry standard company, product, or service meant little repercussions for the folks making the decisions, even if there were newer, cheaper, or better options. It was safe, they were reliable, and it did little to buck the status quo.

Looking at the payments industry, there are many parallels we can draw. The electronic payment ecosystem is fundamentally 40+ years old and while innovation has occurred, it has not been at the same pace as the rest of the technology industry. Some of you may remember “knuckle busters” and the carbon paper of old. Although we have since shed those physical devices, the core of the electronic payments system are the same.

In order to succeed in this environment, you have to find ways to innovate within the grey space. One example of this is leveraging mandates and the change already occurring in the industry. But ultimately, you just stay the course! You end up repeating yourself, advocating for alternatives to the status quo and why those solutions work. We have also been quite lucky to find Financial Institutions (FIs) to partner with that are willing to listen and stretch their systems and capabilities to explore new norms. Institutions do not have to fit a known pattern and changing one piece of the puzzle does not always have to be a massive undertaking.  Bottom line is that we must walk a fine line between persistence and patience in helping FIs to see the benefits of bucking the trend.

US Fragmentation

Fragmentation is the process of being disintegrated or broken into smaller, separate pieces.  Here in the United States, we have some of the most fragmentation in the World when it comes to payment services and this can create significant problems when it comes to new FinTechs. While fragmentation gives Financial Institutions (FIs) and consumers a number of choices in the market, it also hinders new companies from emerging. This makes it challenging to both gain traction and also disrupt existing solutions with new and creative ways to solve problems. Breaking into the market is still only step one. Convincing FIs of your ability to simplify their processes and scale your solutions is an ongoing challenge that smaller FinTechs and startups must overcome to truly disrupt the industry. Fragmentation, combined with the legacy systems, leads to a deep resistance to change. While some vertices are much more apt to change and not afraid to fail fast, the financial vertical is much more risk averse.

We’ve tried to attack the fragmented peer-to-peer (P2P) space in a number of ways. For us, this has meant strategic partnerships with key players at all stages of a transaction. From processors, networks, cores, and mobile banking providers, we have worked to seamlessly integrate into existing tools and processes so as not to add to the ongoing fragmentation. To utilize our services, an FI does not need to have additional apps, create new integrations with their core, or add additional networks. Additionally, we have utilized Google Cloud Platform (GCP) in order to pass along their best-in-class scalability, speed, and redundancy to our customers. With GCP, we can scale the platform in real time as demand increases in order to stay at peak performance.

High Fees and Minimums

Once an FI successfully navigates through the multitude of FinTech products and services, selecting the one that best fits their individual needs, integrating that solution can often be held up by the high fees that providers charge. In order to provide the best experience for their cardholders, FIs want to seamlessly integrate products and services to their existing digital banking solution. Digital banking providers, however, will add on fees and monthly minimums to integrate these third party FinTechs. These fees are warranted, but often highly increase or even double the cost of additional products and services. Asking FIs or emerging FinTechs to absorb these fees, can often halt negotiations in their tracks.

A number of FIs cannot justify these additional fees, particularly when they compound on each other. We have tackled this by partnering directly with the mobile and digital banking providers that our institutions are already using. This has allowed us to uniquely navigate these fees in a way that makes sense for all parties involved and scale the solution so that FIs are not bearing as much of the financial burden.

We hope the awareness of these barriers highlights the exciting challenges FinTechs face as a part of every step of the journey. I am extremely proud of how the team has gone about solving these challenges and am excited to watch our FI partners use our set of tools. It is so rewarding! We have moved money in ways that no other system has and to the benefit of all parties involved!

I am encouraged by so much going on in the payments industry and that others are starting to understand the reality of the situation, yet are committed to helping us change for the better. Hopefully lowering some of the barriers to the benefit of consumers and Financial Institutions in the process.

Best regards,