FinTechs will remain confused about which FinTechs to use, until they understand this
Much of the discussion on the FinTech phenomenon in recent years has referred to FinTechs coming to market with differentiated products and innovative business models to challenge incumbents.
Excitement about the growth potential of these companies has led to some confusion, especially on the issuer side of things. There is a common conflation between two types of Fintech; providers of financial technology, and those that use that technology to develop their go-to-market propositions. Examples of FinTech providers are issuer processors like Global Processing Services (GPS), Marqeta and Galileo. Companies on the issuing side that are classifiable as ‘users’ of their services are typically challenger banks and FinTechs like Monese, Starling and Chime.
Huge growth within the challenger bank and FinTech segments has led to a scramble amongst providers to sell services to them either before or during the scaling process. The vast opportunity in service provision has led to a rapid proliferation of would-be providers.
But what are the options available to a nascent challenger bank or FinTech seeking to go to market? The issuer processing market is an example of how a bewildering array of providers can create confusion amongst prospective users of their services.
The big players.
Although not typically classified as FinTechs, Fiserv, TSYS, FIS Global and Worldline work with many incumbent banks across Europe and other regions. They know how to handle clients with scale and have the products and services to suit their requirements. As challenger banks and FinTechs gain market share across the globe, these businesses are increasingly targeting these segments as an area for growth and can leverage their scale with favourable pricing for smaller clients seeking to gain scale quickly.
‘Rock star’ processors.
The most prevalent issuer processors within the FinTech and challenger bank segments across APAC, Europe, and North America are GPS, Marqeta, Galileo, and i2C Inc. To varying degrees they have experience dealing with smaller scale issuing and programme management clients. They have a strong focus on technology with most advocating the ‘developer-first’ approach. They have cutting-edge platforms, and products and services specific to the requirements of challenger banks and FinTechs as disparate as Revolut, Crypto.com and Twisto.
PPS, Contis, TietoEVRY and Natixis Payments offer integrated services that are directed towards a specific FinTech audience. Their customers don’t need to worry about finding a BIN sponsor or regulatory permissions, and white-labelled mobile apps or automated KYC come as standard alongside the usual platform, card management system (CMS) and fraud prevention tools.
The new entrants.
There are a host of new processors entering the FinTech space. Tribe Payments, Tutuka, Qrails, Enfuce, Change Financial and Paymentology are all gaining traction. Most in this category have attempted to define USPs that differentiate them but, given their stage of growth, do not have a substantial client base. This could be an advantage though as new providers looking to create a good relationship are more likely go the extra mile and make sure their FinTech client launches and scales successfully.
The classifications above serve as a useful way to understand the market but are in reality over-simplified. New challenger banks and FinTechs are often understandably confused as to what exactly each processor offers and what differentiates them from their competitors.
Further complications arise when trying to understand each processor’s business and partnership model. Each processor has a unique service offering and supports different products. Each processor has a different ability to support scaling. Region by region provision of service is very different from processor to processor. Platform performance varies massively. Pricing is opaque and comparative pricing elements are hard to locate. Integrations with international and domestic card networks and support for alternative payment methods are inconsistent. FinTechs could be forgiven for suffering from decision-paralysis.
To select the right provider, FinTechs need to focus on what is important and ignore the noise. If they cannot develop a proprietary and professionalised procurement function, they should Identify product, technology, regulatory and scheme, and geographic requirements. Create a short-list of processors who meet all or most of those requirements. Investigate the value propositions of those businesses. What differentiates them and how does that add value to their business and customers? Set lower and upper thresholds for key pricing elements against the level of SLAs expected. Create an even shorter list. Meet the short-listed processors and figure out which one is the best fit.
Doing this is not easy but it will set the most direct path to success.