The payment landscape has experienced a significant change over the past decade globally. With the rapid evolution of mobile commerce and online payments, many new modes of payments like E-wallets, in-app purchasing, P2P payments have come into the market. This change in payment landscape is gaining strength because of the financial technology’s (FinTech) potential to alter how and when payments are made. Older payment methods are being replaced by new payment methods that help consumers make frictionless payments. According to a study by eMarketer, worldwide retail e-commerce sale is expected to get double from $1.9 trillion to $4 trillion by 2020. The data shows the comfort level of companies and consumers with the online payments.
Without a doubt, the “era of FinTech” is a huge success and everybody is benefiting from the FinTech-fuelled changes. FinTech payments are no doubt gaining momentum but it is important to continuously improve the modes of payment and come up with new innovations to thrive in the market. In India, nearly 1,000 FinTech companies have perished since 2010, out of which 900 still continue to thrive. So, a continuous flood of new ideas and their implementation is required. Virtual currencies like Bitcoin, Litecoin, Ripple and distributed ledger technologies etc. have come into existence as the new innovation of FinTech and have gained worldwide use. These have been happily accepted by the people and companies all over the world.
21st century’s advanced technology, algorithms, and near ubiquitous computational power has made Distributed ledger technology (DLT) a viable form of record-keeping for everybody. The blockchain technology/ Distributed ledger technology is a payment service, based on virtual currencies also called crypto-currency and uses cryptographic methods to encode payments. FinTechs have been influencing the market across the world and are moving towards a more secure mode of payments like DLT. Some of the reasons why these are useful for FinTechs are:
Owing to such great benefits, virtual currencies and DLT are becoming favorite throughout the world.
The consumer and retail payments sector is the fastest-growing and fast-moving in terms of innovation sector in every economy. Surprisingly, this is the sector which even adopts the new payment methods quickly. The sector has shifted towards digital payments ditching the traditional modes of payments. Digital payments in India are expected to reach $1 trillion by 2023, according to a report by economic times.
With the continuous growth of this sector, the demand for a secured payment gives a momentum to the FinTechs to come up with new modes of payment. Demands for optimized payment experience in terms of speed, convenience, and security is diffusing into the corporate payments arena. And, this demand is encouraging FinTechs to grow and come up with innovations in payments.
The new technological developments are the driving force behind the fast growth of digital payment industry.
Cloud-based solutions are enabling businesses to run their operations more efficiently and effectively. Also, they are flexible, cost-effective and can accommodate to growing demands very easily.
Whereas, Application Programming Interface (API) enables the interaction between two or more devices connected online. These new innovations help in easy storage of and access to a large amount of information. Technology advancements have made it possible to refine the huge amount of data and come up with customer-centric solutions for digital payments.
With the evolving digital banking and technology, consumer demand is also evolving. And, as a result of meeting consumer demands, digital currencies got momentum. Virtual currency based solutions have been developed to make the payments frictionless and store huge amount of data.
Many traditional banks and new era FinTech companies consider these currencies as a threat. French banking giant, BNP Paribas released a report where they discussed the technology behind crypto-currency and how it could lead to making the traditional banks redundant. Another report by a UK banking report too has concluded that these currencies impose a threat to banks and FinTechs. The report states:
“Bitcoin users can handle many of their daily payments needs themselves, without the need for interaction with banks, and avoiding the need to incur bank fees. In the same way, the value stored in PayPal accounts moves outside of the bank’s payment systems, depriving banks of valuable payments revenue.”
The only thing that banks and FinTechs need focus on to up their game is the improvement in the areas like digital offerings, customer services, and fees. These institutions need to give user real-time based services which people are demanding from crypto-currencies.