Financial technology is becoming mainstream. Globally, digital transaction volume is expected to reach $876 billion annually by 2023—and thanks to the ever-expanding tentacles of “fintech,” many of those future transactions may take place on systems that don’t even support payments yet today.
The digital transformation of business across industries is making more and more companies comfortable with new transaction methods and models. As tech innovators respond, finance-related features are finding their way into both consumer- and business-focused environments at a faster-than-ever clip. At the same time, concerns around facial recognition and other emerging tech are raising issues of privacy and security along the way.
Here are a few key areas where payments tools and other fintech offerings are entering new territory.
Small retailers and other merchants have benefited significantly from the rise of fintech platforms in recent years. Companies like Square and Stripe, for example, have made it simpler for stores to integrate transaction data into their strategies and improve the payment experience for their customers.
For both companies (and others like them), success with merchants stemmed initially from their strengths as payment facilitators. Over time, their offerings expanded out from a payments- and compliance-focused foundation to provide useful, additional services such as payrolling, invoicing, and customer management.
Now, a newer set of solutions is evolving from the opposite direction: Industry-specific software providers are winning over merchants in niche markets with more tailored solutions that start from a customer- or employer-serving foundation, then integrate payments facilitation in ways that align with the unique needs and workflows of the given sector.
These up-and-coming solutions—such as Toast for restaurants, ClubEssential for golf courses and country clubs, PestRoutes for pest control businesses, and many others—deliver uniquely valuable services to their customers while capturing revenue that would otherwise go to a facilitator-first platform for simply processing payments. (Stripe and others take margins of between 10 and 50 basis points on transaction volume.)
Growing adoption of these solutions may end up empowering niche merchants from a data and analytics perspective, as well, since industry-serving platforms pose greater potential for features and tools like sales benchmarking or market forecasting. And since these tools support more data-driven relationships between merchants and their customers, they can improve loyalty and retention by personalizing shoppers’ experiences based on their past behavior.
Cashless & Contactless
Both industry-specific solutions and facilitator-platforms alike are evolving toward personalized payment acceptance, as well—with a growing emphasis on card-not-present transactions. Starbucks’ notoriously successful mobile payments app (now used by more than 17 million loyalty members, according to the company) is an example of consumers’ growing preference for cashless payments and order-ahead tools.
While the world remains many years away from a “cashless” society, we are headed in that direction. Globally, there’s huge potential for cashless, mobile and contactless payments to reduce the financial crime and corruption associated with paper currency. In places like India, merchants are already fined for not accepting digital payments.
Due to financial exclusion issues in the West, there are bans on cashless models in certain geographies. Yet policies against paper currency are still turning up in expected areas in both North America and Europe. Cash tolls, for example, are no longer accepted from drivers on multiple bridges in Maryland as it works toward implementing a statewide automated toll system. TESCO, a huge membership-based grocer in the U.K., has taken the cash-pay option out of its popular shop-as-you-go service and has trialed AI-powered ‘checkoutless’ stores (similar to Amazon Go in the U.S.).
Broadly, the shift away from paper currency and cash registers at the point-of-sale is creating more and more opportunities for mobile tech to play a role in the future of payments. Target, for one, embraced tap-and-pay and mobile-wallet payment acceptance methods last year, and more and more amusement parks, vending machines, and transit systems are coming to rely on QR codes and other contactless payment terminals. But rollouts of contactless-pay systems can sometimes be fraught with problems, so extensive due diligence and readiness testing is always called for.
As more of that happens, new tools will emerge. And with a rising number of systems facilitating cryptocurrency payment acceptance, new forms of digital money will be transacted in contactless ways, as well: According to one study, at least 33% of U.S. small and medium-sized businesses already accept cryptocurrency payments for goods and services
Contactless payments are also helping fintech find its way into physical spaces. The rise of “experiential” sales and merchandising strategies—which rely on digital in-store screens, tech-enabled showrooms, and sometimes even virtual- or augmented-reality demos—is bringing the shoppability of e-commerce and social media sites into in-store retail environments.
Facilitating a hybrid physical-virtual transaction environment is the next phase of fintech expansion. A full 56% of shoppers today would like to use interactive, shoppable screens as part of their shopping experiences, and plenty of and plenty of retailers want to deliver them. Direct-to-consumer brands like Matchesfashion are making their stores as digitally-savvy as possible, for example, and interactive merchandising tools like smart mirrors and smart cooler doors are proving popular with consumers in many environments.
Most of those environments, however, still require bringing those goods to the register for checkout. Contactless-pay trends are changing that, though, and the smartest smart displays are bypassing mobile- and tap-to-pay by facilitating payments through biometrics identification.
Facial recognition and sensors already power “smile to pay” screens at KFC locations in China, for example, and Amazon is creating checkout terminals that will scan the palm of a customer's hand to process their credit card info. And with voice-assistant tools playing a bigger role in consumers’ everyday lives, voice commerce is now bringing fintech to the fuel pump: Amazon, Exxon, and Fiserv jointly announced at CES 2020 that the command “Alexa, pay for gas” will soon power transactions at up to 1,500 gas stations.
Voice poses new security threats that are still being determined (while regulators also wrangle with related, problematic "eavesdropping" issues with audio technologies). Eventually, however, voice commerce will make talking-to-transact commonplace almost everywhere. As that happens, fintech will increasingly find its way into our homes, our cars, and our entertainment.
The “mainstreaming” of fintech will continue in the meantime, too, as plenty of M&A activity is expected in the space in 2020. This round of dealmaking will show what areas of business and life fintech is poised to infiltrate (and which unexpected environments we’ll be transacting in next).