Taking the risk out of fintech

The world of digital payments is heavily influenced by what is happening in Silicon Valley. The fintech world is not happy with small, incremental changes. They want fast, sudden, disruptive solutions that speak directly to the unaddressed pain points of consumers.

These innovators want to move light-years ahead in just three years. The breakneck pace is being set by the 363-odd tech start-ups known as The Unicorn Club (each now valued at $1bn).

Companies can make the unicorn leap if they specifically address consumer pain points in a way nobody has done before. Disruption of this sort is characterised by exponential acceleration – what we refer to in the industry as a hockey-stick graph – not steady, incremental changes. The global payments industry was suddenly disrupted in 2009 by a tech start-up that initially had nothing to do with payments. It was Uber.

Uber is a great example of a disruptor – specifically because it never intended to influence fintech or payments at all. Its intention was to relieve the pain of getting a taxi in a strange place outside of regular operating hours.

The story goes that one fine Christmas eve in America, the founder of Uber found himself stuck for a lift at 3am in an unfamiliar city. He spent the whole night on a sidewalk. That is the pain point that gave birth to Uber – a ride-sharing service that not only made getting a lift easier, but also addressed concerns such as safety, trust and payment convenience. It did this by addressing the problem from end to end. Maps, driver ratings and card-on-file transactions all in one place (the Uber app) meant the consumer would never have to search directories, have local knowledge, wait for hours, fiddle with their wallet, go to an ATM or worry about having exact change for the driver.

The unprecedented convenience of Uber drove massive adoption and disrupted not just the transport sector, but also digital payments.

Uber took care of the entire value journey for its users not by trying to solve only one pain point, but a number of them. That’s what we mean when we talk about exponential change. That is what the market expects – seamless transacting and end-to-end solutions. Literally redefining the value chain.

Exponential innovation goes above incremental innovation to reimagine the consumer experience and create efficiencies within the industry’s value chain. But let’s not completely discount the value of incremental change. Steady, incremental progress has brought us far, and continues to be the scaffold of our financial lives, but when you are looking at solving a problem that as yet hasn’t been solved, you must be able to innovate and disrupt.

The rise of fintechs and start-ups is disrupting virtually every industry, not just the tech sector. 2018 saw a record of 366 start-up deals across MENA, amounting to $893m of total funding. The UAE accounted for 30% of these transactions and fintech overtook e-commerce as the most active industry in terms of the number of deals.

But disruption involves a lot of risk for any venture capital firm interested in bankrolling fintech start-ups, who haven’t got the consumer base or existing trust in place to drive adoption. Building that trust takes time, experience, security standards, repeated testing – a proven track record. And most importantly, the exponential network effect embodied in Metcalfe’s Law.

Many technology-based start-ups and consumer-facing apps only work thanks to established companies partnering with them. Popular apps such as Zomato, Uber and Namshi enable consumers to purchase their food, travel and clothing from their connected smart devices. For this to happen, several stakeholders need to work together – the fintech (for UX), Telcos (for data processing capabilities/system requirements) and the payment provider (for safety and data security).

Technology giants no longer work in silos, but rather encourage knowledge-sharing with each other so that the world’s technologies can talk to each other. In the coming wave of 4^th Industrial Revolution disruptors using IoT, AI and machine learning as their base of operations, seamless, secure, digital transactions definitely are the future. But fintech disruptors need the trust of their users in order to grow. They need to leverage both the consumer confidence and network effect of collaboration with established players.

In the global digital payments space, start-ups can only thrive using the rails that have been built, defined and refined over decades by legacy networks.

It is an interesting moment in our evolution when innovation and tradition must be equal partners to drive progress. Luckily, the legacy networks that begun their life to support card payments are not averse to the idea of further refinement and innovation. The rise of the knowledge economy has ensured that both institutional memory and brand new insights are shared across the globe among all industry players, large and small.

Like every owner of a plastic card, fintech disruptors are safe with experienced operators backing them up.

This unlikely partnership between the old and the new may almost completely remove any start-up risk associated with consumer trust, which increases not only the access to capital that fintech start-ups need, but also widens the playing field. More fintech players mean more innovation – making the global digital payments space competitive enough that the next massive disruption is just around the corner.

Digital disruptors must, however, always keep in mind the unique needs of each market in which they operate. In a world where everything you want can be bespoke or artisanal, consumers have little time for services that don’t take their particular context into consideration.

In 2016, when Mastercard was working on QR solutions for markets in sub-Saharan Africa, the biggest discussion at the time revolved around driving local adoption by working with the systems those markets already had in place. In South Africa, this meant structuring QR products in a way that was card-based. Why? Because in South Africa, almost 90% of the population is carded, so the infrastructure was there.

When we looked elsewhere in Africa, the majority of the population didn’t have cards – or even bank accounts, so Mastercard came up with a far more efficient solution: push-payments.

Today every consumer has computing power that is almost as powerful as the supercomputers of the late ’90s. Every smartphone is a supercomputer. With payments, we need to go back to basics: give the consumer total control of how a transaction occurs. They must be able to take the money out of their account and give it to the merchant by using the one device they never leave home without: their phone.