In the wake of COVID-19, research suggests FinTech companies are experiencing a strong growth spurt giving them the opportunity to innovate like never before.
A study conducted at the end of last year, by CCAF, the World Bank Group, and the World Economic Forum, found 12 out of 13 FinTech sectors reported year-on-year growth during the first half of 2020.
As the financial services market continues to expand, there is a growing demand for industry juggernauts as well as nimble start-ups to offer the ‘next big thing’ in terms of payment and transaction convenience. So, what innovation in PayTech taking place?
The buy now pay later boom
The buy now pay later (BNPL) market has seen considerable movement in recent years, undoubtedly spearheaded by Swedish behemoth Klarna – a company now valued at a whopping $31bn. Klarna recently became the highest valued private FinTech in Europe after it closed a $1bn funding round in March. This put the company only behind US company and market leader Stripe – valued at $95bn – in overall valuation. Other big companies competing in this space include PayPal, Affirm and AfterPay.
Beyond the big fish in BNPL, there are a number of vibrant smaller firms that are bustling for recognition in the sector. These include Italian firm Scalapay, who earlier this year raised $48m in a seed funding round. Scalapay enables consumers to split up their payments into three easy instalments with zero interest.
Recently, Russian bank Tinkoff launched the country’s first BNPL platform when it introduced Dolyame.ru, while Mexico City-based firm Nelo launched $3m to expand the reach of the market in Mexico.
Elsewhere, Japanese BNPL provider Paidy secured a substantial $120m Series D funding round earlier this month. According to the firm, it will use the new cash to expand transactions with large merchants, create new services and develop its new offering called ‘3-Pay’, which allows customers to split charges into three equal, interest-free, monthly instalments.
London-based company Butter was able to raise a £15.8m funding round to accelerate the rollout of its open-banking based BNPL shopping app alongside developing its travel offering. While the business began as a travel-based payment agency, it recently ventured into launching a BNPL shopping app offering instalments across every consumer vertical.
Other companies who are making moves in the sector include APEXX Global, Tillit, Zaver and Saudi Arabian firm Tamara, with the latter recently raising $6m to expand BNPL in their own country. UK firm Zilch – who also recently raised $80m in a Series B funding round – introduced a ‘tap and pay-over-time’ solution for shoppers through its service.
The BNPL space has also received increased attention as it has grown its market share. In February of this year, the Financial Conduct Authority called for stricter rules “to protect consumers” and ensure people who use the service don’t fall into serious debt.
A data report compiled by WordPay earlier this year claimed it expects BNPL schemes to account for 10% of all ecommerce sales by 2024, amount to a total worth of £264bn – a total which would be growth of 37% on 2020.
Social media/network payments
Another burgeoning market in PayTech is the development of payments through the use of social media networks.
Recently, South African firm Nedbank teamed with payment giant Mastercard to allow its customers to pay small businesses through WhatsApp through its Money Message platform.
Elsewhere, social media giant Facebook is also innovating in this space. The company’s users may soon be able to pay other users through the app after the firm began testing Venmo-like QR codes to support peer-to-peer payments.
The QR code could allow a user to scan a friend’s code using their smartphone’s camera in order to send or request money. According to the company, users will be able to find a new ‘scan’ button in its Facebook Pay carousel at the top of the screen. On the tapping of this button, users can then scan another person’s code.
Other companies involved in the market include Israeli firm Key Pay, a business who markets a mobile keyboard app allows banks to offer peer-to-peer transactions through social media and messaging channels. The enterprise recently expanded its offering to enable bank customers to manage their investments and apply for personal loans through their mobile keyboard.
The area of social media and network payments will undoubtedly be a hotspot area for growth as more and more rely on social media for communication and work. Currently, up to 88% of 18–29-year-olds and 78% of 30–49-year-olds use some form of social media daily – and combining this with an increased consumer desire for simplified and more convenient payment systems, the growth of social media payments could be a perfect match for the consumers of the future.
Instant payments
Maybe one of the fastest growing sectors in PayTech is the instant payments market, which is expected to grow by a whopping 500% by 2025 to a total valuation of $18trn, a Juniper Research study found in September last year.
The study found the growth will be predominantly be centred in Western Europe at 36% of total instant payment transaction value, with the US trailing behind at 8%. In September 2020, the market was already worth $3trn.
Key movers and shakers in the instant payments market include UK challenger bank Revolut, who earlier this year introduced a QR code payments solution for small businesses. This new feature will allow business owners to accept instant payments and check that they’ve gone through in the presence of customers.
Saudi Arabian firm Saudi Payments recently teamed with IBM and Mastercard to introduce instant payments system sarie. sarie enables bank customers to make instant transactions of up to SAR 20,000 ($5,300) as well as transfers of up to SAR 2,5000 ($660) using aliases such as email address, ID number, mobile number or IBAN number.
Elsewhere, Munich-based Sopra Banking Software subsidiary Fidor Solutions partnered with payments services firm SIA to unveil its new instant payments service in Germany and other European countries. The partnership will enable European financial institutions and their customers to send and receive payments of up to €100,000 in under ten seconds.
Venmo – a payments app owned by PayPal – previously released a new service supporting instant transfers to US bank accounts. JP Morgan also previously introduced a real-time SEPA Instant payments solution in Europe that gives clients immediate payment finality, the ability to instantly address business needs, ease reconciliation, improve financial control and budgeting, and enhance customer experiences.
The instant payments sector will be dominated by B2B payments going forward, according to the previously mentioned Juniper study. The B2B market, it claims, will account for 89% of global transaction values in 2025.
What links all three of these markets is the desire to boost convenience and simplicity within the FinTech sectors. As FinTech companies continue to lean in on the PayTech market, the opportunity and need to innovate payment systems with the desires of consumers will continue to push the market forward.
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