Innovation is a part of the idea of the Fintech definition. This is also the case for all Fintech industries and verticals, including payments. In some cases, however, payment companies try to jump on the bandwagon of the Fintech innovation, and we can only wonder where the new contributions of these companies are.
Online payments are not new, at least not in Internet years. It is in fact one of the first developments in the world-wide web during the late nineties. The movie Middle Men is a good example about the massification of online payments in those years.
Since then, dozens of companies that provide credit card processing
have come and disappeared again. They have processed payments for diverse industries: travel, gambling, games, digital content, e-retail, etc. Some have survived and some have not, as it happens with many other industries.
The concept was, and in most cases still is, in a very simplistic description as follows: an interface where the user enters a credit card number while in the background diverse check-ups are being carried out. Then a connection with a connection with a bank takes place and finally the payment is being processed or rejected.
Online commerce started booming and the need for more revenue drove the interest for alternative sources of payments, especially outside the United States. Bank transfers, PrepaidCards, Direct Debits, Mobile Payments, and others, were also considered relevant. The more reach, the more revenue.
Online wallets were created, most of them disappeared, though, and nowadays, 5 or 6 have still survived. Paypal, however, is by far the most popular in the western hemisphere. Now the world is looking to China and is waiting for the next payment giant.
Then Smartphones and Tablets came along and the concept of Mobile Payments started changing, especially with the creation of social networks and their integration into mobile devices.
After this rather short and simplistic description of the online payments evolution, we arrive to our main question: where does Fintech fit in?
There are currently dozens of Fintech start-ups and companies that are creating and developing new payment products. Friends can send money to other friends via their mobile devices for example. Or I can now use my credit card at a small coffee shop. I can also use and create a wallet and pay for diverse services via a QR code. Some are getting really sophisticated, like Bitcoin cash machines in Hong Kong for example.
On the other side, there are payment companies that call themselves Fintech companies but we can only wonder where the real innovation actually is.
The interesting perspective of Fintech, and this is one of the main reasons why e-commerce professionals want to work in this industry, is that it has the resources and will to create innovations. The Payment industry, as well as the Banking industry, has produced little innovation in the last 10 years.
Finally there is a new wave of will and money to drive investment and innovation, and the old companies (or new companies with an old/traditional business model) want to meddle, be opportunistic and grab attention and investment.
But innovation suffers. Naive investors take their money into companies that have little new to offer, taking it away from start-ups that really want to create new payment products and services. Or in the worst case, the companies will fail and scare investment away from Fintech.
We should be then careful when we call old companies or old business models “Fintech companies”. Fintech Events should at the same time reject sponsor money from companies that have little to offer in innovation. Accelerator programs should be tough and question companies that do not bring anything new to the market.
Only then we will make sure that Innovation is what brings Fintech forward, and not marketing gimmicks, as it has happened often in other e-commerce industries.
What happens then when companies take a single element of a payment process and spin it off as a service and call it Innovation? We will discuss that in a future post of Fintech Valley.