It is safe to say that Kriya Patel of Transact Payments is one of the most esteemed voices in payments, card services and IT in the United Kingdom and so it is no wonder his team will be joining us for PayTech Live (part of FinTech Connect Live) in December.
We caught up with Kriya recently to discuss the rise and rise of PayTech investment, cashless societies (who will the first), PSD2, new technologies and what the perfect payments world would look like.
At the start of the year, it was reported that global fintech funding had reached $36bn in 2016 with payment companies securing 40% of total funds. In your opinion, what makes payment technology firms an attractive investment for VCs and angel investors?
There are number of factors both external and internal to the payments eco-system that are driving this interest in my opinion. The internal factors are driven by the relatively untapped nature of the sector which has historically been driven by the slow to change banks with expensive service fees – An arena ripe for disruption! This has seen the rise of agile, entrepreneurial, technology focussed companies and challenger banks who realise there are opportunities to be had through the huge volumes of transactional activity that can be provided at more competitive rates to consumers, through vastly more accessible media such mobile applications, online, through multiple connected services and available through a marketplace configuration to meet the demand for B2B solutions also.
Other important internal factors are the changes to regulation to support new fintech companies in this sector through the reshaping of regulations such as PSD2 and the AML directive. In addition, the progressive stances taken by the likes of the BoE and PSR towards removing the big bank monopoly of access to the payment systems means new players can force a change for the benefit of consumers through a greater variety of service options often more bespoke to consumer needs be they FX focussed, corporate banking focussed or mobile only banking.
An external factor driving this interest can be tagged to the interest non-traditional technology companies have in this space such as Google, Facebook, WeChat, Alibaba, Apple and Samsung. These brands drive investor confidence that there is value in the fintech space.
Another external factor driving interest is the lack of alternative investment options currently and the poor global economic environment we find ourselves in that drives investors to seek alternative options for ROI.
There has been a ton of speculation about which country will be the first to declare itself cashless, when you think we’ll see our first cashless society become a reality and what can card schemes do maintain relevance?
The coming of the cashless society has been banded around for at least 15 years and through that period we have seen countries push hard on the elimination of cheque processing, the introduction of more secure card transactions with the introduction of EMV cards, the rise in the use of contactless cards for everyday small value payments that have traditionally been made in cash and finally the huge increase in e-commerce transactions over physical retail activity. These are all great milestones towards the elimination of cash yet I feel that, by region, the movement away from cash is still considerably varied due to cultural habits, mistrust of banks, volatility of currency values and the need to use cash to mask illegal activity.
I feel Europe, and in particular Northern Europe, will take the lead in reducing the use of cash over any other region in the world, closely followed by Asia, Australia and finally the Americas.
MasterCard Advisors report from 2016 on leading cashless countries highlights my point:
I don’t believe we will ever be truly cashless but the scales will continue to tip heavily away from the use of cash as alternatives continue to be developed in the alternative payment space.
With only six months to go until the directive comes into force, how should banks be reacting to PSD2?
Banks should have already reacted and be deep into their change implementation phases. Unfortunately, I do not believe this to be the case, or at least they are not deep into the implementation phase. I feel this further drives the need for banks to partner with more agile FinTech companies to enable them to adhere with the changes PSD2 brings and the future direction regulation in general is taking. An eco-system of fintech and bank partnerships will be the norm in the next 5 years in my opinion, where the FinTech’s are the front end, consumer facing services and the banks are the robust back office environment facilitating the Fintech solutions.
What would a perfect payments world look like if you were tasked with building one from scratch?
A fully accessible environment of connected central banks, using one payment protocol with connected solutions from every financial vertical to allow a seamless exchange of payment data in a secure and trusted environment. What does this mean? A move to a global faster payments network, sharing of KYC/KYB information, shared databases of information to ensure payments are secure and easily validated to trusted sources of data, a lack of duplicated processes driven by data sharing fully controlled by the user.
There is still too much insular focus by countries, central banks and industry incumbents that prevents this move to a globally connected solution to easily become a reality. Focus needs to be placed on the removal of borders and territories through consistent adoption of regulations and roll-out of technology for this to become a reality.
How will disruptive technology such as blockchain, virtual reality and voice recognition challenge existing business models and ultimately transform payments?
All of the above are great examples of a means to drive the change to a perfect payments eco-system I have defined above. These are the technology stacks, that once connected, would simplify the complexities in payments witnessed today, increase the speed of payments, reduce the risk and drive down costs of processing.
How will the European Payment Council’s instant payment scheme change the face of the European payment ecosystem?
We should witness a greater connected payment environment with supporting rules and regulations which will deliver a more economical customer proposition, more choice and significant convenience. The reality is that without pressure being levied on the larger banks that operate in this space there is a strong likelihood the full benefits will not be witnessed. I predict the use of the term ‘risk’ will be utilised as the banks defence to the implementation of the full value of benefit that can be gained from these changes.
2017 will be Transact Payment’s first visit to FinTech Connect Live as an event partner. As the UK’s largest fintech exhibition, what will be the core message you would like to communicate to our audience at FinTech Connect Live and what aspects of the event made it a must-attend for you this year?
We are very excited by the opportunity to be involved in FinTech Connect this year and feel our strategy aligns well to the sector in general. TPL bring a wealth of experience in supporting the delivery of greatly disruptive solutions to the payments space through partnership with Fintech companies. We feel we provide the perfect balance through the partnership whereby we allow our partners to push the boundaries through their incredible technology focussed solutions while we underpin this with a deep understanding of the regulatory and compliance requirements required to take solutions to market with confidence.