How to be a disruptor in the payment card market

True disruption is hard to achieve and rarer than you think, but when a company addresses a real consumer problem and rides the wave of consumer change, you see the birth of a major market player.

We often see the biggest disruptors thrive in times of change, very often as a result of economic challenges. It will come as no surprise, therefore, that the likes of Netflix, Uber and even Airbnb all rose to prominence after the financial crisis in 2010 simply because they all provided solutions for consumers facing very real problems in a time of change.

Each brand delivered convenience and financial savings, using the very latest technology and a shared economy model that created new, exciting, and inherently better experiences for consumers. This is exactly what consumers wanted, and it helped spawn a host of new markets. 

It is this model that is powering a revolution in the card payment market today- one that has so often been at the forefront of change and innovation in its own right. Today’s consumers – banked or unbanked – are demanding more from their suppliers, forcing them to reinvent themselves and their product offerings. This is happening while the financial services industry as a whole is facing increased regulation.

The disruptive consumer

Historically, brands and service providers have always relied on consumers basing their purchasing decisions on basics such as service levels and fair pricing.  But the modern consumer has developed far higher expectations based on a host of new metrics such as personalised interactions, proactivity, and even whether a company can offer a connected digital experience.

Today’s consumers are disrupting traditional buying patterns and businesses, demanding elements such as cloud, mobile, social media and AI to deliver an immediate, valuable and personalised experience. They have learnt from Netflix and Uber, and any business that fails to address this will fall by the wayside.

But the disruptive consumer does not stop there. According to research from Capita, over half (56%) of all consumers said it was important to them that their bank or building society acted sustainably and/or ethically. This does appear to be a direct result of the pandemic and increased awareness of the climate crisis, with consumers taking time to reappraise what’s important to them.

Put bluntly, these views have been extended to those businesses where they wish to spend their money. Millennials are leading the charge in this ethics revolution, with 60% claiming it’s important, followed by Boomers (57%) and Gen X (39-53 years old) on 55%.

Democratisation of financial products

Financial inclusion matters and is the cornerstone of economic development. When people have a bank account, it enables them to take advantage of other financial services like saving, making payments and accessing credit.

According to The World Bank, 71% of people have a bank account in developing countries today, up from 42% a decade ago, while globally, 76% of adults around the world have an account today, up from 51% a decade ago. These tremendous gains are also now more evenly distributed and come from a greater number of countries than ever before. 

But this still means some 1.4bn people remain outside of the traditional banking sector. These tend to be the hardest people to reach – very often women, the poor, the less educated and, very often, those living in rural areas.

While digitising payments is the way to go, much more is needed. Governments, private employers and financial service providers – including fintechs – should work together to lower barriers to access and improve physical, financial and data infrastructure. This means fintechs need to build trust and confidence in using financial products, develop innovative new products, and implement a strong and enforceable consumer protection framework that will include these aforementioned individuals. 

After all, the unbanked and the underserviced sector is today the greatest untapped market opportunity for many fintechs.

The integration of people and technology

The evolution of technology is at the heart of efforts to better serve customers. Adopting new technology is, therefore, critical for financial services organisations to thrive.

Progressive financial services companies are on the lookout for new technologies to improve efficiency and speed of service, as well as provide a better customer experience. This is without doubt a direct result of the competition faced from consumer brands like Amazon, Facebook and Google.

Even before the pandemic, customers increasingly expected easily accessible and fully personalised digital products and services. As a result, financial institutions were already rethinking processes, expanding tech investments and testing new applications.

Incumbents have traditionally looked for technologies to increase efficiency and lower costs. Fintechs, by contrast, start with a customer problem, identifying ways to address it with digital tools, then build new business models around digital solutions.

The digitisation of financial services is ongoing. Enterprises have a choice: make innovation the focus of a stand-alone organisation, or integrate it throughout the business. The winners in this race will be the ones that marry technological innovation with the expectations of today’s consumer.

The progressive consumer

Over the last few years, some of the most influential global financial institutions have committed to reducing emissions attributable to their operations. They have also pledged to reshape their lending and investment portfolios to produce a net zero carbon footprint by 2050.

ESG is big business. Banks are restructuring to adopt green pledges, and fintechs are developing new solutions to address climate-related consumers and issues, all as part of detailed, overarching ESG strategies. ESG-focused fintechs in particular have a unique ability to achieve rapid growth, deliver sustainability-focused innovation, and attract investment capital to support their efforts to improve the environment and society, all while generating substantial returns. All of this is being done due to the requirements of an ever-evolving and demanding consumer.

The climate-centric fintechs in the payments sector driving the biggest change are the ones focusing on influencing the spending behaviours of sustainability-minded consumers. By engaging with this demographic, fintechs can sustain their revenues by aligning financial transactions with ESG goals.

Over the past decade, new digital fintechs have begun to transform and disrupt the financial services sector. Technological advances in finance are not new, but progress has arguably accelerated in the digital age due to improvements in mobile communications, AI, machine learning, and information collection and processing technologies. This revolution was matched by an extraordinary increase in consumer expectation.

The payments market in particular has experienced a rapid proliferation of digital innovations that make payments faster and cashless. Consumers in advanced and emerging markets have increasingly adopted fintech services because of their convenience and lower cost. The challenge for both new and existing firms is to create and deliver new financial products and services as they strive to compete.

About the author: Jeremy Baber is CEO of virtual payment card provider Lanistar.