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 therefore come as no surprise that the likes of Netflix, Uber and even Airbnb all rose to prominence after the 2010 financial crisis, 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 create a number of new markets.

It is this model that is driving a revolution in the card payments market today – one that has so often been at the forefront of change and innovation itself. 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 industry as a whole is facing increased regulation.

The disruptive consumer

Historically, brands and service providers have always relied on consumers to base their purchasing decisions on fundamentals such as service levels and fair pricing. But the modern consumer has developed far higher expectations based on a range of new metrics such as personalized 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 personalized experience. They have learned 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 by 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 appears to be a direct result of the pandemic and increased awareness of the climate crisis, with consumers taking time to reassess what is important to them.

Simply put, these views have been extended to the businesses where they want to spend their money. Millennials are leading the way in this ethical revolution, with 60% saying it’s important, followed by Boomers (57%) and Gen X (ages 39-53) at 55%.

Democratization of financial products

Financial inclusion is important and is the cornerstone of economic development. When people have a bank account, it enables them to take advantage of other financial services such as savings, payments and access to credit.

According to the World Bank, 71% of people in developing countries have a bank account 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 huge gains are now also more evenly distributed and come from a greater number of countries than ever before.

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

While digitizing payments is the way to go, much more is needed. Governments, private employers and financial service providers – including fintechs – should work together to reduce barriers to access and improve physical, financial and data infrastructure. This means that fintechs must build trust and confidence in the use of 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 underserved sector is today the biggest untapped market opportunity for many fintechs.

Integration of people and technology

The development of technology is at the core of the work to serve customers better. Adopting new technology is therefore essential for financial organizations to thrive.

Progressive financial services companies are looking for new technologies to improve efficiency and speed of service, as well as provide a better customer experience. This is no doubt a direct result of competition from consumer brands such as Amazon, Facebook and Google.

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

The incumbents have traditionally looked for technologies to increase efficiency and reduce costs. Fintechs, on the other hand, start with a customer problem, identify ways to solve it with digital tools, and then build new business models around digital solutions.

The digitization of financial services is ongoing. Companies have a choice: make innovation the focus of a stand-alone organization or integrate it throughout the business. The winners in this race will be those who combine technological innovation with the expectations of today’s consumer.

The progressive consumer

In recent years, some of the most influential global financial institutions have committed to reducing the emissions attributable to their operations. They have also pledged to transform 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. In particular, ESG-focused fintechs 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, while generating significant returns. All this is done due to the demands of an ever-evolving and demanding consumer.

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

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

The payment market in particular has experienced a rapid spread of digital innovations that make payments faster and cashless. Consumers in advanced and emerging markets have increasingly adopted fintech services due to 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.