Verticalization, adding services to your leading product/service to increase your revenue stream, is nothing new in Fintech, especially in payments and lending. Fintechs can offer better and more tailored solutions than traditional banks as they understand customers' needs to a greater extent. And, this trend is accelerating, thanks to digitization and open APIs. As well as regulations that enable non-banks to enter into all the segments.
Stripe is a case in point; a payment gateway solution, it launched a range of complementary services to its users such as Stripe Capital to offer loans, Stripe Tax for tax compliance and Stripe Identity for identity checks. While Quickbooks, an accounting automation software, just launched Quickbooks Money offering users access to bank accounts, debit cards and transfers.
Lastly, Fintechs are also leveraging verticalization to become digital banks to offer payment systems, deposits, and federal support to their users, as QED investors mention on their blog.
On the other hand, other non-fintech actors are also riding the payment and financial services wave. It makes sense that the companies that store almost all of your data could also be the ones who offer you a banking-like service, right? Big tech companies, like Alibaba, Amazon and Facebook, now Meta, are incorporating their own payment systems into their suite of services allowing efficiency gains and greater financial inclusion. However, there are some risks associated with this new trend, such as data privacy and market power.
There was big news from another giant, too, with Google abandoning its plans to offer bank accounts to its users two years after launching this project. Some analysts interpret this as a move to abandon a regulated sector.
The buy now pay later (BNPL) boom
BNPL has existed for a couple of years now but has recently become trendy among the younger public due to clever marketing campaigns and improved accessibility via dedicated apps such as Clearpay, Klarna and Laybuy. As the holiday season approaches, many consumers are likely to use this type of payment offered across several ecommerce checkouts.
However, there are some associated risks for consumers. Even your credit rating can be at stake. If you plan to use BNLP as a consumer, be careful with the taxes/fees behind the payment plan - or the lack of them. Some BNLP providers are interest-free in the UK, which is not regulated yet by the Financial Conduct Authority (FCA). So while it might seem tempting to pay later but you might regret it later on.
The FCA is moving fast to regulate this sector as the usage of BNLP services almost quadrupled in 2020, with more than 5 million users in less than ten months since the pandemic started. New payment methods are rampant, and cashless economies are about to become a real thing, so businesses need to get ready fast. If your business is ready to learn about the benefits of going cashless with company cards, check out our latest blog about it.
Money keeps on flowing
CB Insights published the latest data on investment in Fintech in late October 2021. Once again, there was a record high. Global funding in 2021 has reached US$ 94.7B, and the year has not even finished. Some investors even say that any country with more than 100 million people will have a Fintech unicorn soon.
Artificial Intelligence (AI)
We can't finish this blog without mentioning AI. AI enables Fintech companies to predict and personalize service delivery. A Tribe survey completed by Fintech experts says that AI would be the technology with the most significant impact in the sector, out of blockchain, APIs, edge computing, and low code.
But all new technologies come with new risks. In this way, mid this year, we saw how the EU proposed the first-of-its-kind AI policy called the AI Act to regulate the use of this technology in the region, mainly for safety and fundamental rights protection.
What will new regulation mean for EU Fintechs? The Act establishes mandatory requirements for activities ranked as high risk, such as using AI for credit scores or creditworthiness. As employers, other high risk ranked activities are the use of AI to recruit, promote or terminate employment. UK- based businesses will not be directly impacted by this new policy, but if your company plans to use AI in the EU, you will need to play by the rules.
At Payhawk, as an expense management solution, we build in-house machine learning algorithms on top of Google's OCR to extract the relevant data from invoices and receipts. Based on the learning of tens of thousands of invoices, it will find and extract the relevant invoice information users need.
Ready to learn more about taking your business cashless? Then, download our ebook, Company cards vs cash: How to build your cashless business. Or, if you'd like to discuss how our expense management solution can make managing finances in your business faster, easier, more transparent and more compliant, then book a demo today.