Changes in regulation, the rise of cryptocurrencies, Brexit - 2018 is certainly going to be a year that throws up both challenges and possibilities for the world of FinTech.
At Paybase we’re very excited about the year ahead, and after speaking to our CEO, Head of Partnerships and Head of Compliance, we’ve compiled three separate perspectives on what 2018 may look like.
Russ West, Head of Partnerships
Russ is a payments specialist who has been working in FinTech for over a decade.
“I’ve seen a few blogs and articles recently making predictions for 2018, but they tend to be centred around the technological capabilities. What is much more relevant is what is actually going to happen for the consumer. With this in mind, my predictions are threefold.
Firstly, Open Banking, one of the key features of PSD2, is definitely going to have ramifications, but perhaps not in the way some of the PR is suggesting. The accessibility of bank account data (for example, consumers giving authorized third parties access to details such as their transaction history and balance in order to receive deals and/or save money) will surely prove to be a catalyst for innovation, with many FinTechs and banks alike exploring what can be done with this change in regulation.
However, I see that’s about as far as it will go in 2018, because although open banking has the potential to transform consumers' relationships with financial products (and indeed the institutions themselves), it will hinge on the consumers’ willingness to embrace it. That is down to both trust and user experience, but mainly trust. After all is a consumer likely to adopt something completely different straight away when it comes to their money? Unless it benefits them in a substantial way, the majority will stick to what they know and trust.
In short, Open Banking will undoubtedly affect the discussions going on, and help shape decisions on innovation within finance, but its impact won’t extend to many consumer experiences in 2018.
Secondly, I think we’re likely to see a lot more cooperation between banks and FinTechs. The banks are beginning to realise that FinTechs are in a better position to build innovative financial products, as they are not tied to outdated systems and technology. Because of this, banks will adopt some of the financial technology being created by FinTechs through partnerships and acquisitions. In fact, by the end of 2018 I expect a lot of banks to replicate FinTech services themselves, as they realise that what these firms are offering is more than just a lot of hot air.
Finally, I think online marketplaces and the gig/sharing economy will continue to soar, with their presence becoming even more mainstream. The trust towards online marketplaces has been cemented in recent times - I don’t see why that would change - and the money being poured into these types of business from investors has to be a huge validation of their potential.
But it’s not just the investors that are showing interest in this, it’s the regulators as well. The latest Budget included the world’s first ‘Sharing Economy Tax Allowance’ for those working within the gig/sharing economy, and whilst Uber may currently find itself in a bit of trouble, greater regulation of the cab-hailing company and this sector in general will ultimately benefit all. Furthermore, as marketplaces increase in number they will also become more specified in order to differentiate from one another. When this happens, I think we’ll see bigger companies, relevant to the marketplace, buying them. Grub Club, for example, is a catering-based sharing economy platform which has already been acquired by VizEat. By the end of 2018 I think we will have seen some pretty big name acquisitions.”
Danielle Herndon - Head of Compliance
Danielle is a compliance and risk specialist with particular experience in bringing together compliance and tech.
“PSD2 coming in will have an impact, at the very least due to financial institutions having to get reauthorised with the Financial Conduct Authority (FCA). Whilst the additional bureaucracy may be burdensome for firms - particularly startups - the opportunity it brings to build innovative new products based on richer bank account data makes the process worthwhile. But far from it being just the startups, I think banks are also likely to look at their own possibilities under PSD2. There may not be much to enforce banks to implement PSD2, but considering that they have to offer the API allowing third parties access to bank account information, they’re not going to leave themselves unprepared.
Something that will affect all businesses in Europe are the changes to the General Data Protection Regulation (GDPR). The changes taking effect from May 2018 will require all businesses to look at the data that they hold on both staff and customers. If they do not have a legitimate reason to store any piece of data that can be used to identify a person, they will need to delete it or face possible penalisation. This process is likely to evoke questions within companies on what data they should work to retain and what to do with it once they have it. Nonetheless, it is undoubtedly a good thing for the average person that the data held on them will be handled more carefully, and that they will have more transparency as to what information firms collect about them.
Another factor that cannot be ignored is, of course, Brexit. At this stage, it’s near impossible to predict its effect on FinTech with so much still unknown, but all financial institutions are watching the situation very closely. What will happen in terms of passporting - the right for UK authorised firms to offer financial services in other EEA states without getting separately authorised in other EEA states - will be particularly relevant once the UK has left the EU/EEA. Banks have already announced that they are moving staff to EU countries and we could see a lot more of that depending on what deal is made.
Lastly, I think cryptocurrencies will make a big impact this year. It has been interesting to see how different countries have reacted to the growth of crypto; Gibraltar is drawing up a regulatory framework for it whereas South Korea has banned it entirely. I think the potential of cryptocurrency relies on how quickly an effective regulatory framework can be established, as whilst its qualities are clear, it is currently so attractive for financial crime. Whilst the Fifth Money Laundering Directive (5MLD) will set out controls to govern virtual currencies, it is still debated when this will come into effect (which may not be for another 18 months). If the regulators can get it right, virtual currencies will be much safer for the consumer and become something genuinely usable in 2018.
In short there is still a lot to be decided in 2018, but if firms are able to keep up with the incoming regulation, it could be a great year for the consumer.”
Anna Tsyupko - CEO
Anna is the CEO and co-founder of Paybase and in 2017 was nominated as one of PayExpo’s Payments Power 10.
“One of the main things that will continue to happen in 2018 is B2B firms entering and changing the FinTech industry. Historically, FinTechs have been a lot more consumer focused, offering products and services for peer-to-peer payments, money management, personal investment, etc. Whilst this is great for the consumer, the truth is that many of these FinTechs can’t reach their full potential because underlying legacy payments technology prevents them from creating the product they want. Since the market has started realising this, there has been a ‘second wave’ of FinTechs aimed at tackling the problems of payments infrastructure itself.
One example of this trend that I see continuing through 2018 is more firms tackling Customer Due Diligence (CDD) challenges and modernizing and automating them. Modern FinTechs require more granularity. Whether it be on the matching criteria within the checks, how much information is delivered through the API or the way checks are bundled, companies have different needs and the configurability to serve those needs is something that is currently missing. It is this type of issue that more firms will attempt to solve in 2018.
Not only this, but regulatory changes will also spark a need for more B2B services. With PSD2 coming into effect and 5MLD on the horizon, businesses will be keen to meet regulation standards without sacrificing user experience. This creates space in the market for firms that can assist in implementing and ensuring the new regulatory standards in a seamless way. ‘RegTech’ itself has been touted to make a big impact in the near future. But far from just creating space for new B2B companies, PSD2 will mean that some types of businesses that didn’t need to be regulated before will fall under the scope of regulation. Marketplaces and other non-regulated firms will most likely partner with a regulated payments firm to avoid getting regulated themselves. Whilst this may seem restrictive on these businesses, it is to the benefit of the customer as well as their industry. The responsibility of holding consumer money should not be born by marketplaces, and tighter regulation will offer customers protection, improving trust towards marketplaces and therefore helping them succeed.
Finally, as I think many are predicting, cryptocurrencies will take off in 2018. We have reached the stage where the man on the street is not only aware of it but beginning to experiment with it. I’m certainly not suggesting that 2018 will see cryptocurrency completely upheave and replace the traditional payment rails, but it will start to be taken more seriously. There are companies appearing, such as Stellar, that are combining crypto with the more traditional payments world. This interoperability between crypto and the fiat landscape is where ground will be broken in 2018.
To sum up, I believe 2018 will be an important year for FinTech. One which is less centred around selling things to the consumer, and more about changing the genuine problems which exist in payments today.”
If you want to know more about what Paybase plans to do to change payments in 2018, please get in touch!