Munich, 25th of August 2021. The financial world is constantly changing. Technological (further) developments form the basis for innovations that are dramatically changing the world of banking and payment. They offer benefits for both providers and consumers: a positive image for the companies in combination with enhanced workflows but also an improved user experience. But what do these innovations mean for the market and where is it heading? Holger Teske, Co-Founder and CEO of Gini, a leading company for AI-based data extraction and known for the photo payment, explains on the basis of five theses what will be important in the future and what players in the financial market must pay attention in order to be successful.
1. Traditional banks must fight for keeping their position
Traditional banks are in the process of losing their pioneering role, market presence, and acceptance among end consumers – and thus their supremacy in the market. Fintech companies such as Klarna have reshaped the financial world in recent years with their payment offerings and are now filling important positions. Large players dominate the user interface and push traditional banks into the background – they become the backend of the payment service providers and slowly disappear in the perception of customers. Another complicating factor for banks is that more and more providers are strategically focusing on their shopping platforms and thus initiating greater predatory competition – in combination with high price pressure and a lower level of differentiability of the shops. This inevitably leads to conflicting interests between banks and shops on the one hand and payment providers on the other. The banks’ last chance is the end consumer’s trust in them. This trust is based on regional branches, familiar and directly accessible personal contacts, the familiar current account, and, above all, the security and financial strength that banks generally radiate and offer.
2. Request-to-pay (R2P resp. RTP) can replace direct debit and credit card in Germany
For some time now, with Request-to-pay a new payment method has come into play, which takes the settlement process to a new level and is accompanied by simplifications for consumers and offline and online retailers alike. It also offers advantages for banks. Merchants send a digital payment request directly to the customer – either by email or directly to the inbox of the banking app. This request already contains all the decisive payment data which is taken over by the customer and then simply released for payment. Merchants can thus allocate incoming payments quickly and easily.
If request-to-pay will be established, end customers will benefit from a user-friendly application that offers them complete control over outgoing payments. The new, effective, and simple payment method with all its advantages for both offline and online trade will replace other payment options – and could even make credit cards or PayPal obsolete.
3. Without external technological support, a change will be difficult for banks
To remain innovative and thus attractive for customers, traditional banks need the support of fintech companies that bring technological know-how and deliver attractive solutions for integration into banking offerings. It has already been shown in the past that solutions developed in-house have not performed accordingly in the highly competitive market compared to established fintech companies.
On the other hand, relying on the integration of externally designed, highly innovative solutions has paid off for banks to remain attractive to their customers and to keep the user experience up-to-date. The importance of externally integrated services is demonstrated by Gini itself, for example: In 2020, over 40 million invoices were processed via photo payment. This integration with specialized fintech companies and their services benefits them as well as banks and users alike and sets new standards.
4. EU data security standards regulate payment services
The use of digital payment methods has increased enormously since the beginning of last year, especially in Germany – these are also consequences of the COVID 19 pandemic which has had a direct impact on finance. However, providers located outside the EU are subject to the same high standards as banks, especially because they have insight and access to very sensitive customer data due to their activities. German customers in particular still place a very high value on data protection – especially in regard to their financial and banking data. In order not to lose their trust and to continue to offer them the best possible applications, high-security standards in data protection must be guaranteed.
Data protection must meet EU and national requirements in equal measure. The users’ need and demand for data security is high and will continue to increase in the long term. The increase in data-driven service models, banking partnerships, and AI-driven automation in financial products will lead to a greater need for security which banks, as well as payment providers, will have to meet.
Data and its storage must therefore remain in Europe. This will strengthen the position of European payment services – located in an EU member state that guarantees the data security is applicable in this country and corresponds to the required understanding of data use.
5. Good services and customer experience as the basis for a good “bank”
With the implementation of PSD 2, competition in the payment sector was promoted, but at the same time, the position of traditional banks was weakened. Due to the opening for third-party providers, they can use a bank’s infrastructure and at the same time gain access to structured user data without being subject to the regulations themselves. Since companies can thus much more easily develop financial services that complement their product portfolio and at the same time offer high added value for customers, the range of financial services will continue to increase in the future and establish itself outside the classic bank. In addition, third-party providers often score with good service and a good, user-friendly customer experience. In the future, banks will also have to be measured on these aspects.
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