Posted by Christian Hibbard on 28 Jun 2021
Most never expected that a service as ubiquitous as the taxi would be struggling against external competition. Now we know that ride-sharing apps and other unexpected competitors have appeared and compromised what was once a stable market. This story has played out across many industries, but payment services are of particular interest. Once upon a time, outside of handing over cash, the easiest legitimate way to share money would be via a financial institution. Now, options abound for consumers looking to transfer funds.
Services like Zelle, Venmo, and CashApp have become the de facto standard for low-to-middle value peer-to-peer (P2P) payments. Actions like splitting bills have been made easier by the development of these applications. Furthermore, they're seeing increased use as payment solutions for commerce, sidling up against other newer players like Square. All of these services have two key factors in common, powering their rapid growth—accessibility and speed.
Catalyzing these changes are the exciting new payments rails gaining momentum in the U.S. The Clearing House's RTP® Network is one example in use since 2017. We also have FedNow, releasing in 2023. For FIs willing to capitalize, this is an incredible opportunity to offer transformative services. If an institution's faster payment options are able to match the accessibility of mobile payments, then they are a no-brainer for those using digital payments for the first time. For the consumers already using a fintech competitor's service, moving money between their wallet and primary bank account becomes seamless, instant, and often free. Furthermore, if they're able to instantly transfer money from their primary account directly to any of their peers, they may consider switching over entirely.
There is still debate over whether fintechs are direct competitors at all or rather parallel systems that improve upon financial services without replacing them. The answer differs based on the individual platform. Walmart, for example, currently offers transfers, check-cashing, as well as prepaid and credit cards, but could, in the near future, position itself as a bank of its own. With a banking charter from the FDIC, Walmart could be a serious competitor. Other services are toeing this line—Venmo now offers debit and credit cards, as well as access to cryptocurrencies. However, they rely on their partner—Bancorp Bank's FDIC charter—in order to hold the funds that their users deposit.
Cryptocurrency itself has the potential to change the competitive landscape drastically. Decentralized Finance, or DeFi, is touted by some as the future of banking services. The explicit goal is to create an entirely self-sustaining network of financial services, removing the middle-men and centralized infrastructure entirely and in turn rendering those services cheaper and more accessible, not to mention more democratic. The volatility of crypto, in general, is of concern to some, as well as the saturation of competing DeFi services within the crypto ecosystem. That being said, there is tremendous potential, not to mention marketability in having a financial service operated entirely by those who use it. As such, it is worth keeping an eye on the field if you aren't already.
All of these players could easily become a competitor, partner, or defunct in the years to come. The best way to stay ahead is to prioritize your digital transformation across hardware, software, and company culture. Offering ease-of-use and speed to compete with new competition is absolutely necessary and is a natural complement to the security provided by already having an FDIC charter.
Read more about Payments Transformation in Digital Transformation: More Than Technology and More Important Than Ever.
Today’s legacy and siloed banking technology infrastructure limit financial institutions’ ability to rapidly innovate. It’s time to look at money movement in a new way. Alacriti’s Orbipay Unified Money Movement Services does just that. Whether it’s real-time payments, digital disbursements, or bill pay, our cloud-based platform enables banks and credit unions to quickly and seamlessly deliver modern digital payments and money movement experiences. To speak to an Alacriti payments expert, please call us at (908) 791-2916 or email firstname.lastname@example.org.