In the last decades, payment processing has been organized around the usage of payment plastic cards and POS terminals. In many countries, inserting or rolling a card through the POS terminal was recognized as one of the most trusted and comfortable methods of payment. However, as time flies, the financial world is changing, revealing the following problems of the system:
All these reasons worked in synergy, leading to the fact that in 2021, the global plastic cards market lost $3 billion.
The traditional banking sphere is aware of the irreversible changes in the financial sphere that are taking place. Therefore, they are constantly trying to develop a range of innovations: implementation of pay pass technology, creation of cards without a number, vertical cards, cards with built-in fingerprints, or environmental cards (made of recyclable materials). All these changes are made to increase the pleasure of the buyer from using the card. However, despite being technological, expensive, and stylish, the cards would at a certain moment be perceived as retro.
The financial institutions are also trying to reduce the costs and to increase the profitability of payment card acquisition, however, it is difficult for them to stand the competition of digital and embedded banking competitors.
The appearance of the digital terminal (SoftPOS), QR codes, as well as the adoption of PCI SSC CPOC, allowed accepting card payments without using the POS terminal at all. It is enough for the seller to have a smartphone to accept the payments. Besides, acquiring is no longer controlled solely by the state and no longer the service that banks provide exclusively to merchants. Access to processing and receiving payments is becoming more and more like access to gas, electricity, and water, meaning that it is much easier to use it, compared to the past. The appearance of smartphones and their active usage by the people has changed the market of financial services. According to statistics, in 2016 there were only 3.668 billion smartphone users (49.40% of the global population), while today in 2022, this amount has almost doubled, reaching 6.648 billion of people (83.72% of the world’s population). In contrast, only 19.28% of the global population on average own a credit card, and only 44.4% of the global population on average own a debit card. A simple comparison demonstrates that the amount of people who own a smartphone is larger than the number of people owning a payment plastic card. With the smartphone, there is no need to have a card, no need to have a chip, and no need to enter a pin, since the manufacturers of smartphones have developed the tools to make the safe authentification procedure (for example, by head shape or fingerprint). In many cases, the card is transformed into a digital token or QR code inside watches or key chains. It is possible to state that these are very serious consequences since e-commerce has been traditionally built around filling the payment form and entering the card details. However, if there is no card, it is necessary to enter just the one-time password, since the payment information is already in the popular payment systems (for example, in Google Pay or Apple Pay). The sellers do everything possible to make a one-touch purchase an everyday reality. Besides, a token or QR codes are more environmentally friendly than any card. The results are clearly visible and felt every day by people regardless of their social status or geographical location. Even street musicians ask for money through digital banking tools. They portray well the transformation of the financial system. In other words, it is possible to see the trend of plastic extermination. It is not fast, however it is already happening at different fronts.
The conditions depicted above have paved the way for the evolution in this sphere, leading to the emergence of fintech and embedded finance companies, which today are successfully functioning on the global financial market. Incorporation of embedded finance payment solutions is popular since it can help:
The following basic statistics demonstrate that non-financial institutions are capturing the global financial market, changing the rules of the game.
Embedded finance is already changing the global financial market and the rules according to which it functions. Any company can become a banker these days. It is estimated that by 2030, embedded finance would be worth US$ 7.2 trillion. In addition, this field is expected to deliver an additional 720.78 billion EUR in revenues for European brands in the following five years. Besides, according to the Embedded Finance Research Report survey, 73% of surveyed companies are going to embed financial services in the following two years. In this context, the McKinsey report demonstrates the future of embedded finance in the following way: “Today, companies of all types and levels of maturity – including retailers, telcos, big techs and software companies, car manufacturers, insurance providers, and logistics firms – are considering and preparing to launch embedded financial services to serve business and consumer segments”. The examples of IKEA, Walmart, Mercedes-Benz, Starbucks, and many other companies from different sectors prove it.
It is expected that national biometric databases will be developed, which would allow the cheap and convenient process of authentication of people through fingerprints or cameras (which is already very popular in China). The new players in the financial market will not displace banks, however, they will occupy a valuable part of the market. Still, people like simple solutions. Fifteen different wallets and tokens in the mobile device definitely do not look simple and easy.
Of course, POS terminals and classic acquiring will not disappear tomorrow. The payment industry is conservative, and new payment methods, despite their convenience and variety, will be implemented for decades. But the direction of the movement is unquestionable. It is also possible to assume the considerable increase in the competition and the entry of new players into the e-wallets market. However, the development of the digital economy, сhanges in customer behavior, as well as entry of non-financial institutions into the financial market have changed the situation.
42flows.tech company is ready to consult you concerning the implementation of embedded finance solutions. It can bring you a wide range of possibilities since thanks to the use of APIs non-financial companies can just “plug in” the services they need and to pack them within own system. We have rich integration experience and profound expertise which is why we offer:
- help in the choice of the solution that would fit you the most;
- description of the main procedures and steps that are necessary to take;
- gathering of the basic processes based on API Visa and other suppliers of financial services.
Leave the technological complexities to our company – so you can focus on growing your business and improving the customer experience.
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