Banking-as-a-service, digital wallets, the rise of digital ledger technology and the fall of cash. These are all central points raised in our highly-anticipated interview with Kit Yarker.
The services of the European payments provider PPS engage with start-ups and established businesses that require a scalable partner to manage their processing, issuing and account-based needs.
Yarker is the company’s product marketing director, and here he sat down with The Fintech Times to provide a fascinating insight into the rapidly evolving payments landscape, explaining how innovative new technologies are quickly changing how payments will be made forever.
So why don’t you tell us a bit about what PPS does and who you aim to serve?
PPS has been going for about 22 years so we’re majority owned by Edenred and Mastercard is a joint venture.
PPS started off by offering closed-loop gift cards, and we built our own processor to handle that; tying into the retail systems to carry the transaction beyond the rails of Mastercard or Visa. But then over the years, we’ve added additional products and features to it.
We have a full electronic money institution (EMI) licence, one in the UK under the Financial Conduct Authority (FCA), and with the National Bank of Belgium for EA, enabling us to be able to issue IBANs and accounts across Europe, including the UK.
We’re also a Mastercard principal member so we can issue cards across the region using our own processor.
We do everything on-site and in-house, meaning our clients can pick and choose specific services. They can take the full suite, or they can just individually pick the modular components they wish to use.
We’ve been doing banking as a service and payments with our clients for over five years.
Do you find within recent years that certain aspects of your service have become more popular than other parts?
I think it’s changing from what we’ve seen happening in the market, not specifically in regards to PPS but generally.
With the rise of neobanks over the years, that’s obviously fueled very much by the e-money licences that they use, and they tend to use people with ourselves or other companies or they get their own.
I think a chunk of those entities are producing their own licences, so the amount of work that you do with them is still there, but it tends to change.
What I see in the industry at the moment is the opportunities really starting to come through in the B2B space where entities with their own licences are looking for their own functionalities.
So we have discussions, for example, where a client will say ‘actually I have my own EMI licence, but I need the issuing capability’ or ‘I have the issuing capability, what I need is the ability to give an account’.
I’d say four or five years ago, it was very much banking-as-a-service where you’d be offering your licenced activities to non-licenced entities with a whole suite of things from accounts to card processing.
What we’re now seeing is a trend where it’s a mix. Clients are saying ‘actually I have some of the things myself, I need help with these things’ or they’re saying ‘actually, I don’t need everything because my value to my customers is this so I actually only need this part of it’.
So I think companies that can do the modularisation and offer that more customised view to their clients are the ones that do well in the future.
How can we expect the market for BaaS products to develop over the next 18 months?
The way I look at the industry, you’ve got banking-as-a-service, with the ambit of finance underneath that as part of it.
And then you’ve got payments as a service, which is using other people’s licences but providing the plumbing underneath it.
When I look at the payments industry as a whole, I think that’s an interesting thing to look at, and banking-as-a-service is an important part of that.
I think banking-as-a-service, including things like processing and to a lesser extent card issuing, is becoming quite commodity-based.
So there are a number of companies that can offer parts of those services or all of them, and I think what’s going to change in the next 18 months to two years is the added value services that are around that.
So in addition to licence and back-end assistance, the question remains, what else can I do to help you with that? How can I add that value?
Because essentially, if it’s a commodity, then you want to try and avoid that price becoming the deciding factor. Obviously, commercials are important, but ‘how can I help you with your growth’ is important too.
How might we see the use cases for digital wallets expand in the future, and will it mark the death of cash?
I was actually talking to someone this week and we were talking about youth cards. And they said that the next generation coming through, Gen Z, are not so loyal to cash or traditional banks. So it’s now looking at what’s the best thing for them.
I can’t remember what country it was that they mentioned specifically, but they were talking about how cash as pocket money was one of the last big things in that market.
People give their kids cash because they want to teach them about the physical value of money. But deliver that pocket money electronically, and it’s going to slow the process down.
So I don’t think cash is dead by any stretch, there’s still a lot of cash being used.
And digital wallets are great for people who are comfortable with using them. But retail high street banks have to offer high street branches the traditional way of doing things because they must serve everyone from 99 to 18 years old.
So they have that legacy, but digital banks and digital wallets don’t have that legacy because they’re purely digital.
I don’t think cash is dead. I think it’s still changing.
Despite Covid accelerating the use of digital wallets, a change that will continue, it’s still going to take time and cash will still be there for a while I think.
Which emerging payment technologies will have the greatest impact this time next year?
When everyone talks about crypto, everyone just thinks about coins, and you’ve got lots of different versions of it. Everyone thinks about the monetary, how do I spend it? But I think actually it’s the distributed ledger technology underneath it that’s the most interesting.
Because crypto is what it is, you still need to traditional payment methods to get into it. So when you think about it from a financial inclusion point of view, actually, you still need to have a physical account somewhere in order to then buy the crypto to get into that system; so how does that get solved?
If we’re going to truly try and mass market crypto, the regulation would need to reduce the risk for banks to get comfortable with it for it then to become more tender.
So crypto I think will continue. It’s not going away and will continue doing what it’s doing, but it’s the blockchain technology underneath it that is really going to change the payment industry.
When I think about the applications of those things, everything from KYC to AI coming on alongside it, we think about the pain points of payments, the expense of KYC, manual dispositions etc. We have to do it quite rightly, but it can take time.
If you can look at the digital ledger technology to give that secure, unchangeable view, that can really help; especially from a financial inclusion point of view.
When you have people who aren’t necessarily getting an account because they maybe have bad credit risk or no credit, which is what a lot of banks will make their decisions on, digital ledger technology can really help.
There are challenges to that because if you have a bad credit score, for example, and you look at it and they got it wrong, you can probably get that changed, whereas with blockchain, you can’t change that.
So are you creating another problem there? Maybe, however I think that technology across the whole of the payments industry could really start to drive change.