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‘Faster, Open and Embedded’: A Journey into The Fintech State of the Union Report

At this year’s Money 20/20 USA in Las Vegas, The Fintech Times stopped by the Discover® Global Network booth to hear more about its latest Fintech State of the Union report.

The second annual research study by 451 Research, a part of S&P Global Market Intelligence, and commissioned by global payment company Discover® Global Network, identifies emerging trends shaping the fintech ecosystem, including connected commerce, open banking, embedded finance and real-time payments.

This research study is one of the most comprehensive of its kind, collating views of 4,000 consumers and 850 senior fintech decision-makers in seven countries to establish emerging trends within the ecosystem from both viewpoints, as well as the interest and appetite for partnership and collaboration while pursuing these trends.

Jordan McKee, research director at 451 Research, and Kiran Pookote, head of network strategy at Discover Global Network, held a special session at the Discover® Global Network Booth at the Venetian Conference Center during this year’s Money 20/20 USA, to discuss the findings from the informative study.

The Covid effect
Jordan McKee, Principal Research Analyst, Customer Experience and Commerce, 451 Research
Jordan McKee, principal research analyst, 451 Research

McKee began the session by providing context into the research, particularly with a light on the Covid-19 pandemic and its effects on both the industry and society.

“It was interesting in the consumer research last year, going out into the field for the first time and really starting to feel the effects of Covid ramping up in the market in terms of that digital acceleration that we’ve all heard so much about,” McKee said. “As we fielded the survey this year, we saw that playing out in a big way.

“Eighty-seven per cent of consumers globally now have at least one fintech application on their smartphone. There was also a tremendous amount of activation around digital payments, 78 per cent of consumers globally told us they used at least one digital payment service in the last 90 days,” McKee continued.

“Users are now more comfortable engaging with intermediaries that are not necessarily financial institutions and engaging with different types of financial experiences outside of those that we might deem to be more traditional.”

Banks still matter

The study, as McKee shared, garnered three ‘big picture’ takeaways highlighted during this session.

The first was that payment networks and banks have an incredibly strong role to play in terms of helping fintechs get to market and drive innovations.

McKee said: “When we looked at the consumer research, the big message was that banks still matter. And not only do they matter, but consumers are looking to banks in terms of providing validation as it relates to their onboarding to a new payment experience.

“We saw that, across all the different types of digital payments services that we enquired about, banks were the preferred provider.

“Nine in 10 fintechs are highly or somewhat reliant on payment networks as part of their strategy or their operations. And what we heard from fintechs in the research was that they really valued the role of payment networks as it relates to bringing credibility to their business, as it relates to their global reach and as it relates to their scale, and they’re looking for partners that can bring flexibility and can co-innovate and co-collaborate with them.”

Kiran Pookote
Kiran Pookote, head of network strategy at Discover Global Network

In response, Pookote observed how the development of the fintech space has influenced how Discover thinks about partnerships: “Discover is leaning into this need for partnerships, and we’re really excited about it.

“As we look at the capabilities and experiences that our cardholders can have, it’s important to partner with fintechs that are changing the game, so we can deliver those new experiences together.”

According to Pookote, Discover has already started to see a “lot of that success” through fintech partnerships citing the example of its partnership and investment with Finexio, the B2B accounts payables (AP) payments-as-a-service company.

“We see these fintechs as our next set of partners and we are as enthusiastic as the fintechs are to find those partnerships.”

Watch The Fintech Times chat with Jordan McKee and Kiran Pookote, head of network strategy at Discover Global Network 
Faster, open and embedded

The second key takeaway from the report, revolved around how the survey data kept coming back to three words: ‘faster, open and embedded’.

McKee advised that “consumers are looking for payments and financial experiences that move faster than how they move today. They want financial experiences that are more open and collaborative in nature, and those that are embedded in experiences and applications that they’re already engaging with, like real-time payments”.

He shared a similar outlook when examining the fintechs response, with three in four fintechs calling banking-as-a-service and embedded finance as an area of relevance for their business. “You’re seeing the distribution model for financial services evolve in a dramatic way,” McKee said.

Open banking was also an area that was top of mind for the industry, with McKee observing that 77 per cent of fintechs indicated that open banking was relevant for their business.

On these trends, Pookote added: “As we look at those two trends [open banking and faster payments] and how quickly they’re gaining adoption, we’re really interested in what are the right use cases and what is the best way we can add value as we expect those trends to continue. It’s about identifying the use cases for faster payments and open banking – it’s not going to be a ubiquitous solution. It’s going to gain traction in those specific use cases that are perhaps B2B payments, then we’ll see how it expands into other areas.”

Security and trust

The final key takeaway from the survey, according to McKee, is how strong security and trust must be the bedrock of any innovation in the industry to drive the adoption of new experiences.

“Security of personal information was the number one factor consumers are looking for before they make that decision to onboard to a new digital payment experience. Before they think about ease of use and convenience, they’re thinking ‘how is my personal information going to be secured?’

“As we think about the future and trends like open banking, this is going to be a challenge for the industry to overcome,” McKee said. “We saw in the research, particularly in the US, that 55 per cent of consumers are concerned about securely sharing their financial data with third parties. Ensuring that trust is built and strong education around the mechanisms in place to protect consumers is absolutely critical before we start to see adoption ramp up in new areas.”

Regarding the value Discover can bring to the fintech ecosystem in this area, Pookote advised that “as much as that experience changes, the needs of the consumer remain: ‘Is it easy for me to use this?’ ‘Can I pull it out wherever I go?’ ‘Is it safe for me to use this?’ We’ve been a network for a long time and have deep expertise in this area as well as long-standing relationships with a lot of the partners throughout the ecosystem, so we can help fintechs connect with them in a safe and secure way.

“We also have a lot of rules and regulations that we’ve developed over a lot of time that we continue to improve and evolve to make sure everything that runs on the Discover Network is safe and secure and is a brand that consumers trust.”

Watch The Fintech Times chat with Jordan McKee, research director at 451 Research

Source: 451 Research, part of S&P Global Market Intelligence, custom Fintech survey, commissioned by Discover Global Network, 2022Discover Global Network

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