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Intro To Fintech: Paytech

Though the fintech industry is getting more and more mainstream globally, there is still a learning curve for many people as to what fintech actually is, and a lot of jargon which can be hard to understand if you’re not in the know. In this new series of articles, The Fintech Times plans to breakdown all aspects of fintech to help those interested to learn and understand the industry, making it more accessible for all. 

Paytech’s are fintech companies that use technology to enable the electronic transfer of value, often focusing on making payments faster, secure, and can be done easily from anywhere. An amalgamation of payment and technology, paytech’s can be anything from digital applications to physical contactless payment coffee cups.

Ways to make payments

A key area of Paytech is the development of frictionless payments, where any obstacles of making a transaction are reduced to a minimum or are non-existent. Contactless and mobile payments are particularly popular due to being more convenient and effortless, merely waving your smartphone or card to a reader. The coronavirus pandemic may have also had a hand in helping this along with safety advice encouraging consumers to pay via contactless means where possible, even upping the contactless spending limit from £30 to £45 in the UK. A major division within this is the digital wallet, or e-wallet; an electronic card or used to make transactions through a computer or smartphone. Its function is virtually the same as a physical debit or credit card, and some e-wallets can even store money for future transactions and hold drivers licenses and loyalty cards. There are even wearable payment devices on the market, known as “the Paytech of things”, allowing you to make payments by linking cards, bank accounts or e-wallets through accessories like sunglasses from Visa, Optus contactless coffee cups and Disney World’s Magic bands. Wearable Paytech isn’t just confined to money, however, and can even be used to redeem things like train tickets, for example when Lucozade gave out promotional contactless bottles that could be swiped to gain entry to the tube, all with a drink in hand.

Another emerging payment trend is biometric authentication. Those who went to school in the UK less than ten years ago may remember having to pay for lunches using their fingerprint, with the verification methods also utilising facial recognition and iris recognition, as well as heartbeat analysis and vein mapping. While these body scanners seem a very futuristic and dramatic way to pay for your weekly groceries, biometrics appears to be the future of secure payments with some banks trialling it in Europe.

Different ways people can get paid

Whether it’s receiving wages or transferring money between friends there are a variety of ways people can get paid. The most traditional is via Direct Deposit or bank transfer. This is simply the process of depositing money directly into the payee’s bank account. This is the most common way people are paid their salaries in the UK, known as Bacs, as well as a popular method to pay bills or send money to friends and family, helped through the rise of online and app-based banking.

A different form of receiving money comes from digital payment services – think apps like PayPal and Venmo in the US- where you can send money straight from your bank account or debit card for free. These apps can also function as digital wallets to make purchasing online easier, as well as transferring funds between friends and family quick and convenient as you only need the username or email address associated with the account you want to pay, rather than the several different bank details a transfer requires.

Another, slightly less common way of getting paid is through cryptocurrency, the most popular being Bitcoin. Digital currencies are on the rise not only in the finance world but also in regular life, where crypto can be a secure easy way to send and receive money and even pay for goods and services as it slowly becomes more widely accepted. Some platforms can facilitate crypto payments between companies and their employees, giving those involved the benefits of digital assets.

Finally, getting paid internationally is also a popular sector of fintech, as many companies are trying to solve the problem of difficult cross-border transactions. There can often be extremely high or hidden charges involved with sending money across borders, particularly as banks and currency exchange services aren’t required to use the real currency exchange rate. Online Money transfer services have changed the game in some respects, with companies like TransferWise appearing up to eight times cheaper than high street banks. Swaying away from convention, TransferWise revolutionised the money transferring game by not actually transferring money between countries at all. Instead, they have a network of bank accounts across the globe simplifying the whole process into two local transfers. For example, if a British person wanted to send money to a French account, the brit would transfer money from their bank account to the TransferWise UK bank account in pounds, and then the TransferWise French account will match the amount in Euros to the recipient’s bank account, offering the real exchange rate as money doesn’t actually have to be converted.

This has revolutionised international transfers by significantly decreasing the costs involved, with TransferWise becoming an increasingly popular option moving £4 billion every month.

Different accounting software employers use

Most businesses will use some form of accounting software for them to keep track of their financial transactions. These programmes can vary in scope, particularly whether they’re for small businesses or large corporate ventures. Here are some of the most popular programmes used by employers.

QuickBooks – is one of the most popular bookkeeping solutions on the market as well as being a strong choice for freelancers and self-employed. Owned by Intuit they have several different editions, including versions for online, desktop and macs, as well as bespoke versions customised to the client.

Xero – Designed for small businesses, Xero offers expense tracking and management, though has limited capabilities when on the lower price plan. However, it offers plenty of functionality including configurable reports, simple budgeting, and even the ability to convert your QuickBooks files when onboarding

Sage Business Cloud Accounting – Cloud-based accounting software from Sage and traditionally the most used and recommended. The software is targeted at small businesses to help with invoicing, cash flow and payroll.

FreshBooks – Cloud-based accounting service designed for small business owners. Features include invoicing, expense tracking and a user-friendly interface that can integrate with other services like PayPal, WordPress and MailChimp.

Wave – Wave is a very popular free accounting software offering invoicing, accounting and receipt scanning. While they don’t have a direct connection to send VAT returns to HMRC, there are no limits on their features and extras can be added at cost.

Paytech and banking

The banking sector is always susceptible to change, and with the rising number of fintech companies globally traditional banks are having to work to keep up. Consumers have more choice when it comes to the services they need, and often at lower prices than banks provide, “disrupting” the industry and forcing it to evolve. This isn’t necessarily a bad thing however, as these new start-ups and fintech’s are helping banks and traditional financial services companies to be more innovative, driving the financial world forward into one that can better serve its consumers.

A particular example of this is API integration, the function that allows third-party apps to communicate. Helped by the introduction of Open Banking, API, or application programming interface, is an interface that links a banks database of customer information with different applications or programs forming a network that allows different services and products to be used by individuals. Customers benefit from this by integrating their bank accounts with third-party services, such as accounting software like Xero and Wave, or budgeting apps like Yolt or Mint. These integrations also benefit the banks as they can provide better services and in theory, grow their client base.

Pay Early feature

One relatively new feature that some banks can offer is the ability to get paid early. This is one of the particular draws of Monzo, one of the first app-based challenger banks in the UK. It began offering its pay early feature in 2019 and is so far one of the only UK banks to do so. Customers can receive their salaries a day earlier. Most people’s wages are paid via Bank Automated Clearing System (Bacs), and that the process usually takes about three days to clear transactions. However, the receiving bank can see the payment on their system the day before it clears, allowing them to make the payment at this point if they choose as they can be confident money is on the way, which Monzo is now doing. The feature is marketed to those who may struggle financially to get through the month and applies to any Bacs direct credit payment, including pensions, student loans and Tax credits. Whilst a benefit to its customers, the pay early scheme may also be aiding in Monzo’s growth, as users have to, obviously, be a Monzo customer and have their salary paid into that account, encouraging people to use the bank for their main account.

A similar feature can be found in US banks, with many offering early direct deposits, including OneUnited Bank, Chime, and Radius Bank – though is generally seen mainly in digital banks.

Author

  • Polly is a journalist, content creator and general opinion holder from North Wales. She has written for a number of publications, usually hovering around the topics of fintech, tech, lifestyle and body positivity.

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