Paytech is generally a broad term. It encompasses a lot of different parts of the fintech industry. Generally, paytechs 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, paytechs can be anything from digital applications to physical contactless payment coffee cups.
There are multiple types of paytechs focusing on different areas of payments – be it solutions for consumers or for institutions. One company looking to expand into the software as a service (SaaS) field for financial institutions are MX. MX build data-driven products for banks, credit unions, and fintech innovators, aiming to make their customers understand their finances better and create something easy to manage. David Whitcomb is the VP of Connectivity at MX, with over 10 years of working in the financial industry. He spoke with The Fintech Times to discuss what paytech is, how it has developed and what the future holds.
Paytech is somewhat of a vague term. How would you explain it to someone who knows nothing about the sector?
Paytech is the movement to simplify the process of making a payment in any context — at checkout, in an accounting process, an AR/AP tool, P2P services, and more. It also involves keeping data that can be used fraudulently behind the scenes so that the opportunity for widespread fraud by capturing actual account and card numbers is reduced dramatically. Lastly, it involves accelerating the process of enabling companies to issue forms of payment, whether it’s a card or a transaction deposit account.
What do you feel has been the greatest innovation in Paytech in the last 5 years?
I think the greatest innovation has been the companies who have created the omnibus account model – one single, traditional bank account that drives multiple supported end-user accounts. They’ve abstracted out the account provisioning process from legacy systems in a way that has dramatically accelerated the ability for challenger and neo banks to get to market and focus on their specific problems. Think Galileo, Qolo, Marqueta, I2C, and others. They’ve revolutionised the ability to create digital and card payment services.
What’s missing from Paytech?
I think what’s missing is transparency. If a bank or credit union has significant fraud, regulators and examiners will hold them accountable. So it’s not just fraud, it’s also the ability for a financial institution (FI) and a Fintech to collaboratively bolster security positions around payment technology.
Describe MX’s strategy for Paytech, what are some of your premier offerings?
Currently, MX’s strategy is to start at the beginning of a user’s experience outside of their FI. When first connecting their accounts to a payment provider, MX provides all the tools needed for a payment provider to work with an end user to share their account number and routing number and validate the data provided. We also have tools that gather details like the user’s name, address, and other profile data so that paytech companies can validate that the user requesting the connection is who they say they are.
These tools are the foundation to the money movement experience, and ensure the security of the user and the paytech service. Our continued work to connect through modern, tokenised connections increasingly increases the speed, quality, and security of all involved in the process — the user, the paytech, and the user’s financial institution. Where are we going? It’s starting with partnerships — there are a large number of paytech companies who are doing amazing things.
Here at MX, we’re expanding our services to make partnerships as easy and secure as possible, further improving the user experiences and speed to market. As we mature this process, we see infinite opportunity to forge FI-Fintech partnerships along the way.
With digital adoption at an all-time high, it seems that digital payment platforms like Venmo are competing with digital banks for users. Some have suggested that digital banks are on the decline, in large part because of payments platforms. What’s your opinion on this topic?
I don’t know that a decline in digital banks is being caused by payment platforms specifically. Digital banks – neo/challengers that are purely digital like Chime – will be challenged by paytechs if they don’t start expanding their offerings soon. They came to market with single targeted use cases and excelled at providing transaction account solutions. Venmo has managed to provide that quickly, while also having a larger ecosystem of people who are very comfortable with their services. While traditional banks don’t have the laser focus of neo/challenger organisations, their breadth of offering makes it much easier for them to serve a customer through their lifecycle, which is something that I don’t see in too many digital-only banks and especially don’t see in paytech.
The battle and impact of paytech organisations will be most heavily felt with the youngest generations who are often drawn in by social interaction and simple, streamlined UX. I think that as the primary users of paytech mature and have lifestyle shifts, they’ll face the same challenges that legacy banks challenge — how do we build the best money experience for someone who has an extremely complex financial situation?
Despite major innovations in payments, offline/traditional companies with high fees like MoneyGram (MG) and Western Union (WU) still exist, what do you think their appeal is?
In the same way paytech has captured digital natives who have wide access to mobile technology, MG and WU have captured those that work primarily in a cash environment. To send cash around the world, you need both digital and physical infrastructure. The physical infrastructure may be one of the most significant items – cash can’t be picked up if there is no place to pick it up. I’m sure it’s in process somewhere, but I think there’s a huge opportunity to combine modern payment technology with the physical building infrastructure of MG and WU, and I wouldn’t be surprised if we see partnerships pop up to solve that problem.
Recently Paypal, Venmo, and Cashapp have all made moves into Cryptocurrencies, besides obvious benefits like commissions, what do you think is the long-term rationale behind these moves?
By being first movers in making crypto more transactional, they create a comfort with their audience. I used to hear that the best way to get a person comfortable with something is by giving exposure to the ideas over and over. Whether explicit or implicit, people learn patterns and behaviours by observation, and repeated observation will lead to comfort investing and ultimately, comfort with cryptocurrency as a future transactional currency, not just an investment mechanism. I also think we have no idea what they’re doing behind the scenes. I can think of more than one way that money could be made off the volatility of crypto, but that’s a very different approach to the problem.
In your role what are you most excited about?
I can’t wait to see what MX will do in the next 6-12 months. I think we’re at a huge inflection point with impending regulation, increasing FI acceleration of digital capabilities, and fintech maturation. I think we’ll see a new wave of FI and fintech partnership, and it’s going to be exciting to see how the financial lives of consumers will improve as a result.
What else should we know?
We’re entering the age of the consumer, and good experiences are becoming normalised. I think that the company that can contextualise money movement in most places and link it most directly to a consumer’s most trusted organisation will have significant wins in the next 12-24 months.
What can be concluded is paytechs are currently in a strong place. They are able to compete with challenger banks as they provided solutions to unique accounting challenges. Their deep dive into digital solutions is not going to slow down; as paytechs adopt the use of cryptocurrencies they are only going to grow, providing consumers with even more choice on how they want to spend.