Payments have evolved well past the era where a chip and pin was the latest and most secure form of performing a transaction. There are a multitude of fintechs that provide alternative payment methods with more and more innovative ideas being worked on each day.
With this in mind, fintechs must consider a variety of things when aiming to tackle the payments space and create a new idea. Kriya Patel, CEO of Transact Payments has over 20 years of European banking experience encompassing savings, mortgages, Fintech, IT systems and most recently, and over the last 15+ years, e-Money, emerging payments and cards. Prior to serving as CEO, Patel was European Sales Director at The Bancorp and COO of Newcastle Card Solutions.
Patel shares his views on how he believes the payment ecosystem can be eased for new entrants in the field:
The payments ecosystem is a complicated multi-faceted highway of entities. This can include a Banking Identification Number (BIN) sponsor (issuer), processor, programme manager, card bureau, scheme (like Visa or Mastercard) and acquirer. Each actor is also reliant on one another to execute their role successfully and securely in the transaction.
It is also defined as being an environment in continuous transformation, which is subject to frequent changes and updates in regulation. For instance, over the last 18 months, new regulations and technical requirement mandates have arisen. This includes PSD2 and 3D Secure 2.2, which necessitates new security, fraud protection, proactive alert requirements, and the need for transparency regarding FX. These requirements all have significance on the scheme rules to which issuers and acquirers must adhere, while also providing new technological challenges for each part of the supply chain that must be planned and prepared for. In addition, it may be necessary to involve further partners to ensure compliance with the new
requirements and/or enhance value.
However, the industry is also marked by lacking education and understanding of this change. Undoubtedly, adding a layer of reporting for the sake of it is not necessary, yet recent changes in the sector now demand it. In spite of this growing requirement, some players in the chain of payments may not prioritise it enough, or even see it as their specific responsibility. Whilst forward planning can negate the risk, from an issuer point of view, if the key service provider is not geared up to make the payments process work then whole ecosystems can become misaligned and muddled, leading to friction and even failure of a programme. Nearly always, the cardholder loses out in this situation, which is the complete opposite of what all parties involved want to achieve.
Most recently, Brexit has also shone a light on how failing to plan into the future can lead to added cost, delay and risk. Those who did not prepare for the regulatory implications are now repaying a technology and service delay debt and as a consequence are firmly on the back foot. By contrast, those who did plan for this situation, have the additional financial freedom to plan for other changes yet to come. For example, by April 2022 both schemes will require an eight-digit BIN configuration, as opposed to six, which of course carries cost and technology implications. For some fintechs still playing catch up after Brexit, this new requirement may be unsurmountable.
With this in mind, how is it possible to make this extensive partnership payments model work for the benefit of all parties involved? This is especially challenging as behind the scenes it is becoming more and more complex to effectively bring a future-proofed product and/or service to market.
However, fintechs should consider three essential areas when launching a programme to market:
In order to succeed, fintechs must be capable of clearly articulating both their product and commercial model. This encompasses understanding end-user needs and wants, the overall customer journey, how it functions, whether it will provide debit, prepaid or credit card, and the level of authentication the transaction requires.
Roadmap for rollout
As tempting as it may be to roll out a product or service within a market quickly, planning and understanding costs must be the priority instead. Important questions must be asked and answered: what key markets does a fintech wish to operate in now, in the future, and what’s the predicted timeline of staged rollout? The reason for focusing on such issues is because there are a multitude of implications of operating in other countries and continents. This ranges from document and marketing translations to varying customer onboarding requirements, regulatory compliance and the implications on permissions and scheme licences.
By having the product and its rollout roadmap in order, fintechs will be in a position to determine the criteria on which they should aim to select supporting partners. Careful consideration in choosing an effective strategic partner chain can help navigate the payments ecosystem and deliver the end solution.
Coupled with this, fintechs should look for four critical components when it comes to a BIN sponsor partnership:
- Vigorous focus on pre-assessment work
The best BIN sponsors fully evaluate the product at the outset. In operation, this means very strict onboarding requirements including regulatory considerations, geography and licencing, know your customer (KYC), and anti-money laundering (AML) requirements. By contrast, potential partners who promote speed may be inclined to be less thorough – remember the point above about technical and service debt?
- Well-connected and able to recommend a bespoke partner chain
Selecting partners with similar traits is helpful, especially as prioritising a collaborative and transparent ethos and approach to understanding and anticipating market movements should mean a more sustainable and successful product, carrying lower risk. Choosing partners that work in tandem and look after each other’s obligations and best interests can only be done with the benefit of years of experience in this complex and complicated space. The right BIN sponsor will be able to use their networks and experience to advocate the most beneficial partners.
- Informs and educates
A knowledgeable BIN sponsor should be seen as an extension of a fintech’s business. Such a partner shares the same concerns and appreciates the need for a successful rollout of a programme and can pre-empt issues and challenges based on a comprehensive pre-assessment. This partner also has the ability to decipher legal requirements and provide education on the ever-changing regulatory landscape. For example, some BIN sponsors were getting ready for PSD2 two years before the need to comply.
- A low risk profile
Fintechs should avoid any temptation to bend rules. Instead, having a strong conception of what is necessary to protect against fraud and AML risk, while avoiding shortcutting the funds-flow and onboarding processes are just a few pertinent examples. Abiding by the regulations is not only critical for the individual programme but also for the whole industry.
Fintechs need to investigate how they can effectively and efficiently navigate the intricacies of the end-to-end payments process, as well as the key criteria to consider in selecting a BIN sponsor. The best BIN sponsors provide the gateway for fintechs to successfully handle the wider payments ecosystem by not only providing deep understanding matched with simplifying current complexities but also by pre-planning for future requirements.
While the payments industry is undoubtedly complex and challenging, choosing a BIN sponsor does not have to be, if you follow these principles.