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Think of the online payment industry today and you think of giants such as VISA and PayPal dominating the landscape. Its future, however, is already being decided in converted warehouses by groups of talented twenty to thirty-somethings, wearing sneakers and sipping organic juice.
Over the past few years, fintech (financial-technology) startups have been making significant gains across the financial services industry, with global investment estimated to have been around $2.8 billion in 2014 alone. They are responsible for many of the changing trends in the way we borrow, lend, save, send, and exchange money. And the online payment industry is no exception. Once a quiet part of the finance sector, fintech firms have ushered in a new era of disruption and innovation, with some suggesting that we have even taken the first steps towards a cashless society.
There is no single cause for the increase in the number of startups in online payments sector; rather, several factors have coincided to contribute to the rise and diversification of fintech firms in this area.
Mobile technologies
Thanks to the recent advances in mobile technologies, fintech firms have been able to overcome their single greatest obstacle: convenience. The incorporation of the app into everyday life has taken them out of the computer and placed them securely in our pockets.
Mobile payment has become increasingly popular, with consumers just as likely to pull out their phone as they are their bank card. Fintech startup Lemon Wallet allows users to store not just their card details, but also their ID, loyalty cards, and insurance details, which it then transforms into a single digital barcode that a merchant can scan.
Security issues with data
Highly publicized dig data breaches over the past years have also prompted innovation in this area. Companies such as Target, eBay, and Sony have all suffered significant attacks that exposed consumers’ financial information. As a result, the fintech sector has reacted to these concerns. Prepaid cards issued by companies such as paysafecard are increasingly popular. They allow customers to buy goods and services in store and online without sharing their bank details. They're secure, easy to use, and of course there's an app.
In line with this movement towards increased security from identity theft, biometic fintech firms are also starting to announce their presence. Companies like Biocatch and IsItYou are currently working on ways to incorporate biometrics into handheld devices, and envisage this technology becoming the standard for everything from accessing your phone to paying in stores and online. While we may not be there quite yet, IsItYou are currently in the demo phase of their product which is available for trail.
Emergence of cryptocurrencies
Bitcoin is the most established of all the cryptocurrencies and fintech firms have not hesitated in exploiting its potential. Coinbase is the most popular digital wallet available. While it’s predominantly a platform to buy and sell bitcoins with traders, users can also purchase goods from merchants who accept the currency.
A newcomer on the bitcoin integration scene is the ambitious South African startup, Bankymoon. They hope to bring bitcoin firmly into the mainstream by connecting it with power grids via a smart meter. This means that customers will be able to charge their meters using bitcoins from any location globally, cutting out the middleman fees, and moving away from traditional forms of online payment. It may sound crazy, but the system is currently up and running in parts of South Africa and Nigeria.