• Beyond the Buzz (Part 2): Innovations Changing the State of Pay  
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Beyond the Buzz (Part 2): Innovations Changing the State of Pay

In our previous blog, we looked at the intriguing history of the word “innovation” and the disparate definitions that still exist for the term today. This time around, we’ll focus on innovations in the payments sector and some of the specific challenges being tackled by FinTech start-ups and other more established players in the field.

From the billions of dollars transacted through mobile phones in Kenya each year, to the controversies and possibilities of the Bitcoin crypto-currency, the payments arena is home to fascinating innovations that have the potential to genuinely transform life as we know it. As a detailed report published by the Payments Innovation Jury this year puts it, “Now is the most exciting time for the payments sector in living memory.”

The independent report brings together 40 jury members behind successful payments businesses, who share their thoughts on everything from Apple Pay—“why the hype?” asks one juror—to the role of regulation in shaping tomorrow’s payment services.

One key topic covered by the survey is the most likely sources of future innovation in the payments sector. Overwhelmingly, jury members identified start-ups as the “type of organization best at driving payments innovation,” with 70% of the panel in agreement on the point. Only 2.5% felt banks were best equipped to lead the way in new payment tech, a sentiment best summarized by the claim that, “Large, regulated organizations answering to shareholders are not typically breeding grounds for innovation.” According to the panel, the best solution for banks, and even large tech firms with an eye on becoming payments players, is to acquire or partner with start-ups capable of finding the creative solutions they crave. The acquisitions of LoopPay and Logic Group by Samsung and Barclays respectively are just two examples cited of this strategy in action.

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Source: Payments Innovation Jury Report 2015

In terms of the bigger picture, the report relays a belief that one of the payment sector’s greatest needs is innovation in B2B transactions; especially in the area of international payments between SMEs. Negative aspects of the current B2B payments landscape identified by the jury included “manual processes” that add costs “ultimately borne by the user,” and “complex and inefficient” modes of working that add up to “real problems…desperately in need of real improvement.” In analyzing the area of B2B payments, the report also names a single FinTech service provider that it expects more innovators to try and emulate the success of—Traxpay.

The Payments Innovation Jury also zeroes in on specific uses for new technology that innovators might focus on in their bid to bring about change. Cloud technology, said 77% of the panel, can be best used for standalone transaction applications to deliver new services. Again, the potential of the Cloud drew comparisons with banks and start-ups, with one juror pointing out, “Banks that are late in adopting the cloud will find themselves unable to compete with nimbler competitors that do.”

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Source: Payments Innovation Jury Report 2015

There was a similar trend identified in the contrasting habits of how established institutes and new players regard APIs. As a set of tools used for building software applications, APIs work in the background to enhance the overall user experience, and a culture of sharing APIs and the innovation they encourage is commonplace in FinTech culture. Not so in banking, however, where industry APIs remain “secretly guarded” amid concerns over security and regulatory repercussions. According to some commentators, this secretive approach stifles collaboration and reduces APIs to “a technology issue when they are really a key business issue.”

Once upon a time, “innovation” was the practice of cynically attempting to alter accepted norms and tear down noble traditions. Today, however, it is a word that speaks of positive change, relentless ingenuity, and a desire to build a better future. And if the opinions of the industry experts above are to be believed, it’s also a practice—at least in the payments sector—best undertaken by FinTech start-ups whose appetite for something new is matched by the talent to make it a reality.

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