28 March 2018
The great battle between banks and fintechs for the loyal customer
Dutch bank ABN AMRO announced its new record: one payment request per second was sent via Tikkie during Dutch national holiday ‘King’s Day’ on average. This record is not entirely surprising, as electronic peer-to-peer (P2P) payments have tripled since 2016. Fintechs and banks all over the world are keen to respond to this trend, which now seems to have become mainstream. A lot is happening to provide consumers with the right applications so that they can transfer money to each other as quickly and easily as possible. But what has this competition led to? And what can consumers expect in the near future?
P2P and user experience
Banking apps have already largely simplified payments between individuals, but with the arrival of fintechs on the payments market, banks are slowly losing ground. In general consumers find that the less data that needs to be entered, the more enjoyable the user experience. Fintechs make it their mission to win over the consumer, with P2P payments as an entry point and the user experience as a binding agent.
There is a battle going on between banks and fintechs. Banks want to retain consumers and focus on their reliable image in doing so. Fintechs want to win consumers over and focus on user experience. Parties such as Paypal, Square and Apple Pay compete against traditional payment providers, but how the battle is fought, differs globally.
In America, the P2P app Zelle is competing successfully against Paypal’s Venmo on behalf of large banks such as Bank of America and Wells Fargo. Zelle had the same turnover as Venmo in less than a year, while Paypal dominated the American mobile payment market for almost ten years. In China and India, fintechs have made a successful entry onto the payment market. The financial newcomers have almost completely made the banks redundant. And in Denmark, Danske Bank launched the P2P payment app MobilePay and due to the app’s resounding success, other Danish and Finnish banks have joined the app.
Where in America and Scandinavia banks are joining forces by launching an app together for P2P payments and in China and India banks seem beaten by the fintechs, we see a more restless, competitive landscape in the Netherlands. In the Netherlands, large banks offer separate solutions: ABN AMRO launched Tikkie, ING designed TWYP and Rabobank offers ipayou. In the Dutch market, as in Denmark, there will perhaps be a point at which one of the apps will be most successful and other banks will join in.
Why the Tikkies seriously challenge the Paypals
With different types of parties on the market, it is inevitable that different types of P2P payment solutions will be developed. As a result, P2P payments can now be made via two types of applications. First, there is the option for consumers to register their bank details with a third party such as Paypal and thereby authorise the third party to send and accept payment requests. Secondly, there is the option of an online interface or mobile app, such as Tikkie or MobilePay, where payment requests can be sent and received. The main difference is that under the first option, both sender and recipient of the payment request must be connected to the third party, while under the second option, the recipient of the payment may be a customer of another bank and is not required to create an account. This second option is now mainly initiated by banks and credit card providers and ensures that the battle between the traditional financial companies and the fintechs continues.
Interface and infrastructure
With the innovations introduced by fintechs, two important aspects of P2P payments are changing. Firstly, there is the interface, from which consumers now benefit most. As mentioned above, the P2P payment apps make it easier for consumers; banking itself is almost circumvented and, moreover, payments appear to be happening instantly.
What is special, however, is that these payments are often not yet instantaneous. Traditionally, the actual transfer between two banks takes place the following day. But this is changing rapidly. The second aspect of P2P payments that is changing is this infrastructure behind mobile payments. The current infrastructure is being radically overhauled by recent developments; instant payments are coming.
A new market
The advent of instant payments means that mobile P2P payment apps are not only interesting for consumers who transfer money to and from each other, but also appeal to a whole new market. Companies are expected to benefit considerably from the direct processing of transactions. For example, a recent study showed that in the case of a payment reminder sent in the form of a Tikkie, as much as 70 percent carried out the payment within the next day. This is a considerable increase compared to traditional payment reminders.
With instant payments, companies can optimise their cash management and benefit from what the banks and fintechs are now fighting for: optimal customer friendliness as a means for a strong customer relationship.