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#Payment Technology

How to solve fintech scale-up challenges

6 Mins.

As fintechs grow from entrepreneurial idea to adoption by their target audience, leadership teams can better navigate the fast-moving waters of technology by partnering with experts in the field.

It may sound counterintuitive, but one of Europe’s leading fintechs with a current US$31 billion valuation didn’t really consider itself a tech company in its early days. Back in 2005, Klarna began with a simple idea – to make online payments easier and safer for consumers and retailers.

“We were really good at sales, we were okay at marketing, [and] we were service-oriented: we really delivered to our customers. But it wasn’t really that technology-driven,” Klarna co-founder and CEO Sebastian Siemiatkowski admitted in a December 2020 interview. “One of the drawbacks that we had at the company was that none of the three co-founders had any engineering background; we couldn’t code.”1

Technology is, of course, crucial to any digital company in the financial sector. It is the engine that powers real-time access across multiple devices, ensures processes are secure, and enables new features to be introduced and scaled quickly. As Nutmeg, a British digital wealth management company, explains on its website, “We are a technology company, not just a financial services company.”2

Creating a flexible, future-proof technology roadmap as early as possible has numerous advantages for fintechs. It can enable innovative products and services to be delivered quickly, provide tools that mitigate a wide range of risks, such as those connected with regulation and data security, and facilitate expansion into new markets.

“We are a technology company, not just a financial services company“
Nutmeg, a digital wealth management company

Innovation through partnership

For those entrepreneurs who, like Siemiatkowski, are more driven by delivering a product or service the market needs than the technology behind it, partnering with specialist providers can be particularly beneficial.

Through its work with a growing number of fintechs, digital payments and security leader G+D has learned about some of the most significant technology-focused pain points companies face. Payment card issuance can be a long and complex process that negatively impacts the customer experience if implemented badly, for example.

Consumers increasingly expect to be able to use a new card instantly. Thanks to powerful APIs, it is now possible to offer customers a digital version of a card for use immediately in e-commerce transactions or mobile payments. For fintechs, this ensures a fast, seamless customer experience and means revenue can be generated from the get-go.

The number of API-powered use cases is growing all the time as developers create innovative new offerings for end users and enhance operational processes for fintechs. The ability to offer personalized, premium metal, or sustainable payment cards is a growing area of interest, for example, while there are exciting developments in emerging technology such as paying via wearable devices. Having access to a platform that offers all these tools in one place can be hugely beneficial.

Tech is crucial to security

Customer scanning smartphone for payment in a retail store
Fintechs must innovate with new technology to provide consumers with payment methods that are secure and convenient

But new offerings have limited value if they are not fully secure. As customers and regulators increasingly demand better privacy and security, fintechs must ensure they maintain trust and are compliant. Tokenization and two-factor authentication are two technologies that can help to provide peace of mind to consumers and meet new legislation requirements.

Tokenization – in which a unique token replaces account and card numbers to authenticate a purchase – is increasingly used to secure digital payments. Indeed, 95% of e-commerce transactions are forecast to feature the technology by 2022. Two-factor authentication, such as using a mobile app to authorize a payment made with a physical card, is part of the EU’s PSD2 legislation. The Strong Customer Authentication rules, already required for online banking, must be implemented by online shopping ecosystem players by September 2021.

“There is a strong need to combine convenience and security for remote authentication,” says Rüdiger Vogt, responsible for Neobank/Fintech Segment in the Smart Card and Digital Payment business of G+D.

Once a fintech offering has been proven to work in one geography, scaling is often high on the agenda of founders and investors alike. But entering new markets comes with its own challenges. While the beauty of software is in its ability to scale up effortlessly, regardless of borders, financial services regulation is a different matter.

Mitigating scale and competition challenges

Partnering with a global company that has experience in implementing solutions in local and regional markets can save time, money, and reputation. Just ask German-based challenger bank N26, which was forced to abandon its entry into the UK due to Brexit-related complications with its European Banking License. Or rival Revolut, which is based in the UK but cannot operate its full suite of products and services in its home country because it too has a European Banking License.

At the same time, the first-mover advantage of Klarna, Nutmeg, N26, and Revolut is drawing to a close. Incumbent banks are catching up fast, acquiring fintechs to bolt onto existing operations or developing their own in-house versions. As competition increases, fintechs need to keep a laser focus on the product and customer strategies that set them apart at the outset.

G+D has been at the forefront of advances in payment for over 160 years. From printing the first banknotes for the central bank of Germany to inventing the Eurocheque card, the company has developed industry-leading technology that is trusted by over 700 financial institutions around the world. By partnering with experts that are embedded in the fast-moving technology space, fintechs can concentrate on their core mission, safe in the knowledge that they won’t have to play catch-up with the technology behind it.

  1. Making sense of Klarna, TechCrunch, 2020

  2. Nutmeg, 2021

Published: 17/03/2021

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