What is FinTech, and how did it come about?

The term Financial Technology (FinTech) is really not a new phenomena. It has been in existence as long as the financial services industry itself. But then came the economic meltdown of 2008, and a new breed of disruptors has displaced traditional ecommerce providers with more efficient services.

When you use PayPal, Apple Pay, Google Wallet or simply your credit card to make an online purchase, the consumer, the ecommerce merchant and the financial institutions (banks) behind the financial exchange are using financial technology or FinTech.

Whenever someone purchases stocks and the banks settle the securities transactions, that’s FinTech.

Or when you go online to compare mortgage rates in an effort to purchase that dream home or to refinance the one you’re in, that too is FinTech.

FinTech defined

Broadly speaking, FinTech is anywhere technology is applied in financial services sector, or is used to help companies manage the financial aspects of their business. This includes new software and applications, processes and business models.

Once considered more to be the back-end, data center processing platform, FinTech in recent years has come to be known as the basis for end-to-end processing of transactions whether it’s over the Internet or via cloud services.

So as we have seen, FinTech is not new. It’s been around in one form or another virtually as long as financial services has. After the global financial crisis of 2008, however, FinTech has evolved to disrupt and reshape commerce, payments, investment, asset management, insurance, clearance and settlement of securities and even money itself with cryptocurrencies  such as Bitcoin.

If you were give it serious thought you would come to the conclusion that banks today are technology companies. Just pay attention to where they spend their money. It is driven by the need to implement the latest in cutting edge technology.

Since the financial crisis, the companies that provide FinTech have defined the direction, shape, and pace of change across almost every financial services sub-sector.

“Customers now expect seamless digital onboarding, rapid loan approvals, and free person-to-person payments – all innovations that FinTechs made popular. And while they may not dominate the industry today, FinTechs have succeeded as both standalone businesses and vital links in the financial services value chain,” a recent industry report by Deloitte and the World Economic Forum (WEB) stated.

How FinTech can be disruptive

According to Deloitte and the WEB, disruptive forces that have reshaped the FinTech industry include, but are certainly not limited to:

  • The growth of online shopping, which is expanding quickly at the expense of in-person shopping, leading to the dominance of online, cashless solutions for transactions.
  • A shifting balance of power that swings from banks and other financial services to those who own the customer experience. Banks are eliminating in-person services and looking to FinTech and large technology companies for other ways to engage customers.
  • New trading platforms that are collecting data to create an aggregated market view and using analytics to uncover trends.
  • Insurance products, which are becoming more tailored to customers who, in turn, are demanding coverage for specific locations, uses and timeframes. That’s driving insurers to collect and analyze additional data about their clients.
  • Artificial intelligence, which now plays a role in differentiating financial services products as it replaces complex human activities.
  • Transaction process improvement and middleware, both of which remain expensive. This is pushing traditional financial services firms to consider partnerships with marketplace lenders for FinTech solutions that don’t require a full infrastructure overhaul.

A new world of regulations

After the 2007-2009 financial crisis, regulators turned up the heat on the larger players in the financial services industry, enabling smaller and more agile firms and upstarts to gain traction. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 created a number of new oversight agencies and represented the largest set of regulatory oversight changes in the financial services industry since the Great Depression.

In addition, companies that provided integration technology, services, data and analytics for banks saw a significant increase in the use of their hosted services, according to Jason Deleeuw, a vice president at Piper Jaffray covering financial and business services companies.

After spending billions of dollars and thousands of hours to comply with that new regulatory landscape, the financial services marketplace turned its collective attention to rolling out new products and services. In some cases, banks became the technology developers. But in most cases, the financial services sector found it far simpler to outsource the technology for electronic payments or onboarding of customers rather than build it in-house.

For example, online mortgage servicing platforms saw a surge in adoption by banks for processing client accounts.

“They [the banks] are dealing with more regulatory issues around servicing mortgages, so it’s becoming more costly to do this with an internal system,” Deleeuw said. “I think it’s helped drive banks more toward outsourced solutions because of the cost and reduced regulatory risk involved in trying to manage their own internal systems.”

With increased interest in service-based systems, the technology grew more robust even as the costs of implementing it fell, enabling even further proliferation, Deleeuw added.

The explosion of ecommerce has created a healthy ecosystem of start-up tech  suppliers for the financial services, retail and other industries. While cautious, banks in particular are quick to adopt technology that can create new revenue streams or bring on efficiencies. So they sought help integrating new technologies, such as peer-to-peer payments, into their massive legacy infrastructure.

Over the past decade, the FinTech supplier ecosystem has grown from 10 or so key players to more than 10,000 companies, according to Piscini. That, in turn, has spawned a new service from Deloitte known as ecosystem relationship management, or ERM.

“The way you manage 10,000 suppliers is completely different from the way you managed 10 technology partners,” Piscini said. “That’s a big challenge for large organizations: how do you manage your 10,000-supplier ecosystem versus the 10 relationships you had before. For them, it’s not as much about technology but what kind of innovation can I source and how do I do that in an ecosystem that’s much more fragmented than it used to be?”

Banks as tech providers

Banks have also become technology providers, competing with the likes of PayPal or Square and sometimes collaborating on rolling out shared platforms to enable services.

For example, earlier this year Early Warning Services LLC. – a technology provider owned by Bank of America, BB&T, Capital One, JPMorgan Chase and Wells Fargo – unveiled its new Zelle person-to-person payments service. The service platform is expected to be supported by more than 30 banks this year and will let 86 million U.S. mobile banking customers send and receive payments as an alternative to cash and checks.

“So now the FinTech [firms], who were disrupting the banking industry are now being disrupted by the banking industry, which is an interesting spin of events,” Piscini said. “It’s a good example of the disruptors being disrupted.”


The challenges of online payment processing in the Caribbean

Many business owners in the Caribbean have developed websites, Facebook and Instagram pages in an attempt to reach their local clients who are increasingly connected online. The next logical step would be for those merchants to be able to accept payments for online sales directly. This is not such a big deal in many other parts of the world. In fact, eCommerce is a standard function of many owners of websites from developed countries.

Online purchases are growing throughout the world, with the United States and China been two of the global leaders amounting to over a trillion dollars in sales per annum. Caribbean merchants are slowly warming up to the benefits to be derived from having an online presence primarily of which, is the increase in sales conversions which would expand beyond local island customers.

Businesses having an online presence coupled with the capability to accept credit card payments within a few clicks of a mouse, can significantly impact the economies of small Island States in the Caribbean region. This can result in increased economic benefits in almost every sector of the economy; from Tourism to financial services,.

But while there are enormous benefits to be derived from eCommerce activities, current challenges create a strangle hold on this reality. From local banks been hesitant due to the perceived risks, to inadequate technological infrastructure, merchants oftentimes experience a difficult time establishing payment processing facilities online.

The Challenges of Online Payment Processing
While each individual Caribbean nation has banks that provide offline merchant services, only a few actually provide online payment processing capability. Local merchants have no choice but to use the services of US payment processors. These operate globally and provide the merchant account and the technology to integrate into a merchant’s website. The integration software aside, additional tools can also include tracking and analysis of sales.

Unfortunately, a merchant’s payment processing options are highly dependent upon the country where their company is legally registered. Most end up using established companies such as PayPal and Stripe. Wile many of these US payment processors don’t charge a set-up fee, the monthly charges and costs per transaction can be a bit high. This can significantly erode profit margins.

A crucial component which continues to fuel merchants’ frustration, is the inability to receive the proceeds of online sales in a timely manner. In the case of PayPal, when a request is made to withdraw money from your online wallet , it takes approximately 2 weeks for a physical cheque to be prepared and mailed. It takes anywhere from 4-6 weeks for this cheque to be cleared bank a local bank. As entrepreneurs, this situation is untenable!

What are the alternatives
Over the last few years, a few alternatives have emerged. Local banks have seen the importance of providing payment gateway services for its customers. Many of these have partnered with software developers, many of whom, are in fact companies emanating from North America.

In Caribbean eCommerce Solutions however, and through its flag ship product “Payinn”, a new player has come to the fore. Payinn offers a suite of payment gateway solutions that is specifically designed with the Caribbean entrepreneur in mind.

Payinn” facilitates the collection of credit card payments from anyone, anywhere online. The most exciting part is that your money gets deposited into your local merchant account.

Payinn” offers multiple payment methods to assist merchants globally with online payments through its extensive network of international acquiring partners that make it possible to accept recurring payments in over 200 countries and territories including; Europe, North America, Latin America and the Caribbean region……Fast! Easy! Secure!

How developing countries benefit from e-Commerce

Electronic commerce or e-Commerce, has had large economic effects on many first world nations. Doing business online has simply changed the way transactions are handled when compared to a decade or so ago. Moreover, e-Commerce has revolutionized the banking sector in 21st century.

e-Commerce has impacted the global economy in many different ways. Firstly, spurn by the rapid changes in information technology, all other economic sectors are forced to now play catch up in order to remain competitive and relevant. The result, enhanced efficiency and productivity growth globally.

Some countries are already benefiting from the investment technology. They are now therefore, in a position to benchmark their economies with competitors internationally and there are many ways to accelerate the growth of productivity but the reason for this is rather controversial. Banks and financial services companies in the developing countries will however, need to adopt online payment system, to obtain e-trade finance and equity investment, tourism and the birth of the internet is often seen as one of the fastest growing e-commerce sectors.

Retail e-Commerce sales worldwide will continue to post solid gains. In 2017, it is expected to rise 23.2% to $2.290 trillion. For the first time, e-Commerce sales will account for one-tenth of total retail sales worldwide.

It is fore-casted that in 2017, mobile commerce will account for more than 70% of e-Commerce sales in both China and India, and 59.0% in South Korea. In Germany, the UK and US, mobile commerce will comprise at least one-third of total retail e-Commerce sales.

The impact of e-Commerce on developing countries could be even stronger than that on developed countries because the scope for reducing inefficiencies and increasing productivity is far reaching.

By cutting costs, increasing efficiency and improvements in logistics, e-Commerce has become an important tool for development.  Contact us for assistance in selecting a suitable e-Commerce solution.

What is a payment gateway and what is its role in eCommerce?

For online business to take place, a payment gateway plays a vital role in the ecommerce transaction process by authorizing the payment between merchant and customer. Popular payment gateways include PayPal/Braintree, Stripe, Square and now there is Payinn, which offers a full suite of eCommerce solutions which includes FinTech platforms as well as digital marketing.

Payment gateways vs. Payment processors: what’s the difference?

A payment processor analyzes and transmits transaction data. Payment gateways authorizes the transfer of funds between buyers and sellers.

How payment gateways work?

When a customer places an order from an online store, the payment gateway performs several tasks to finalize the transaction:

  • Encryption: The web browser encrypts the data to be sent between it and the vendor’s web server. The gateway then sends the transaction data to the payment processor utilized by the vendor’s acquiring bank.
  • Authorization Request: The payment processor sends the transaction data to a card association. The credit card’s issuing bank views the authorization request and “approves” or “denies.”
  • Filling the Order: The processor then forwards an authorization pertaining to the merchant and consumer to the payment gateway. Once the gateway obtains this response, it transmits it to the website/interface to process the payment. Here, it is interpreted and an appropriate response is generated. This seemingly complicated and lengthy process typically takes only a few seconds at most. At this point, the merchant fills the order.

Clearing Transactions

The steps outlined above are repeated in an effort to “clear” the authorization via a consummation of the transaction. However, the clearing is only triggered once the merchant has actually completed the transaction (shipping the order). The issuing bank changes the “auth-hold” to a debit, allowing a “settlement” with the vendor’s acquiring bank. The processor is then relied upon to settle all of the vendor’s approved authorizations with the acquiring bank at the end of the day.

Other Payment Gateway Functions

Payment gateways also screen orders with a myriad of helpful tools. This screening process filters out as much fraud as possible. Examples of gateway fraud detection tools include:

  • Delivery address verification
  • AVS checks
  • Computer finger printing technology,
  • Velocity pattern analysis
  • Identity morphing detection
  • Geolocation

If you are looking for a payment gateway solution that is specific to the Caribbean region, Payinn is the answer to your problems.

The Importance of eCommerce Websites to the Modern Economy

There has been a surge in the number of eCommerce websites popping up over the past few years, and with good reason. Internet shopping has not only become more popular, it’s also much safer and more secure than it was years ago, when many people were still wary about giving their credit card details out online. Today, we choose to pay using our smart phones, with a growing number of people using services such as Apple Pay. According to asource, customers using Apple Pay were 92% more likely to complete their transaction.

More and more people are realising how convenient it is to shop online, particularly when they’re looking for goods and services that aren’t easy to find in their local area. This is especially true for people living in rural areas who may find it difficult to travel to the city on a regular basis.

People are also now more informed, giving them control over the buying decision. With the large adoption of eCommerce, consumers have all the information at their fingertips. Consumers dictate how they want to be marketed to and they can now decide where they want to buy from without just looking to the local shopping centre. 51% of Australian for example, research products online before making an actual purchase.

Online Shopping is Growing in Popularity Daily

Online shopping is a thriving market. Retail e-commerce sales worldwide are forecast to nearly double between 2016 and 2020. During an April 2017 survey, 40 percent of internet users in the United States stated that they purchased items online at several times per month, and 20 percent said they bought items or services online on a weekly basis. Not only the volume of online sales shows optimistic figures and projections, but also web and mobile-influenced offline sales are forecast to increase in the coming years. Internet-savvy buyers are determined to spend time researching products online and reading online reviews in order to get the best deal possible. At times they do their research online and end up buying offline. Around 42 percent of U.S. consumers had searched and purchased products or services online, while 14 percent prefer searching online and buying in store.

Shopping Cart Software Makes eCommerce Sites Simple to Use

eCommerce websites these days are built using sophisticated shopping cart software that make it easy for potential customers to navigate through and make purchases from. It is also much easier for business owners to update their own sites and even manage product inventory for both their online and physical store in the one place.

Most websites that offer products or services for sale need to be regularly updated to keep track of current prices, stock quantities and new product lines, so ease of use is incredibly important for the site owner

There are many platforms you can consider when taking your products and services online such as existing marketplaces eBay or Etsy.

However, you may want to consider a more tailored and custom website that’s unique to your business. This option is more beneficial, especially when creating a customer-centric website. This allows you to specifically meet your buyer persona’s needs and eliminate any pain points they may be facing along the way.

There are many options available. Finding a technology partner that can provide you with and all the many pieces of technology for your website is crucial to the success of your eCommerce  business.

Caribbean eCommerce Solutions is a Business Technology firm that fully understands the many challenges faced by the regional entrepreneur.  They are capable of providing you with a wide range of products and services.

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