Rewriting the rules to put technology at the heart of customer-first financial services

Since the onset of the covid-19 pandemic, various trends in digital transformation have reshaped the way consumers and businesses interact.

With the exponential growth of e-commerce and online intermediation, the financial services sector has seen an acceleration in payment innovations.

As a result, at PagoNxt, we developed a one-stop-shop that provides all the payment needs for merchants, SMEs, corporations, and consumers. We established a new, independent company that unifies Santander's most innovative and disruptive payment initiatives. Such intersection of technology and financial services provides us with a privileged view of the current context.

With an eye on the recent evolution, new business models are blooming in the industry, and new players are competing to contribute in the payments market. The most prolific of these players can be split into two categories: fintech and bigtech.

In the case of fintech companies, remaining nimble and collaborative gives them an advantage. A major strength of theirs is their technology-based strategy, making them highly efficient and enabling them to scale through partnerships easily.

Contrary to this, bigtech offers a wide range of services, including pure technological solutions as well as financial services. Bigtechs often have specific gaps they fill when acting as providers of technology solutions. For instance, Google Ads and Amazon Web Services. 

When they become financial service providers, however, the playbook is slightly different. Due to the vast amounts of data they have at their disposal, they typically start with payments, providing a great user experience, and then proceed to offer additional services/products, including loans. Whether they are seeking revenues, collecting more data, or enhancing their own ecosystems, they have a wide range of objectives. However, they tend to dominate, regardless of the objective.

In the financial services space in general, and especially in the payments space, I believe three elements are at play:

• Technology
• Data
• Regulation

Technology: This area is seeing an increase in technology providers providing non-financial services to financial entities in order to operate in the digital world. They also provide a number of services themselves, and in some cases with financial institutions in certain bonds of the value chain. Either way, they are impacting the value chain.

Data: A company's data is one of its greatest assets. Financial services data is voluminous and of high quality - assuming its management is correct, of course. Typically, tech companies have access to different types of data, including customer transactions and almost infinite other information.

Regulation: In the wake of PSD2 and Open Banking, the market has been opened to alternative providers, giving them access to transactional data, the crown jewel in financial data. Fintechs, as well as bigtechs, have been attracted to these regulations, which aim to foster innovation and competition — especially when it comes to payments and lending.

A future-proof regulation that is principles-based (as opposed to overly prescriptive) is in my opinion imperative in the current era when technologies and business models are evolving so rapidly. Keep an eye out for my next blog, which explores this concept in more depth. Regulators should not squash innovation and new approaches because of outdated rules.