‘Faster, Open and Embedded’: A Journey into The Fintech State of the Union Report

by James · December 15, 2022

At this year’s Money 20/20 USA in Las Vegas, Fintech Times stopped at Discover^® Global network stand to hear more about the latest Fintech State of the Union Report.

The second annual research study of 451 Researcha part of S&P Global Market Intelligenceand commissioned by the global payments company Discover^® Global Network, identifies emerging trends shaping the fintech ecosystem, including connected commerce, open banking, embedded finance and real-time payments.

This research study is one of the most comprehensive of its kind, gathering the views of 4,000 consumers and 850 senior fintech decision makers in seven countries to establish new trends within the ecosystem from both points of view, as well as the interest and appetite for partnerships and collaborations. while we follow these trends.

Jordan McKeeresearch director at 451 Research, and Kiran Pookote, head of network strategy at Discover Global Network, held a special session at Discover^® Global Network Booth at the Venetian Conference Center during this year’s Money 20/20 USA, to discuss the findings of the informative study.

The Covid effect

Jordan McKee, Principal Research Analyst, Customer Experience and Commerce, 451 Research — Jordan McKee, Principal Analyst, 451 Research

McKee began the session by providing context to the research, particularly with a light on the Covid-19 pandemic and its effects on both industry and society.

“It was interesting in consumer research last year, going out into the field for the first time and really starting to feel the effects of Covid increasing in the market in terms of the digital acceleration that we’ve all heard so much about,” McKee said. “When we did the survey this year, we saw that play out in a big way.

“Eighty-seven percent of consumers globally now have at least one fintech application on their smartphone. There was also a huge amount of activation around digital payments, with 78 percent of consumers globally telling us they used at least one digital payment service in the past 90 days,” McKee continued.

“Users are now more comfortable engaging with intermediaries that are not necessarily financial institutions and engaging with different types of financial experiences outside of those that we might consider more traditional.”

The banks still matter

The study, which McKee shared, had three “big picture” takeaways highlighted during this session.

The first was that payment networks and banks have an incredibly strong role to play in helping fintechs get to market and drive innovation.

McKee said: “When we looked at the consumer survey, the big message was that banks still matter. And not only do they matter, but consumers look to banks to provide validation as they enter a new payment experience.

“We saw that across all the different types of digital payment services that we asked about, banks were the preferred provider.

“Nine out of 10 fintechs are heavily or somewhat dependent on payment networks as part of their strategy or operations. And what we heard from fintechs in the research was that they really valued the role of payment networks in bringing credibility to their business, in terms of their global reach and in terms of their scale, and they’re looking for partners that can provide flexibility and can innovate and collaborate with them.”

Kiran Pookote, Head of Network Strategy at Discover Global Network

In response, Pookote observed how the evolution of the fintech space has influenced how Discover thinks about partnerships: “Discover is leaning into this need for partnerships and we’re very excited about that.

“As we look at the capabilities and experiences our cardholders can have, it’s important to partner with game-changing fintechs so we can deliver those new experiences together.”

According to Pookote, Discover has already begun to see much of that success through fintech partnerships citing the example of partnering and investing with Finexio, B2B accounts payable (AP) payments-as-a-service company.

“We see these fintechs as our next set of partners, and we are just as enthusiastic as the fintechs to find these partnerships.”

Watch Fintech Times chat with Jordan McKee and Kiran Pookote, head of network strategy at Discover Global Network

Faster, open and embedded

The other key takeaway from the report revolved around how the survey data kept coming back to three words: “faster, open and embedded”.

McKee said that “consumers are looking for payments and financial experiences that move faster than how they move today. They want financial experiences that are more open and collaborative in nature, and those that are embedded in experiences and applications that they already engage with themselves, such as real-time payments”.

He shared a similar view when surveying fintechs’ response, with three out of four fintechs citing banking-as-a-service and embedded finance as an area of relevance to their business. “You’re seeing the financial services distribution model evolve in a dramatic way,” McKee said.

Open banking was also an area of importance to the industry, with McKee observing that 77 percent of fintechs indicated that open banking was relevant to their business.

On these trends, Pookote added: “When we look at the two trends [open banking and faster payments] and how fast they’re being adopted, we’re really interested in what are the right use cases and what’s the best way we can add value as we expect these trends to continue. It’s about identifying the use cases for faster payments and open banking – it’s not going to be a ubiquitous solution. It’s going to gain traction in the specific use cases that might be B2B payments, then we’ll see how it expands to other areas.”

Safety and trust

The final key takeaway from the survey, according to McKee, is how strong security and trust must be at the foundation of any innovation in the industry to drive the adoption of new experiences.

“Security of personal information was the number one factor consumers look for before making that decision to embark on a new digital payment experience. Before they think about ease of use and convenience, they think ‘how will my personal information be secured?’

“As we think about the future and trends like open banking, this is going to be a challenge for the industry to overcome,” McKee said. “We saw in the research, particularly in the US, that 55 percent of consumers are concerned about sharing their financial data securely with third parties. Ensuring that trust is built and strong education around the mechanisms in place to protect consumers, is absolutely crucial before we start to see adoption increase in new areas.”

As for the value Discover can bring to the fintech ecosystem in this area, Pookote said that “as much as this experience changes, the consumer’s need remains: ‘Is it easy for me to use this?’ “Can I pull it out wherever I go?” “Is it safe for me to use this?” We have been a network for a long time and have deep expertise in this area as well as long-standing relationships with many of the partners throughout the ecosystem, so we can help fintechs connect with them in a safe and secure way.

“We also have many rules and regulations that we have developed over a long time that we continue to improve and develop to ensure that everything that runs on the Discover Network is safe and secure and is a brand that consumers trust.”