Ask the expert: how can I get to grips with the complexities of the financial services industry?
Greg Watts is our resident expert. He is CEO of Findr, the AI matching platform for fintechs and their partners, and also the founder of Demand Creation Partners, a London-based growth consultancy that helps fintechs and paytechs to scale. A visiting lecturer at the American University in Paris and regular industry speaker, he was previously head of market acceleration at Visa Europe.
QUESTION: How can I get to grips with the complexities of the financial services industry?
Founders and CEOs of fintechs and paytechs are often daunted by the perceived complexities of the financial services industry – and even more so by the prospect of making connections within it.
Having worked in the industry for a number of years, it’s fair to say there are some dynamics that need to be first understood, particularly by new entrants.
This column looks at key players, party models, easy ways to begin building relationships, and tips for establishing partnerships.
- Payment basics.
Card processing consists of two main processes: authorisation and settlement. These processes are together known as the “four party model” (referring to the retailer, acquirer, card scheme/network and issuing bank) and apply to all Visa and Mastercard credit and debit transactions. The processing of other card schemes, such as American Express, is simpler in that the scheme and the issuing bank are the same. This is known as “closed loop” or the “three party model”.
In e-commerce transactions, a fifth party is involved in card processing: payment gateway suppliers are positioned between merchants and acquirers. Their role is to capture and send merchant transactions to the acquirer, at which point settlement is made between the acquirer and the merchant.
- Identify key players to connect with.
There are countless established organisations and new entrants operating within the financial services space. Here are some of the main ones:
- The main payment networks are Visa, Mastercard, American Express and Discover. They sit at the centre, facilitating transactions between consumers, retailers, processors and issuing banks. To receive processing information, a fintech will need to build a relationship with one of the networks to get access to the transaction data, or work with an aggregator such as Fidel or Collinson which can potentially provide a quicker route to market.
- Card issuers are financial institutions that provide payment cards to consumers – for example, an HSBC Visa debit or credit card. These institutions also issue payments to the merchant bank (or acquiring bank) on behalf of customers. In the UK, card issuers are a mixture of high street brands such as Barclays, HSBC, Lloyds and Santander, and new players such as Monzo, Starling and Tide.
- For retailers to be able to accept payments, they need to work with financial institutions – also known as merchant acquirers. Examples include Elavon, First Data, Ingenico, Paysafe and Worldpay; while newer entrants include iZettle, Square and Stripe.
- Finally, payment gateways provide a secure way for customers to enter payment information such as credit or debit card details onto a website. They encrypt customer data via SSL and work with the issuing bank to determine if the payment can be made (e.g. if the customer has sufficient funds). Payment gateways include Klarna, PayPal, SagePay and Shopify.
Each player has different strengths and areas of expertise – for example, some may be more innovative or open to partnerships than others – so it’s important to spend time understanding their businesses and identifying potential areas for collaboration or partnership.
- Sign up to industry news and become a serial networker.
There’s no better way for a fintech or paytech to get to grips with the financial services market than to plunge in and start meeting potential partners, clients and suppliers.
Start by following industry news organisations such as Fintech Futures, which provide daily news and insights together with helpful tools and resources. In these times of social distancing, they also offer excellent webcasts and podcasts with views and opinions from key players in the industry.
Then, join forums through which you can connect with others. Examples include The Emerging Payments Association, The European Women’s Payment Network, and techUK; as well as conferences (when restrictions and travel bans are lifted) such as Finovate. These are great places to meet contacts and influencers, build your knowledge and understanding of the industry, and identify new partners and potential clients.
Finally, sign up to insight platforms such as Crunchbase, which provide valuable corporate intelligence and relevant content, before you reach out to prospective partners.
Bringing it all together
Understanding how the financial services industry works can be challenging at first, but by developing an awareness of the key players and their role in the ecosystem, and understanding how they can potentially add value to your business, you’ll be better equipped for success.