The past decade has seen many different digital transformation trends reshape the way consumers and businesses interact never more than in the wake of the covid-19 pandemic.

The financial services sector has seen an acceleration in payment innovation, with online intermediation and e-commerce’s exponential expansion being perfect demonstrations of this new reality.

We have realized this in PagoNxt as we developed a one-stop-shop that provides all the payment needs for merchants, SMEs, corporates, and consumers. We created a new, independent business that brings together Santander’s most innovative and disruptive payments initiatives. And this positioning in the intersection of technology and financial services provides us with a privileged view of the current context.

As we analyze the recent evolution, we see the blooming of new business models in the industry and new players participating in the payments market all competing for a slice of the profit pie. 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 a competitive edge. They are good at one specific element, their technology-focused strategies make them super-efficient and they can scale easily through partnerships.

Conversely, in the case of bigtech, activity ranges from the provision of pure tech solutions to entering into the financial services space. When acting as technology solution providers, bigtechs tend to fill specific gaps. Google Ads or Amazon Web Services are probably good examples. However, the playbook when they enter as financial service providers is quite different. They typically start with payments, providing a great user experience due to their access to great swathes of data, and then likely start offering additional services/products, such as loans. Their objectives can range from searching for revenues, more data or enhancing their own ecosystems. But they tend to dominate, whichever is the case.

I believe there are three elements at play when it comes to bigtechs in financial services in general, but is especially true in the payments space:

• Technology
• Data
• Regulation

Here’s why:

Technology: Advances in this area mean technology providers have a role in providing non-financial services for financial entities to operate in the digital environment, as well as provide a number of services on their own, competing in cases with financial institutions in certain bonds of the value chain. Either way they are impacting the value chain.

Data: Data is one of the key and most valuable assets in business. Data in financial services is voluminous and high quality — once managed correctly, of course. Typically, tech companies can master data based on actual transactions from customers alongside almost infinite other data points to offer insights into customers’ needs before they even have to ask. This leads to highly competitive customer-centric approach to service provision.

Regulation: The dawn of PSD2 and Open Banking have played a role in opening up the market for alternative providers giving access to all players to transactional data, the jewel in financial data’s crown. With the objective of fostering innovation and competition, these regulations have attracted not only fintechs but also bigtechs — especially when it comes to payments and lending.

I strongly believe that in the current context where technologies and even business models evolve at such a fast pace, a future-proof regulation that is principles-based (as opposed to super prescriptive) is very much needed. It is important not to squash innovation and new approaches because of outdated regulation. Stay tuned for my next blog which will explore this concept in more detail.

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