Payments and Fintech Innovation Can Provide Compelling Customer Experience

During a session at the recent Money20/20 Conference in Las Vegas, Kausik Rajgopal, director, McKinsey & Company, discussed some aspects of the company’s new report, “Payments on the Crest of the Fintech Wave,” and how this burgeoning area can provide compelling customer experiences.

“Ten years ago, John Shepherd-Barron, who invented the ATM, predicted the end of cash within a decade,” Rajgopal told attendees. “And while we’re still waiting for that, it’s unquestionably true that payments innovation and fintech innovation are at an all-time high.”

According to the report, Rajgopal said that there are about 2,000 fintech startups, with around 900 representing the payments industry.

“It represents a significant point of entry into the customer relationship,” he said. “We believe payments will be a significant portion of fintech innovation.”

While there are 2,000 fintech startups, Rajgopal said, many of them will fail.

“While we expect a big failure rate, we also believe there are pockets where fintech experiments will succeed with greater speed and alacrity,” he said.

Rajgopal noted the following three factors as reasons for the failures of most fintech startups:

Risk and regulation considerations

Credit and business cycles

Cost of customer acquisition (most important threshold factor)

“Around the world, another exciting thing going on in payments is the upgrading of infrastructure,” he explained. “Several central banks are creating upgrades for faster payments. This year the United States will write seventeen billion checks. That’s more than the next fifty-five countries combined.”

Putting the customer first and designing compelling propositions for use cases that really matter to customers will be crucial, Rajgopal noted.

“We estimate that cross-border payments are growing four to five times as much as domestic payments,” he said. “We’re seeing very interesting innovations around the world where entire businesses are agiler or they are bringing together functions. This, in turn, impacts the velocity whereby they can reach out and engage with customers.”

What’s more, Rajgopal noted is the top-of-wallet dynamic.

“Seventy percent of digital shoppers will not change their primary card in digital wallets,” he said. “For issuers, this is a battle for relevance. The customer is in control. Those companies that succeed will break through and create more compelling businesses.”

Rajgopal related a conversation he had with a friend that compared 1999 to the present.

“In 1999, I had had to buy servers,” his friend told him. “Today, I can scale a business on the public cloud. And that lowers the barriers to entry, creating greater opportunities for innovation.”

Rajgopal is excited about the future of payments and fintech innovation.

“We believe it’s an extraordinarily interesting time, with the lowering of the barriers to entry, the rising computing power, the ubiquity of mobile devices, and perhaps the most exciting thing; that customers are in control,” he said. “The winners, whether they are incumbents or newer players, will be the ones that deign the most compelling front-end customer experiences and deliver them with the greatest efficiency.”

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