Viktoria Soltesz, CEO & Founder at PSPAngels shares her thoughts with fintechview, in an exclusive thought leadership article, on how competitive is the business, the essential role of the CPayO and how the industry lacks education while the “choices” in payments keep increasing.
Business is more competitive than ever. Globalization and innovation are at the forefront of every company’s roadmap, however, for some unknown reason, payment and banking knowledge is still considered something that finance is taking care of. This is a BIG mistake!
The main issue is that there is no formal education on Payments and Banking today. We can learn about some FinTech areas like compliance, blockchain or card payments but there is no overall, unbiased and independent source which would explain where it all started, how banks think and how money actually moves internationally today.
Even more alarming: the ones who manage payment and banking tasks are not adequately trained to do so. Key areas such as how payments and banking affect technology, UX, compliance, and other essential aspects in a business remain absent from accounting, economics courses, and MBAs.
The Danger of Not Knowing
In reality, companies handle their payment and banking flows on scattered internal expertise: finance teams concentrate on fees, legal handles the contracts and tech integrate and manage the systems. So far so good right? Well, not if you want efficiency and avoid fire fighting mode when issues happen.
When various departments are working together, cash flow happens “somehow” – but it’s not necessary cost effective, nor safe. Current decision makers seriously lack a complete view of the entire money flow, from the initial customer payment through who holds the funds and how, to final settlements to providers. This creates a huge, blind risk.
The Power of FinTech
As we all know, money laundering and fraud is taken very seriously lately, and there is hardly any business or person who never experienced any payment of banking related issues at least once in carrier. Banks and payment providers have full right to shut down a payment channel or close an account at any second, if they suspect fraud – real or not. They can amend pricing and even hold back settlements – but this means the whole operation might be facing unknown risks, or even worse: might be even shut down, overnight.
FinTechs and banks, like it or not, have more seeing in our business as we want to accept: they can directly influence which product or service can expand steadily and which will encounter abrupt interruptions. How did we even get here?
The History of FinTech
Conventional banking practices used to fit the offline world perfectly, but as soon as businesses started to sell online and went global, these ongoing rapid demands and changes caused products, regulations, and frameworks to shift quickly as well. It all started with early card acquiring services, which gave birth to global E-commerce as we know it.
VISA and Mastercard were the original players who made internet purchases common and safe. For years, these online transactions were handled by banks and a handful of FinTech challengers like PayPal. However, a few years ago, FinTech expansion accelerated substantially when regulators believed that banks had a monopoly over their clients and gave way to new contenders: challenger neobanks and new wallet providers.
FinTech means financial technology, and both “fin” (regulation) and “tech” evolved very quickly into a whole new industry with its own jargon, rules, and players. These firms could get involved in financial services without having a full banking licence, which meant that the focus shifted to developing quick sign-ups and customer-friendly interfaces, while the actual financial product became secondary. The payments moved from banks to websites, and suddenly thousands of anonymous transactions were handled by less regulated financial institutions worldwide.
Even though it seemed like the merchant’s opportunities increased significantly, in the background, the fundamental operations still continued to rely on a handful of established banks that kept on managing all fund transfers globally and took all the blame if something went wrong.
The Middleware
While FinTech sold financial products on a promise of greater speed and ease of access, traditional banking infrastructures were still the ones who were performing all the acquiring, issuing, clearing, settlement, international transfers, and correspondent banking functions. Tech and innovation created a new layer of various intermediaries to repackage and resell these old financial products under a new front end, but they still relied on the traditional, classic infrastructures of the global banks’ network to execute the actual work.
Numerous merchants therefore assumed that they partnered with fully independent entities and diversified their risk around their funds when in reality, the same few banks continued to handle their money via various front-end applications.
The Inception of Payment Providers
FinTech created the perfect ground for the inception of payment providers. By setting up white-label partnerships and reseller contracts, the financial products became a franchise, where resellers could open their own brand while piggybacking on the FinTech’s onboarding, correspondent channels, and technology.
Middlemen started to multiple, as by creating various added layers to the same flow, they could attract new customers: one layer added a fraud protection, one created an easy-to-integrate API for CRM systems, and one brought orchestration. However, the same underlying bank at the end of the chain was still the one who was processing all transactions and holding all the funds.
Every FinTech sold their options to another one, who then sold it to another one creating one long chain of various execution layers where everyone added their own part of profit as well as tech frictions and risks. And the best part? The clients were unaware they were sold the same product multiple times – via various resellers, terms and fees.
The Illusion of Choice
Today, the merchant has an abundance of options through varied interfaces, risk acceptance, and pricing, but remains unaware of the actual risks when the underlying acquiring banks or the traditional infrastructures go belly up, and all these payment channels cease functioning at once. But identifying who stands behind each provider requires deeper analysis than standard due diligence, because these interdependencies and processing arrangements are rarely public.
Merchants face especially hard times when trying to impellent various payment options such as open banking, QR payments, wallets, crypto, and myriad others, which are all regulated differently and preferred by certain customers. Only an experienced and seasoned payment guru can identify via hidden information and non-public communication channels where funds sit, how settlement timelines work, and how charges distribute across banks, platforms, and intermediaries.
Ignorance Is a Bliss
A few years ago, we had a client who was proudly explaining to us how they perfected their payment flows by using a new gateway. This middle layer was indeed helping them with fraud, offered alternative payment methods and also took care of orchestration: if one of their clients’ initial payments failed, the platform automatically directed the traffic to the next available payment provider. The client was certain that no technical or regulation glitch could cause any disruption and assumed that the integrated three separate payment service providers secured them enough protection. However, in reality, all three providers were just front-end ISOs and resellers of the same acquiring bank. So when that one underlying bank faced issues due to the Silicon Valley Bank’s collapse, they were utterly surprised that their carefully structured gateway setup, based on these three providers also ceased operation at the same time. Of course, what you don’t know, you don’t know.
Why Education Matters
Today, only a handful of people understand how the complex system of payment and banking actually works. FinTech sales is motivated to sell: to onboard new merchants and not to educate them about their alternatives. The worst part is the lack of transparency: introducers are often the people we trust: the accountants, the lawyers or those free “payment experts” who are all selling their merchant to the highest bidder, earning commission of their lack of knowledge.
Only an independent payment and banking education can bring clarity across this entire chain and help the organisation build a strategy which considers every department what payment and banking affects: customer experience, risk management, technology, product development, data security, compliance, finance, and more.
Payment and banking should be considered a standalone function, an essential element of the business strategy, not just a part of finance. Only a full understanding around payments and banking can guarantee smoother scaling, stronger provider negotiations, and realistic expectations around safety and fees, which ultimately protects both revenue and reputation.
The Rise of the CPayO – The Chief Payment Officer
This is why the Chief Payment Officer role became increasingly important across growing organisations. Today companies can no longer innovate and develop products without considering how they will get paid for it, how they will pay their suppliers, and how in between their funds are held exactly.
The Chief Payment Officer role is senior enough to oversee all cash flows and approach payment and banking decisions holistically, evaluating providers and understanding how to negotiate fees and terms. Monitoring the ever-changing FinTech landscape and understanding all various FinTech products, opportunities, risks, fees and related tech is a full-time job on its own, but following regulation in various countries to assess fund handling risks and also align this all with business strategy demands special skills and education.
Leadership by design cannot understand how money moves, who controls it, and how each decision impacts stability and growth, as this is a never-ending battle where the best options are only temporary.
But, as business is more competitive than ever, if you snooze you lose.