Innovation is not a competition. If both incumbents and startups in the fintech market would just accept that, mobile wallets and broader payments applications would have already been realized, according to Jonathan Vaux, executive director of Visa Europe.
For example, Vaux said, within the mobile payments space everyone is trying to figure out who owns the consumer data. The mobile network operators, handset manufacturers, banks and merchants are fighting to control the user experience, with each arguing that the customer is rightfully its own.
"The whole argument of disintermediation has driven a lot of poor behavior," Vaux said.
The glacially slow uptake in Near Field Communication (NFC) contactless mobile payments is related to this bickering, said Vaux. "It wasn't a technical problem, it was a commercial problem.
When everyone is trying to plug its own branding or checkout or authentication, the process becomes cumbersome quickly. And so the consumer just tunes out.
But Apple is doing it right, Vaux said.
With the release of Apple Pay which supports NFC for in-store transactions, the tech giant has brought a new wave of attention to the proximity technology. Some worry about Apple overshadowing both the merchant and bank's brand, but Vaux disagrees.
Consumers are unlikely to go to a different grocery store than usual just because it supports Apple Pay, he said. And when a consumer uses Apple Pay inside a grocery store, such as Whole Foods, they still see the store's branding all around them. Banks aren't disintermediated either since consumers will still go to their bank's website or mobile app to view account balances and individual charges, he added.
Plus early numbers of Apple Pay adoption and use in the U.S. are significant, showing benefits for all parties in the payments flow. Whole Food Market has seen mobile payment activity increase by more than 400% and Panera Bread reported that 80% of its mobile payment transactions are initiated with Apple Pay.
While Apple has been a champion in getting industry support in the U.S.launching with 750 banks and several large retailersthe system has a significant rival in the U.K.: VocaLink, the bank and building society-owned payments provider that manages the Faster Payments System in the country.
On top of the Faster Payments rails VocaLink has built several applications: Paym, which allows consumers to send funds to other consumers with just their mobile phone number; and Zapp, which allows consumers to pay merchants through a bank account.
Zapp is set to launch for e-commerce this summer. When a consumer pays with Zapp online, they get a notification on their mobile device asking them to log in to their mobile banking account; the mobile device then displays a Zapp code, which is input into the Web checkout. In the future, a consumer would go through a similar process to use Zapp for in-store payments.
Zapp cuts the card networks out of the payment flow, and this business model has stirred some rivalry in the U.K. from Visa Europe, which is owned by some of the same banks as VocaLink.
But Vaux said Visa Europe isn't worried about the competition. One player cannot be all things, he said.
"Faster Payments is a set of rails. I'm not challenging that set of rails...but it's a fairly narrow set of rails," Vaux said. Merchants won't want customers having to make payments through their mobile banking app, instead they'll want payments to be made within an integrated app.
But the technology for those apps will have to come from players that have a clear value proposition and significant scale.
A significant amount of the innovation in payments is "very imaginative," Vaux said. Many of the "disruptive" players have systems that work technically but aren't scalable because of the complexity of the payments environment, he said. This is especially important as it relates to risk management, where more time in the space equates to better evaluations of risk.
Banks are starting to understand the benefits of working with the disruptors, though. Financial institutions might not be a conducive environment for experimenting with new technology, but many banks are beginning to work with startups either through accelerators or hackathons.
Barclays Accelerator powered by techstars, for instance, chooses ten companies to support and mentor for 13 weeks. This week, the London-based accelerator announced its next participants. They include PQ Solutions, a cybersecurity provider building encryption to beat attacks from quantum computers; Atlas Card, a Bitcoin debit card provider; and Stockfuse, a gaming platform for talent selection.
In these mentorship relationships, the risk stays with the startups, but once it's proven a use case and scaled, the bank seamlessly brings them in, said Vaux.