- To compete with financial institutions (FIs), payment service providers are developing a range of financial services.
- The rising popularity of service providers means that firms have huge client bases with which to push financial solutions.
To compete with financial institutions (FIs), payment service providers are developing a range of financial services.
Insider Intelligence
In an effort to increase revenue and build loyalty, FIs are being challenged on the following areas: lending, bank account products and issuing. Square, Stripe, Shopify and other payment disruptors are using their relationships to small businesses to draw clients away from FIs, and persuade them to use their financial products.
Two trends are driving service providers’ pushes to financial services: one is from their industry and another is from banks and fintechs.
Service providers are gaining popularity and have huge client bases that they can use to promote financial solutions. These service providers have been helping millions of customers digitize their business operations and processing their payments for many years.
Their ranks were further boosted by the rapid response of clients to help them move their businesses online. Square saw a 26% increase in card-not present gross payment volume (GPV), and Shopify saw a 1.1 million merchants grow from the end 2019 to 1.7 millions by 2020.
Small businesses are more likely to engage with service providers’ networks than banks. This is because they can be involved in day-today operations such as managing workers and processing payments. This could give small businesses greater trust and affinity with their service providers.
This presents a great opportunity for service providers to increase growth by offering additional financial options to loyal customers. However, they must cater to their individual needs such as quick access to funding and dynamic repayments that take into account their performance.
New digital distribution models for financial services have given service providers the tools they need to offer clients financial services. BaaS (and embedded finance) have emerged from digital banking.
BaaS is a way for banks and fintechs that offer their services directly to the public. Embedded finance allows financial products to be integrated into other platforms. This provides service providers with the opportunity to either distribute their own solutions or use products distributed by banks and fintechs in a similar fashion.
Together, these trends have enabled service providers to be the financial services industry’s biggest star. Although service providers may have different methods of deploying financial solutions to clients, the success of each company in this space will be determined by its unique relationship with their clients.
These relationships are affected by their existing nonfinancial offerings. Therefore, their past operations may be just a as important to their financial service pushes than their financial services.
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This article was originally published by eMarketer.
