Real-Time payments market landscape; What are tokens and how do they work in payments?; Stylised Models in the cross-border payments market;
Hold onto your hats, we brought some exciting insights and news in the financial world with the latest edition of Fintech Wrap Up!
Insights & Reports:
1️⃣ What are tokens and how do they work in payments?
2️⃣ Real-Time Payments Market Landscape
3️⃣ EMV Tokenization for all devices, channels, and payment use-cases
5️⃣ Stylised Models in the Cross-border Payments Market
Curated News:
1️⃣ London’s iwoca secures £270M funding to support one million small businesses
TL;DR:
Hey there! Let’s dive into the world of payment tokens and what they mean for businesses like ours. So, imagine tokens as these nifty digital stand-ins for your regular payment methods. There are a few flavors: PSP tokens, which are kind of like exclusive club memberships tied to specific processors, PSP-agnostic tokens that offer more freedom across processors, and network tokens issued by big shots like Visa or Mastercard for broader use. Now, PSP tokens can be a bit like having your favorite coffee shop loyalty card — great there but not much use elsewhere. Meanwhile, PSP-agnostic tokens are like having a pass to any coffee shop in town. And network tokens? They’re like the VIP pass that gets you into every coffee shop, no questions asked. Then there’s EMV tokenization, which is like turning your favorite coffee shop loyalty card into a digital version that works everywhere, from your phone to your smartwatch.
Real-time payments are booming worldwide, especially in places like India and Brazil, and the way we handle cross-border payments is evolving too, with things like correspondent banking and fancy interlinking arrangements.
Oh, and if you’re thinking about jumping on the generative AI bandwagon for payments, remember to keep it aligned with what we’re already trying to achieve — it’s like adding extra foam to your morning latte, it’s nice, but it should still taste like coffee.
Guess what? London’s iwoca just scored a whopping £270 million to help out a million small businesses like us! They’re flexing their financial muscles with £150 million from Citibank and Insight Investment to fuel their expansion in Germany, plus another £120 million from Barclays and Värde Partners for the UK scene. This isn’t their first rodeo either; they’ve already bagged £200 million in funding from the same Barclays-Värde duo last year. Looks like they’re serious about giving SMEs the cash they need to thrive.
And speaking of banks, JP Morgan Chase is shelling out an extra $100 million as a penalty for some trade surveillance mishaps — yikes!
But hey, on a brighter note, UK fintech wonder Abound is joining the funding frenzy, snagging up to £0.8 billion to make fair credit more accessible. They’re on fire, hitting profitability just three years after liftoff. It’s like the fintech Avengers assembling to save the day — and our wallets!
Insights & Reports
What are tokens and how do they work in payments?
✅ PSP tokens
A PSP token is a token issued by a single payment processor. Most PSPs offer built-in tokenization, however PSP tokens are only valid for the processor that issued it and are not easily transferable between other processors.
This can lead to major complications for businesses who work with multiple payment processors, like enterprise merchants do. The average enterprise merchant works with four or more processors as routing transactions over a variety of PSPs increases payment success and lowers costs. However, if you want to use an existing PSP token with a new or different processor, you will have to initiate a token migration with the processor that has issued the token. In practice this is a near impossible process, because it’s not possible to just migrate cards from one PSP to another because PSPs do not support outgoing and incoming integrations of each other.
✅ PSP-agnostic tokens
PSP-agnostic tokens, on the other hand, are fantastic for medium and large companies that require both control and flexibility over their payment processing. PSP-agnostic tokens offer the same benefits as PSP tokens with the key difference being that PSP-agnostic tokens aren’t tied to one specific payment processor, meaning that these tokens can be used across multiple processors without locking in the merchant with one single service provider. If you start with a PSP-agnostic token to begin with, then you can avoid the entire hassle of the migration process.
Real-Time Payments Market Landscape
The first RTP network was launched in Japan in 1973,8 but it is only over the past five years that growth has exploded. Today, there are over 80 RTP networks operating around the world that accounted for 195 billion transactions in 2022 (18% of all global electronic payments transactions). ACI estimates that this market will grow at a compound annual growth rate (CAGR) of 21% to reach 512 billion transactions by 2027, representing 28% of all payments transactions. Most of this growth will come from EMEA (21% CAGR) and Latin America (29% CAGR).
Emerging economies such as India and Brazil account for the majority of RTP transactions. These two countries alone represented ~61% of global RTP transactions in 2022.10 India launched their RTP network, Immediate Payment Service (IMPS), in 2010 but it was only in 2016 that growth really exploded with the rollout of their Unified Payments Interface (UPI). The system enabled real-time payments across numerous channels (P2P, C2B, B2B, and C2G) through mobile numbers, QR codes, and virtual IDs.11 In 2022, UPI facilitated ~90 billion transactions representing ~45% of all transactions in India. Brazil’s PIX instant payments network is driving a similar change in that country, as is the NIP system in Nigeria where cash transactions fell from 95% in 2019 to 80% in 2022.
Curated News
London’s iwoca secures £270M funding to support one million small businesses
Iwoca, which claims to be one of Europe’s largest SME lenders, has announced a £270 million package of debt funding. Made up of £150 million from Citibank and Insight Investment to fund expansion in Germany, and £120 million from Barclays and Värde Partners for the UK. It takes the total investment for iwoca to more than £1 billion, followed by a £200m in funding from Barclays and Värde Partners in October last year. The investment will support iwoca in meeting the growing demand for finance from SMEs.
