Payments 3.0: Time for Second Thoughts on Fintechs

Sometimes the best advice is counterintuitive, which is why I think that payments executives need to slow down and get back to basics.

When technology is adding new options and speeding everything up, it is easy to fall into a habit of being reactive as each new thing comes up. But, in the long run, this is likely to lead to unexpected and unintended outcomes.

An example of this reactivity to new tech is JP Morgan Chase chief executive Jamie Dimon’s statement that fintechs are a threat to banks. Another example is The Clearing House’s attack on fintechs in a 2020 letter that argued they were unfairly avoiding interchange caps by partnering with small banks.

These examples show how new kinds of opportunities can lead traditional providers to view the developments as threats that will exploit their weaknesses rather than as something they can incorporate as an add-on to their traditional businesses.

But this view of half the picture—threats and weaknesses— offers a clue to the basic analysis framework that any payments company can use to reorient itself. Using the strengths, weaknesses, opportunities, and threat, or SWOT, framework can help companies figure out how to integrate fintech and other new technology into their businesses.

Taking the time to do this analysis correctly could lead to shifts as companies figure out how to convert weaknesses to strengths and threats to opportunities.

Of course, as we talk about shifting categories in a positive way, it is important to recognize they can shift negatively, as well. Strengths can become weaknesses. Opportunities can become threats.

Consider the recent consent orders against banks that have partnered with fintechs. A bank charter that is a strength when it comes to a new fintech business opportunity can become a liability when the bank does not meet its regulatory requirements and faces the threat of regulatory action.

The fluidity of the categories seems to argue against using the SWOT framework. But that fluidity allows for creativity, as well.

Take the example of the big banks. Their size seems to put them at a disadvantage in issuing for fintechs because of the reliance on interchange in the fintech sector. But forcing a move away from dependence on interchange should lead them to ask what other business models are available to an issuer with their size and resources.

With a large product suite, they should be able to create other opportunities for program managers. Looking at it another way, they might decide the third-party issuing business is not for them. Maybe they’ll use their scale to compete directly, instead.

In May, the Innovative Payments Association held its annual conference, and I was asked what the theme of the conference was. We had speakers on artificial intelligence, faster payments, bank partnerships, and fraud, among other topics. Our goal was to give the attendees a look at the big picture concerning the forces that were shaping the industry.

One attendee told me the value of the conference came from having a couple of days to think about the emerging big picture, away from day-to-day responsibilities. It is easy for a columnist to do this kind of thinking because I’m not worried about the next quarter’s numbers.

Companies need to assemble SWOT teams with the same kind of freedom. These teams should include, or have access to, all departments so they can build out ideas and strategies while avoiding the pitfalls of innovation.

The organizations that invest in generating long-term strategies will be the ones that will be the most successful in the long run.

—Ben Jackson bjackson@ipa.org