Banking-as-a-Service, digital wallets, the rise of digital ledger technology and the demise of cash. All of these are key points that will be addressed in our much-anticipated interview Kit Yarker.
The services of the European payment provider PPS Work with startups and established companies that need a scalable partner to manage their processing, issuance and account-based needs.
Yarker is the company’s product marketing director, and this is where he sat down with The fintech times to provide a fascinating insight into the rapidly evolving payments landscape and to explain how innovative new technologies will rapidly change the way payments are made forever.
So why not tell us a bit about what PPS does and who you want to serve?
PPS has been around for about 22 years, so we are majority owned by Eden red and MasterCard is a joint venture.
PPS started out offering closed-loop gift cards, and we built our own processor to handle that; Connect to retail systems to take the transaction beyond the Mastercard rails or Visas. But then we’ve added more products and features over the years.
We have a full Electronic Money Institution (EMI) license issued in the UK under the Financial Regulator (FCA) and with the Belgian National Bank for EA, which enables us to issue IBANs and accounts across Europe, including the UK.
We are also a core member of Mastercard, allowing us to use our own processor to issue cards across the region.
We do everything on-site and in-house, which means our clients can choose specific services. They can take the whole suite or just choose the modular components they want to use.
We have been running banking as a service and payments with our customers for over five years.
Have you noticed over the past few years that certain aspects of your service have become more popular than other parts?
I think it changes from what we’ve seen in the market, not specifically in terms of PPS, but in general.
Obviously with the rise of neobanks over the years this has been fueled very heavily by the e-money licenses they use and they tend to employ people with ourselves or other companies or they get their own.
I think some of these companies create their own licenses, so the amount of work you do with them is still there, but it tends to change.
What I’m seeing in the industry right now are the opportunities that are really taking off in the B2B space, where companies with their own licenses are looking for their own functionalities.
For example, we have discussions where a customer says, “I actually have my own EMI license, but I need the issuance ability” or “I have the issuance ability, what I need is the ability to give an account”.
I would say four or five years ago it was very much banking-as-a-service where you offered your licensed activities to unlicensed companies with a whole range of things from accounts to card processing.
What we’re seeing now is a trend where it’s a mix. Customers say ‘actually I have some of the things myself, I need help with these things’ or they say ‘actually I don’t need all of them because my value to my customers is that, so I really only need that part of it’.
So I think that companies that can do the modularization and offer their customers that more customized view are the ones that will do well going forward.
How can the market for BaaS products be expected to develop over the next 18 months?
The way I look at the industry, you have banking-as-a-service, with finance underneath as part of that.
And then you have Payments-as-a-Service, which uses other people’s licenses but provides the underlying installations.
When I look at the payments industry as a whole, I find that interesting, and banking-as-a-service is an important part of it.
I think banking-as-a-service, including things like settlement and to a lesser extent card issuance, is becoming more commodity-based.
So there are a number of companies that can offer some or all of these services, and I think what’s going to change in the next 18 months to two years is the value-added services that are out there.
So, besides the license and backend support, what else can I do to help you with that? How can I add this value?
Because when it comes to a commodity, you essentially want to avoid price becoming the deciding factor. Of course, commercials are important, but “how can I help you grow” is also important.
How might digital wallet use cases expand in the future, and will this mark the death of cash?
I actually spoke to someone this week and we talked about youth cards. And they said that the next generation, Gen Z, isn’t as loyal to cash or traditional banks. So now you look at what’s best for them.
I can’t remember which country they specifically mentioned, but they talked about how pocket money was one of the last big things in this market.
People give cash to their children because they want to teach them the physical value of money. But deliver the allowance electronically, and it will slow down the process.
So I don’t think cash is dead, lots of cash is still being used.
And digital wallets are great for people who are familiar with them. But high street retail banks have to offer the traditional approach to the main branches because they have to serve everyone aged 99 to 18.
So they have that heritage, but digital banks and digital wallets don’t have that heritage because they’re purely digital.
I don’t think cash is dead. I think it’s still changing.
Although Covid is accelerating the use of digital wallets, a change that will continue, it will still be some time and cash will be around for a while I think.
Which new payment technologies will have the biggest impact this time next year?
When everyone talks about crypto, everyone just thinks of coins, and there are many different versions of it. Everyone thinks about the money, how do I spend it? But I think actually it’s the distributed ledger technology underneath that is the most interesting.
Because crypto is what it is, you still have to resort to traditional payment methods to access it. So if you think about it from a financial inclusion perspective, you still need to have a physical account somewhere and then buy the crypto to get into that system; so how is this solved?
If we really want to try to bring crypto to the mass market, regulation would have to reduce the risk of banks getting comfortable with it, so it then becomes more tender.
So I think crypto will move on. It’s not going away and will continue to do what it does, but it’s the blockchain technology underneath that will really transform the payments industry.
When I think of the applications of these things, everything from KYC to AI that comes along, we think of the pain points of payments, the cost of KYC, manual dispositions, etc. We have to get it all right, but it can take time.
If you can look at digital ledger technology to get that secure, immutable view, it can really help; especially from a financial inclusion perspective.
If you have people who don’t necessarily get an account because they might have bad credit risk or no credit, which is what a lot of banks base their decisions on, digital ledger technology can really help.
This comes with challenges because if you have bad credit, for example, and you look at them and they’re wrong, you can probably change that, whereas with blockchain you can’t change that.
So are you creating another problem there? Maybe, but I think technology could really start to drive change across the payments industry.