Fintech

We’ve teamed up with Plaid to help make payment processing faster, more efficient and more secure. Before we dive into how it all works let’s get to know each of them a bit better.

Meet VoPay

VoPay is a leader in payment innovation, digitizing direct bank payments with speed and transparency. The VoPay Platform enhances how digital platforms initiate and accept financial transactions using a single, open API.

Meet Plaid

Plaid is a technology platform and data network that enables applications to connect with users’ financial accounts. They focus on lowering the barriers to entry in financial services by making it easier and safer to use financial data. Today, they support developers across North America and Europe.

How VoPay + Plaid Payments Work

VoPay layers Plaid’s Auth, Identity, Balance, and Transactions solutions over top of its core payment engine to deliver the most powerful EFT payments solution in the market.  The result is a seamless payment experience with reduced NSFs, verified bank accounts and improved payment speed.

Current Payment Challenges

There are three main hurdles when it comes to existing EFT payments:

1. Lack of visibility: Paper checks or electronic payment systems for bank account payments do not allow visibility into the bank account at the time of the payment.

2. No traceability: Businesses accepting check or electronic payments can not track the payments, the status of the transaction or when the funds will be available.

3. High risk: The current paper check and electronic payment service do not offer balance verification at the time of transaction.

Common Payment Use Cases

Some of the most common use cases include lending and market places where the solution can dramatically reduce NSFs, optimize cash flow, streamline back-office operations and improve payment security. Another would be legal and real estate where you can increase revenue with significantly reduced fees and decreased chargeback risk.

In summary, together VoPay + Plaid payments improve efficiency by verifying user identity and bank information prior to processing the transaction, minimize NSF fees by having visibility into available funds and reduce the access to funds time to just 24 hours.

Are you a developer? View more details here.

Hundreds of millions of small businesses require immediate financial relief through government funding in order to stay afloat—and keep economies functioning. But traditional financial institutions and current infrastructure cannot support the sheer volume, scale, security, and timeline of the necessary loans. That is why Canadian and U.S. governments should look to innovative fintech companies to deploy emergency funds quicker.

After President Trump signed the $2 trillion CARES Act, the Small Business Administration (SBA) Administrator Carranza and Treasury Secretary Mnuchin announced a mobilization effort of banks and lenders to supply U.S. small businesses with capital. Canada also announced official funding plans for SMBs on March 27, 2020. 

“Small businesses are the backbone of our economy and an important source of good jobs across this country,” Canadian Prime Minister Justin Trudeau said in his statement. “They are facing economic hardship and uncertainty during the COVID-19 pandemic, and that is why we are taking action now to help them get the financial help they need to protect their workers and pay their bills.”

However, there is a snag in the COVID-19 financial response plans for small businesses in both countries. The scale and timeline of the demand for assistance to keep SMEs afloat are greater and more serious, according to Finance Canada’s top concerns, than that which traditional financial services can currently meet. 

Meeting the scale and timeline of SMEs relief loans

In an open letter to the Government of Canada, the Canadian Lenders Association (CLA) asked to extend the proposed economic stimulus package for small businesses to include financial technology (fintech) lending options. While the fintech community, of which VoPay is a proud member, stands prepared to offer digital lending services, a few steps must also be considered.

In the FDATA COVID-19 letter to Finance Canada and the Minister of Innovation, Science and Industry, they state the need to formally recognize the essential role that fintech companies can play to deliver financial services. The association explained that tens of thousands of truly small businesses (MSMBs) in Canada, such as restaurants, auto repair, and retail shops, may not be adequately served for three reasons:

1. These businesses don’t meet traditional financial institutions’ credit requirements
2. Loan amounts by these businesses are relatively small, making them lower priority
3. The volume of time-sensitive credit requests may overwhelm traditional financial services

How fintechs can support COVID-19 SMB relief funding

In a recent FDATA statement, Fintech Lending to Small Businesses During COVID-19 Response, the association aimed to encourage Canada’s financial institutions to enable their customers to gain access and control over their own financial data. Unfortunately, as we discussed in our post, Healthy Competition Among The Einsteins And Edisons Of Fintech, some financial institutions have taken actions to limit access to essential data that powers digital tools. 

If consumers (and business owners alike) had access to their own financial data, they could continue to use third-party fintech tools to help them manage their money and financial wellness remotely. The choice would be in the hands of small business owners and consumers over who gets access to their data—and what they use it for.   

Learn more about the benefits of Open Banking wherein consumers would have control over who uses their financial data and for what purposes. 

The same goes for accessing capital in this time of need. Current financial infrastructure does not have the bandwidth or capacity, according to FDATA, to adequately service the financial needs of small businesses in this crisis. It is time to turn to fintech lending for additional support. Many of these institutions have already turned to innovative, secure fintech companies for mutually-beneficial partnerships.  
Scale, timeline, and security have thus become unnecessary blockers for moving forward. Innovative fintech companies, VoPay included as a secure payment solution built for lenders, have long since overcome those challenges. VoPay offers real-time funding through bulk e-transfers and reduces withdrawal NSFs and returns through next-generation, tokenized EFT/ACH.

Many people around the world have lost their jobs, had hours cut, and are facing financial crises during this challenging time. Of the many things that have been drastically affected, consumer habits are among them. Some of these consumer changes, however, may turn out to be positive and stay for the long term.

Cash, for example, is no longer king at brick and mortar shops. It’s been replaced with contactless payments, such as debit and credit cards, for health and security reasons. The same goes for paper versus digital cheques, as another digitization example. 

With so much financial and economic uncertainty and upheaval taking place, people are becoming more aware of their financial situations and wellness. They are taking control of their finances and managing what they can. Hopefully, this greater awareness of one’s financial wellness may stick around once the health and safety risks pass and normalcy resumes.

Making the best of a bad situation: Fintech apps to manage finances

Nearly one million people applied for employment insurance in Canada, for example, in the wake of the coronavirus outbreak. While some bill payments can be deferred, expenses tend to add up, especially when little to no income is coming in. 

A recent National Post article referenced Erin Lowry’s financial advice book called “Broke Millennial.” In it, they discuss an emergency plan for paying bills, which includes assessing the damage, stalling fixed debt, prioritizing your needs, and riding your credit cards. 

Depending on the individual’s financial situation, this last point should be a last resort. Credit card debt can be crippling in interest payments over the long term. Wherever possible, spend what you have on essentials. For example, when making bill payments or shopping for essentials online, use your chequing accounts rather than your credit cards to avoid extra debt. We wrote posts about how ACH and EFT transfers work for more information on digital payments that don’t increase credit card debt.  

When it comes to managing money, such as assessing the damage and prioritizing needs in an emergency, consumers may need help. That’s where financial applications come in. Thankfully, there are hundreds of financial applications available right at their fingertips. We wrote about 15 helpful fintech apps that might even come in handy during this time. Consumers can stay on top of their finances, bills, savings, income, debt, goals, investments and so on right from their phones in various apps. 

Fully functioning fintech applications and open banking

However, earlier this year, the Financial Data and Technology Association (FDATA) of North America released data that 1.8 billion consumer accounts in the U.S. could lose functionality to financial apps they depend on. The FDATA North America determined that impacted consumer and small business use cases would include:

• Over 530M loan accounts that help consumers with retirement planning, debt reduction, and financial wellness
• Over 310M accounts to help Americans manage account balances, provide overdraft protection, and make on-time payments
• More than 330M investment accounts
• More than 210M accounts to help Americans save and move money
• Almost 200M transaction accounts
• Almost 140M accounts to protect Americans from fraud and provide identity authentication
• Over 100M credit accounts

All of these various financial application accounts used by Americans every day could be affected if screen scraping was prohibited and only the largest financial institutions’ APIs were available because required data fields would be lost. The other, more convenient, consumer-friendly, and secure alternative is open banking. 

Open banking gives consumers power over their finances. Consumers have the choice to use (and approve) fintech applications in order to support their financial goals and wellbeing now and in the future. 

Even before the coronavirus outbreak, people were increasingly using cashless payments and digital checks (or e-checks) over cash, coins, and paper checks. What may have started out as a convenience, has—in the midst of a global health pandemic—also become the smarter and more hygienic way to pay. This is especially true as more people turn to e-commerce, digital payments, and digitized checks to transfer money (and pay bills) safely from the comfort of their home.

Money, of course, changes hands frequently multiple times every day. It is a very high-touch surface. However, since the COVID-19 outbreak, people and businesses have been avoiding cash for this very reason. To be clear, the World Health Organization did not confirm that banknotes transfer the virus. However, according to Bain & Co. partner, Thomas Olsen, there is a “psychological factor” for many people who believe it to be unclean and so choose to avoid it.

“Cards only” is quickly becoming the norm in brick-and-mortar businesses. 

This way of thinking may not only accelerate the already growing use of cashless, contactless, and digitized checks now but also in the future. Many of the same hygiene practices that we have become used to during this time, may stick with us in the future. Cashless payments and digitized checks, which we’ll discuss in more detail, are among them. 

Digitizing checks: Say goodbye to paper checks

Digital, digitized, or electronic (e-)checks performs the same function as a traditional paper check. However, digitized checks come with modern perks such as convenience, lower costs to issue, increased security features, and faster turnaround. Paper checks take days to process and are often fraudulent or bounce. Digitized checks can be delivered in real-time with the same day or overnight fulfillment. 

This time savings alone—not to mention the cost and convenience factors—should be enough to finally say goodbye to paper checks. In the U.S., for example, check payments fell 7.2% per year from 2015 to 2018. But it’s still not entirely gone. In Canada, for example, financial institutions still process nearly a billion checks every year. 

We wrote a post called Paper To Plastic To Digital Payments: Evolution Of Credit Cards And Checks if you’re interested in further reading. 

Why are nearly a billion checks still changing hands in Canada when there’s a modern, convenient, faster, cheaper, and more secure alternative? “People default to what’s familiar, unless there’s something to jolt you out of it,” Jodie Kelley, CEO of the Electronic Transactions Association told CNBC recently. “Contactless payments have come up as a new option for consumers who are much more conscious of what they touch.” What if this same thinking applied not to just contactless payments, but to paper checks as well? 

Ready for a secure and safer world of digital checks and payments

There are services, albeit VoPay included, that processes and verifies digitized checks—and digital payments, invoices, bulk e-payments, you name it—almost instantly. When it comes to digitizing checks, no physical material ever needs to be touched or changed hands. Personal financial information, such as our bank account details and bank branch numbers, ever need to be mailed or shared. 

What if we took it one step further, moving beyond an electronic version of a paper check and tokenized the whole process? At VoPay, for example, the entire digital payments and digital checks system are tokenized. We wrote a post about tokenization and digital payment security, but essentially, it means that we’ve scrambled (algorithmically) the bank information and issued a secure token in its place. 

During this time of health and safety uncertainty, many of us have turned to online shopping and delivery and digital banking to pay our bills or accept money transfers. People are steering away from handling cash back and forth. It’s a safer, more secure, and more convenient way forward. We believe that the same holds true of paper checks.

Learn more about digital payments and VoPay.

For every disrupted industry and category, hundreds of innovative startups seem to appear overnight. Some are better at others on capitalizing on the disruption. On revolutionizing old and dated systems. They aim to make the world a better place than how they found it. Customers (and fellow fintech companies like VoPay) take notice. 

Today we’re highlighting 5 companies in particular that are making the financial lives of customers—be they entrepreneurs, business owners, investors, or average consumers—better. 

5 disruptive companies making the financial world better

1. Qwil: Granting cash flow access to SMBs and freelancers

Cash flow can make or break a business. This is especially the case for small, medium and gig-based freelance businesses that rely on payments to make their business run from month-to-month. Many companies are popping up to fill this need, offering user-friendly and accessibly priced fintech services, along with access to capital. 

Qwil startup is doing just that, supplying on-demand capital and automated global payments to SMBs and freelancers. The company has raised over $160 million from financial companies and fintech investors to help improve the financial wellness of entrepreneurs around the globe. Qwil provides Liquidity as a Service (LaaS) and contingent workforce, giving its SMB users control over their invoicing and payments, and granting access to liquidity. More than 500 companies use their services for digital media financing, freelance marketplaces, and invoicing and payment automation.  

2. Currencycloud: Making global money transfers affordable and accessible  

Sending money between countries is worth some $700 million annually—and many innovative businesses are capitalizing on the globalization of remittances. Currencycloud is one of them. This London-based startup specializes in international payments and collections. 

Currecycloud has over 85 remittance APIs in 180 countries, allowing financial businesses to easily integrate its cloud-based platform and payment infrastructure into existing systems. This helps clients get paid, exchange currencies, and manage everything from digital wallet services to inbound and outgoing payments. Currencycloud recently raised $80 million to help take on the world’s Western Unions—and make international money transfers easier, more efficient, accessible, and affordable. 

3. FrontFundr: Democratizing Canada’s private markets 

Although private markets are growing faster and having higher returns than public markets, the average retail investor hasn’t been able to participate. FrontFundr aims to change that, leading the charge for the democratization of private markets in Canada. FrontFundr is Canada’s leading equity crowdfunding platform and exempt market dealer. 

Since its launch in 2015, the fintech’s community has over 15,000 investors and has raised over $20 million in its platform. The company anticipates raising nearly $15 million in 2020 alone through its investment crowdfunding platform. As of December 2019, FrontFundr has become an official participating dealer on DealSquare, which is Canada’s first-ever centralized dealer platform for private placements. 

4. Finhaven: Tokenizing and disrupting traditional capital markets 

Finhaven is set to revolutionize and disrupt the traditional capital markets, seeing their challenges as opportunities. This Vancouver-based fintech company is building a tokenized global investment banking and securities exchange platform for issuing, investing, and trading. It’s high-capacity cryptographic ledger and platform provide solutions for identified blockchain limitations. For them, the future of capital markets is in security tokens. 

Finhaven is focused on increasing capacity, liquidity, immutability, audibility, and, of course, security. Their technology will help customers (global issuers and investors alike) raise capital and trade faster and more cost-efficiently than ever before. They help companies access capital through digital currencies while enabling tokenized security and governance for any blockchain transactions. 

Learn more about tokenization and digital security in our recent post. 

5. Unimoni: Empowering customers with universal money

Financial services today are transcending boundaries, borders, currencies and channels. They aim to allow consumers to move money wherever it needs to be as quickly and affordably as possible. Unimoni is one company that’s leading the charge. 

Unimoni, part of Finablr, is a global provider of money transfers, foreign exchanges, payments and credit solutions worldwide. This company has in-store services, online and self-serve kiosks in countries across the globe—supplying a one-stop financial solution for its customers. It’s parent company, Finablr, spans over 170 countries, processed over 150 million transactions in 2018 and managed nearly US$115 billion for customers. 

Interested in learning about more innovative fintech companies? Read our 15 fintechs to look out for in 2020 blog.

The world’s greatest inventions don’t exist in a vacuum. They cannot be attributed to one person or company. They compete with each other and build on past learnings. Innovation thrives with competition.

Even now, the Edison Awards’ discuss the importance of healthy competition in order to innovate. History hasn’t removed this necessity to compete, innovate faster, discover something first, or use and build on the learnings of others. The article references a PwC survey that said that 80% of CEOs believed that innovation drives efficiencies and leads to a competitive advantage. For every Steve Jobs, there must be a Bill Gates.   

The same goes for the financial technology (fintech) industry. Healthy competition fuels innovation. 

Healthy competition and innovation in the financial industry

But, just like how Edison published his findings and many built upon his inventions, fintech companies today require this same openness in order to compete. They need data and access to it. They need open collaborations. Permission to innovate. Permission to create a better world (or product, service, or experience) for the people.  

In order for the fintech industry to innovate, compete, and build on the learnings of others—just like Edison, Westinghouse, and Tesla did in the late 1800s—open banking must exist. 

Open banking and competing to innovate

We wrote on the meaning and importance of open banking in the past, but to save you time, here’s what it means. Open banking is the sharing of data. It is the collaborative innovation between banks and innovators such as agile fintech companies. Open banking gives consumers the power to give innovators access to their data. Without this permission and data, companies are innovating in the dark with missing information and a lack of access. 

Without open banking, competitive innovation is challenging at best and nearly impossible at worst. But beyond just the lack of innovation that this could trigger, without open banking or similar means to get data and information, the functionality of millions of applications could start to fail. 

Innovation and functionality in fintech without open banking 

In fact, in a recent post called Financial Wellness Apps Bank On Credential-Based​ Authentication, we discussed findings that the Financial Data and Technology Association (FDATA) of North America published in January 2020. The data showed that 1.8 billion fintech consumer accounts in the U.S. would lose functionality to financial apps they depend on without open banking and similar competitive options. 

Broken down into parts, the impacted consumer and small business use cases in the U.S. alone would include 530 million loan accounts or fintech apps for retirement planning, financial wellness, and debt reduction. Over 310 million accounts that help people manage and pay their account balances on time or provide overdraft protection could lose functionality. More than 330 million investment accounts and 210 million accounts that help Americans move and save money could no longer work. This is just the tip of the iceberg.

Demand and competition fuels the unstoppable innovation train

Back when Edison invented the lightbulb, people used candles and fire to light and warm their homes. When the richest among them were given the opportunity to use lightbulbs powered by electricity, lightbulbs that they paid for and chose to use. They were a welcome novelty. Soon they became more efficient, effective, cheaper, and accessible. Consumers still had the choice to bring electric light and power into their homes, but the improvement to their way of life was dramatic.

This same freedom of choice for consumers must continue to exist today—as does the need for healthy competition among innovators (and inventors). People use financial applications to improve their lives and financial wellness. They rely on them and need them to function properly. Without open banking and the collaborative and competitive innovation and sharing of information, what does the future of fintech hold for us? 

Open banking gives consumers a choice over what innovations, products, and services they support. Open banking provides data and learnings and necessary for innovation and healthy competition. Without open banking—a regulation that only the U.K. is currently blessed with—only those with the information can innovate and compete. Currently, this is financial institutions. Unless these major banks of the world collaborate with innovators, which they often do, there won’t be any healthy competition, inventions, or progress. 

Without healthy competition in the financial industry, we’d all be signing cheques in the dark. 

There has never been a more exciting time in banking than now. Financial wellness apps and digital tools help users manage their finances, automate their savings, boost their credit, track their spending and investments, and create and follow budgets. Consumers and businesses have control over their finances right from their phones or desktops. The list of innovative fintech companies and the use cases for their financial wellness apps goes on and on. Just see our recent two-part series on 15 fintech companies to look out for in 2020 to see what we mean. 

However, in order to continue to allow users access and full functionality to these apps, fintech companies require data—and, more specifically, permission to access it. 

The Financial Data and Technology Association (FDATA) of North America released a January 2020 white paper on credential-based authentication that could affect billions. The data shows that 1.8 billion consumer accounts in the U.S. would lose functionality to financial apps they depend on. This could happen if screen scraping (which we’ll define shortly) were no longer allowed and only the largest financial institutions’ APIs were available to users. 

Today, we’ll unpack this statement and supporting statistics, looking at what credential-based authentication means for the future of banking. 

What is credential-based authentication?

All digital platforms—websites, applications, social networks, etc.—require some authentication that the owner is who they say they are. Some websites’ authentication credentials only require an email and a password from the owner. That is called password-based authentication. 

Others, especially those linked to financial accounts with sensitive data, require further identification and verification for protection and security. These require credential-based authentication, such as name, email, password, date of birth, and account details, such as a bank account number, or extra verification through another connected device. This is credential-based authentication. 

Another form of authentication that many fintechs are moving toward, including ourselves here at VoPay, is through tokenization. We recently wrote a post called Tokenization: The secret key to digital payment security. 

In the post, we explain that tokenization is a form of credential-based authentication that adds an extra layer of security to consumers’ sensitive information and is more user-friendly. Tokens are a kind of credential that is far superior to anything that passwords and email addresses could ever provide. They can only be created by the credential owner and the information provided is algorithmically scrambled to protect against hackers decoding the information. These tokens replace and retain the essential information, not unlike a secure lockbox. 

Impact of credential-based authentication on fintech apps

This superior level of identification, verification, and security is essential to protecting consumers’ sensitive information. But it is also essential for fintech applications to function and support the users effectively. Unfortunately, many innovative banking tools that consumers (could) use on a daily basis, are working with missing data or are screen-scraping to fill in the blanks. 

Screen scraping is the process of collecting screen display data from one application to another. Most often, this is done as a last resort and captures data from an older, legacy application to display it through a modern app or website. Having to screen scrape in order to provide a modern service to consumers makes a great case for open banking—or the collaborative sharing and use of financial data. But that’s another story, which you can read here. 

If screen scraping was prohibited, open banking never comes into effect, and consumers were to rely only on applications built by major banks, what would happen? How would fintech companies that provide financial wellness apps be impacted? The short answer is that without all of the user data—and access to it—they cannot function fully. 

According to the FDATA North America data, the impacted consumer and small business use cases in the U.S. would include:

• +530 million loan accounts for retirement planning, financial wellness, and debt reduction
• +310 million accounts to manage and pay account balances and provide overdraft protection
• +330 million investment accounts
• +210 million accounts to help move and save money 
• Almost 200 million transactions accounts 
• Almost 140 million accounts fighting fraud and providing identity verification and authentication
• +100 million credit accounts 

In the end, credential-based authentication is essential for encouraging innovation and competition in the banking and technology sector. It gives consumers the power to control who has access to their financial information and the choice of what they want to do with it. It gives them the freedom, tools, and support to manage and improve their financial wellness like never before.

This post is based on the comprehensive findings published by Payments Canada in its annual 2019 Canadian Payment Methods and Trends report. 

Canada exchanges almost $210 billion worth of payments and financial transactions on average every business day. More of these transactions take place electronically each year as Canadian payment systems and business processes go digital. According to Payments Canada’s 2019 Canadian Payment Methods and Trends report for 2018, the payment market grew to 21.1 billion transactions worth more than $9.9 trillion. 

Here is a look at the most significant findings and statistics for both Point-of-Sale (POS) and remote transactions in Canada in 2018.

Canada’s cashless payments: Point-of-Sale (POS) stats

Point-of-sale (POS) transactions take place either physically or virtually via online and e-commerce vendors and payees, brick and mortar merchants, or mobile and in-apps. This space is undergoing massive growth, evolving largely because of electronic payments and to support mobile e-commerce. 

Fast facts on Canada’s POS transaction growth in 2018 

The big picture of POS in Canada

1. The total volume of POS transactions in 2018 was 15.7 billion.
2. The total value of POS transactions in 2018 was over $856 billion.
3. The average POS transaction value was $54 in 2018.
4. In the last five years, POS volume has increased by 5% and value by almost 25%.

Types of POS payments: Debit is king in Canada

1. Debit cards are now the most widely used payment method at 6 billion transactions, overtaking cash transaction volume for the first time in 2017. 
2. Contactless debit made up 60% of the total volume of contactless transactions and 35% of the value. The average debit transaction was $42.
3. Credit cards are the second-most-used POS payment method in volume and had more transactional value than all other POS methods combined in 2018.
4. Despite 4.5 billion POS cash transactions—it continues to decline every year, down 40% from 2013.

Mobile wallets and contactless transactions

1. Mobile device and contactless card payments totalled 4.1 billion transactions (a 30% increase since 2017) and $129.9 billion value in 2018.
2. More than one-third of Canadians used a tablet, phone or device to make a purchase in 2018.
3. Canadians who use credit contactless payments tend to be younger, have higher earnings and live in British Columbia and Ontario.

E-commerce POS and credit cards

1. Approximately 20% of all of Canada’s shopping has migrated to e-commerce.
2. Credit card usage is faster growing than debit because of rewards points and the perceived ease-of-use and security for e-commerce.
3. Canadian online merchants and businesses lack diverse payment options for e-commerce.

Canadian businesses love remote payments (and EFTs)

Remote transactions and payments are all those that don’t require a POS device or application. This often means that payors rely on a third party such as a bank or financial technology partner to route payments through Electronic Funds Transfers (EFT), cheques, and other payments. A few examples include bill payments, direct deposits, pre-authorized payments, and P2P and B2B transactions. 

Fast facts about remote payments in Canada

1. There were a total of more than 4.5 billion remote transactions in 2018.
2. Remote transactions totalled approximately $9 trillion in value in 2018.
3. These transactions make up 91% of the total Canadian transaction value, but only 25% of the total volume.
4. The average remote transaction value was $1,993.

Electronic Funds Transfer (EFT) transactions: Number one for businesses

1. EFT transactions are the leading payment method for businesses both in value and volume—and overtook cheques for the first time in 2018.
2. EFT growth lessened from its growth spurt in 2017 but accounts for 49% of remote payment value.
3. Electronic payments totalled 73% of the total payments volume and 59% of value in 2018.
4. The average EFT transaction size was $1,718 in 2018. 
5. EFT and cheques dominate remote payments in Canada totalling $8.8 trillion in combined value, but credit cards and online transfers are growing quickly.

In the end, Canadian businesses are continuing to move all systems, including payments, to digital. While they are not letting go of paper cheques and cash as quickly as consumers are, they are increasingly adopting electronic payments. Business owners and consumers will always seek more efficient, faster, and easier ways to make payments. 

Learn more about VoPay and how we’re digitizing payments in Canada.

Before plastic cards, credit cards were made of paper and contained a customer’s important banking information. This may sound archaic, inefficient, and insecure, depending on your age and whether you’re one of the millions of people who still use paper checks (or cheques). 

For one reason or another, the evolution of checks to safer, more convenient plastic checking or debit account cards never eradicated the original paper version. Canada, for example, processes nearly a billion checks every year, even though it still takes days to process (and they’re fraught with fraud). Likewise, unlike the rapid credit card evolution to mobile wallets and instant online payments, the evolution of checking accounts to instant online payments has had slower adoption. 

Let’s consider the history and evolution of both credit cards and checks—and predict the (present) future of online bank payments. 

Motivated innovation: The credit card evolution

In 1970, IBM launched a pilot project with American Express and American Airlines. They developed the first-ever magnetic stripe—that would become integral for the evolution of credit cards, bank cards, ticketing systems, passports, and the like around the globe. The back of every bank card could now automatically store personal financial data. This discovery was not only revolutionary, but it was also essential. 

IBM was building computer systems and needed a way to increase adoption. Airlines needed to streamline the ticketing and boarding process. Banks wanted their customers to be able to automatically withdraw and deposit money from remote locations.  

The biggest innovation motivator, however, for evolving credit cards was the uptick in fraud in the 1960s. A mechanical imprint and signature to verify someone’s identity may seem questionable today, but consider how far we’ve come. Back then, a merchant had to make a carbon copy of a customer’s credit card, handwrite the cost and tax, physically deposit the slip at the bank, and wait for bank tellers to manually check the signature and account for funds and against known fraud accounts. Only then could they approve or reject the payment. 

The several-day lag time between purchase and account verification opened customers, merchants, and banks up to all kinds of security, NSF, and fraud risks. Unfortunately for paper checks, this archaic security risk is still a present concern. For processing credit cards, the archaic carbon paper machines that manually “charged” credit cards quickly became a thing of the past. 

In the midst of this credit card revolution, in 1977, there were 8.2 million credit cards in circulation. Of course, we know that credit card evolution and innovation didn’t stop there. The 1990s saw the emergence of EMV chip smart card technology and its simple and automatic tap and instant approval system. By 2008, mobile wallets launched to improve Apple sales. Online shopping using credit cards and mobile wallets have taken off. By the end of 2017, the average American held 3.1 credit cards—and the outstanding debt they can hold.

Checks to debit cards to digital payments 

Interestingly, both credit cards and debit cards benefitted from and evolved with innovations like the rise of plastic, magnetic stripes, and EMV chips. Yet the former tends to send its users into crippling debt. In the third quarter of 2019, credit card loans reached $1.08 trillion in the U.S. The rise in credit card use over the decades has seen with it a rise in outstanding consumer debt. 

What if innovation and further adoption in the checking sector could put an end to that? The hassle of having to go to a bank to deposit a check, for example, and wait for days for it to be processed should be a thing of the past. Just like the carbon paper slips for credit cards. 

The same goes for processing and verifying digital payments for checking accounts. Since checking accounts have undergone digital transformation, the banking industry has seen a rise in more secure and efficient technologies thanks to financial technology companies and banks working together. For example, ACH (Automated Clearing House) payments in the U.S. or EFT (electronic funds transfer) in Canada transfers money online between accounts. Examples are direct deposits and online bill payments. These transfers between checking accounts online are becoming faster, more secure, and easier than ever. 

The future of checking accounts and digital payments 

At VoPay, our Intelligent EFT / ACH (iQ11) technology processes and verifies digital payments instantly—without the security risk of sharing credit card information online or mailing a paper check. In fact, with our intelligent EFT and ACH solution and secure partnerships, no financial information is ever shared. The entire system is tokenized (stay tuned for an upcoming blog post on what that means for your safety and security). In short, personal financial data is replaced with an algorithmically generated number. 

This is the future of online banking, payments, and shopping. Customers can work their way out of credit card debt by instead using their debit cards online, anywhere, instantly, and securely.

With the dawn of our new decade comes innovations, connectivity, speed, ease, and security in banking like never before. It is a thrilling time to be in digital banking. Payments can be made in an instant by merely saying the words aloud, tapping our phones or even driving. The future of digital banking is now and it’s invisible, open, and highly connected. 

Here are the top five trends in digital banking for 2020 and beyond. Perhaps most interestingly, yet unsurprisingly, is how connected they are. One cannot thrive or exist without another. 

The future of digital banking: Top 5 trends for 2020

1. Invisible banking and payments

Invisible banking is just as it sounds: banking behind the scenes that takes place automatically or with a simple tap or even drive by. It’s banking that we don’t have to think about, explains Penny Crosman’s in the American Banker article, The Rise of the Invisible Bank. 

Invisible banking happens behind the scenes when, for example, we tap our mobile phones to pay for transportation, coffee, or gas. It takes place with voice banking when we tell Alexa or Siri to pay a bill or transfer money. Invisible banking connects to our mobiles, wearables, laptops, POS applications, cars, and other Internet of Things (IoT) products. 

Invisible banking—and invisible payments, for that matter—happen everywhere, all around us, and at any time. Every device can accept and transfer payments, pay bills, save money, or invest it. We can now pay when, how, and wherever we want.

VoPay is a great example of invisible payments at work. Users connect their bank account and can make digital payments instantly and easily from then on without a second thought. In 2020 and beyond, invisible payments like this will be the new norm.

2. Mobile payments

Analysts predicted that mobile payments would hit the $500 billion mark by 2020. That represents a yearly growth rate of approximately 80% in five years. That is major growth, but not unsurprising. Mobile innovations have changed the way humans live, work, connect, and now bank and make purchases.

In our two-part blog series, 15 Fintech Companies To Watch In 2020, we discussed only some of the hundreds of innovative financial technology companies on the rise. Revolut, for example, is a tech company that is now one of the world’s fastest-growing bank account providers. Fintech companies are leading the shift toward mobile banking—and millions of mobile users are signing up for their applications.    

3. Open banking

In order for invisible banking, invisible and mobile payments, and innovation in the digital banking sector to continue to boom, we need open banking. We wrote a post on open banking, which dives into much more detail, but essentially it means “open bank data.” It is the sharing of customers’ financial data between banks and innovators, such as VoPay and other fintech companies. Collaboration for a greater purpose, if you will.

4. Financial wellness 

The digital transformation of banking and payments will be powered by both banks and fintech companies. Working together. Financial data ownership and control has been a challenge for years. Banks own the data that fintechs require to innovate. Yet, we’re seeing more countries begin to consider open banking regulations and more banks and fintechs are entering into equally advantageous partnerships.  

The challenge with invisible banking is that because it happens without much thought (not unlike breathing, according to ING’s CIO, Benoit Legrand), users will have to take extra care to keep track of their money and spending. Kristen Berman, a scientist and lab co-founder at Duke University said that ‘overarching trends in money have had mixed results for financial wellness.’ Essentially, financial apps have made it too easy to spend money. 

There are, of course, mobile applications to counter this issue. In our 15 Fintech Companies To Watch In 2020 post, for example, we discussed many financial wellness applications that aim to help us to budget, save, invest, improve our credit, spend less, and learn more about financial literacy in general. 

For example, Alan McIntyre of Accenture explained in the American Banker article that “the U.S. banking industry still has tens of billions of dollars of insufficient-funds fees and we’re getting to a point where technology should save customers from that.” However, fintech companies like VoPay aim to put an end to this: digital payments can be secure and easy for consumers, without the non-sufficient fund fees and risk for merchants.

5. Security, service, and AI

Regardless of how, where, and when consumers and merchants choose to bank, they will always demand superior security and service. When it comes to digital banking, security is of the utmost importance. 

It is essential for fintech companies and banks to continue to innovate security solutions and be transparent about data use. As open banking regulations come into play, consumers will own and control their personal financial data. Giving up this data control does not loosen the implied and expected security that consumers need from their banks, third-party fintechs, merchants, and other service providers. The coming years will see new developments in payment security and authentication, especially via AI and Machine Learning. 

When it comes to customer service and user experience, there is, however, a fine balance between AI and human support. Customer support can be automated and digitized to a point. After that, humans are increasingly wanting human support and connection to help troubleshoot or problem solve. McIntyre explained that Accenture’s research found that the majority of people want the reassurance of talking to a human being. 

Learn more about VoPay and the future of digital payments.