It’s been another busy week in the world of payments and commerce, with the expansion of installment point of sale (POS) credit and digital banking.
Jeremy Allaire, CEO at Circle, joined Karen Webster to discuss Afterpay’s brick-and-mortar expansion, PayPal’s Pay in 3 rollout in the U.K., and Revolut reportedly getting close to applying for a U.S. banking license.
Here are excerpts of their discussion:
Alt Credit Ramps Up Ahead Of Holiday Shopping Season
There was no shortage of news in the installment payment space this week.
Afterpay went in-store with major retailers in the U.S., while PayPal rolled out Pay in 3 In The U.K. in time for holiday shopping.
“We’re probably actually in the early innings of this,” Allaire said of installment payments.
“We’ve seen some incredible companies building incredible scale, but when you look at the … underwriting value that’s in … their products today and you compare that to the amount of underwriting value in credit cards, which is sort of tied to this kind of legacy payment instrument, there’s a lot of market share to take there,” Allaire said.
Allaire noted that is the power of applied artificial intelligence (AI), which people can interact with anywhere. Risk decisions to be made in milliseconds, he said, and they can perform better than many underwriting models in traditional credit card companies.
“I think this is a huge shift. I think that this just-in-time credit is going to be growing … and it’s going to take, share from cards and take share from banks. And [that is a] mega trend,” Allaire said.
Digital Banking Innovation
Among the big headlines this week was that European digital bank Revolut is reportedly near applying for a U.S. banking license.
The FinTech is reportedly likely to apply for a charter with California’s Division of Financial Institutions and Federal Reserve Bank of San Francisco in the next few weeks.
On the news, Allaire noted that an increasing number of products and services are wanting to enable their users to hold dollar balances and have more ways to use them.
“We have a digital dollar account infrastructure,” Allaire said. “People can integrate that and use it in their products and services. It’s aimed at exactly that problem space, which is more and more commerce players want embedded FinTech.”
Allaire also noted that the trend of neobanks or FinTechs becoming banks is going to continue and regulators are opening the door for that to occur.
“I think we’re going to see a flurry of that as we go into next year. There was a time, of course … where even just a few years ago … like a new bank charter hadn’t been issued in like a decade … but now because of FinTech and all these firms … that’s really changing. It’s changing quite quickly,” Allaire said.
Webster agreed with Allaire that there’s such an opportunity to embed financial services banking-like products in other applications — and it’s for the convenience of the business or the consumer whatever the application happens to be.
The consumer will ultimately decide what banking services mean to them, Webster noted, and they will have a number of options to choose from.
A consumer used to go to a brick-and-mortar branch that was important to her and access her money through any number of products that the bank offered.
With the latest innovations in digital banking, that, of course, could change.