Paper Example. Impacts of Paypal and Square on Payment Processing Channels

The presence of an increasing number of new online payment opportunities and different payment institutions offer individuals several alternative payment platforms where they could make their choices (Trütsch, 2016). In the contemporary market, customers can make payments through more than nine payment institutions in the United States alone (Boot, 2017). Most of the traditional payment services are currently experiencing much competition from various nonfinancial and novel companies such as PayPal and Square, among others (Rutherford & Zaman, 2017).

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Such companies are increasingly gaining a larger market share within the retail payment markets with some innovative products such as mobile payments that are highly convenient in payment processing. As such, the influence of the choice of payment system has increasingly attracted attention from various researchers (Rutherford & Zaman, 2017). This paper delves into understanding how Fintech companies such as PayPal and Square have changed their payment processing channels and how organizations such as JPM need to adapt to the new landscape in order not to lose the customers and market share.

How the Fintech Companies Have Changed the Payment Processing Channels

Although the development of digital banking is still in its early stages, most entities have taken steps in this direction, and more bank projects have been designed for the future (Trütsch, 2016). The Fintech companies are embracing financial inclusion, which is essentially the incorporation of various individuals into the financial system, replacement of the traditional bureaucratic financial process with some agile systems, as well as reduced transaction costs. The Fintech companies promote digital banking that would offer products at lower costs than the traditional banking and expedited process of product adaptation to consumer needs.

Studies indicate that the financial and socioeconomic attributes of consumers are highly relevant to the choice of payment. More educated and younger consumers are more likely to use electronic payment instruments as compared to the less educated and older people (Rutherford & Zaman, 2017). The term Fintech has always been defined by the Financial Stability Council simply as the innovation process within the financial sector. Fintech companies have created innovative and disruptive services and products due to new technological trends.

The most significant change that has been brought by Fintech compared to the traditional bank accounts lies in the cost, speed, and improved accessibility (Boot, 2017). For instance, in the traditional financial environment, even some of the most basic banking features for receiving, storing, and sending funds are only accessible to the bank customers and are associated with some archaic processing fees and time (Trütsch, 2016). As such, Fintech companies such as Paypal and Square allow the customers worldwide to store, receive and send currencies at no costs, just internet connection, and a smartphone only (Dubey et al., n.d). The Fintech companies come with a lot of efficiencies and security compared to the traditional financial approaches. For instance, through using the fintech companies, transactions are made faster and safer across the globe (Boot, 2017).

Although entering Fintech is not much difficult, there is a need for commitment from various banks to change specific processes. Many banking services are currently embracing Fintech, and the disruptive changes are emanating from digital technologies. The fintech platform has permitted funds to be transferred at costs that are remarkably lower than other traditional financial alternatives (Rutherford & Zaman, 2017). One of the best-known business models of this kind is PayPal. Paypal permits the customers to send money, receive payments as well as control the account balance.

The creation of this service on Appel in the form of Appel pay and Aliexpress in the form of Aliexpress has facilitated transactions between users (Dubey et al., n.d). Fintech companies allow for new financial approaches, investment consultation, and personal financial management (Trütsch, 2016). For instance, fintech companies are highly dedicated to managing the financial information of a customer (Boot, 2017). It focuses on the automatic extraction of all the financial information from the customer's account and compiling them in such a way that permits easy visualization and clear understanding (Boot, 2017). An example of such a company is Fintonic.

The critical factor in Fintech is business agility (Rutherford & Zaman, 2017). An agile company is that which is able to detect and respond quickly to change and with confidence. Just like many other sectors, the financial industry is rapidly evolving (Boot, 2017). For instance, competition within the financial sector does not only come from the local banks but also from new actors such as Amazon, ApplePay, Google, and Bitcoin, among others, which indicates disruptive proposals for the generation of certain innovative financial services (Trütsch, 2016). Some of the main reasons why Fintech has triumphed within the financial sector is that it is easy to use, able to adapt to customers' needs, flexible, and that it could be accessed in comfort without having to travel long distances (Boot, 2017). As such, they make financial services more efficient, transparent, and low cost to enhance attractiveness to the services (Rutherford & Zaman, 2017).

How Organizations Such As JPM Need To Adapt To The New Landscape In Order Not To Lose The Customers And Market Share.

Organizations such as JPM could adapt to the new landscape through promoting financial inclusion of the Fintech (Boot, 2017). Currently, JPM has established a financial solutions lab that fosters Fintech offering financial inclusion solutions. Such companies could also consider partnering with fintechs to improve the consumer offerings of the banks. Through collaborations, organizations such as JPM have the opportunity to leverage the full potential of the technology offered by Fintech, thereby enabling them to meet the demands of most of the digitally savvy users.

Research indicates that the appetite for digitally active users had risen significantly from 1 in seven digitally active users in 2015 to one in three users in 2019 (Trütsch, 2016). This indicates that almost 80% of the consumers are aware of the fintech facilities compared to only 60% in 2017. Such exponential growth in adoption rates could blur the boundaries between various financial services, thus laying down new standards for the industry (Boot, 2017). As such, financial firms such as JPM will have to benefit from the technical support from fintech startups to remain ahead of the curve. The partnerships between the financial institutions and the fintech startups will provide access to the financial resources necessary for future growth. With the collaborative effort, their businesses will be sustainable and scalable in the long run.

A report by Rutherford and Zaman (2017) also indicates that collaboration rather than competing with the fintech startups could provide fresh technological solutions for the local banks such as JPM (Dubey et al., n.d). Shared services are likely to improve product offerings through data analytics tools such as predictive analytics, thereby offering some deeper engagements with the customers.

For financial institutions such as JPM, such collaborations and partnerships will imply a data-driven strategy with low redundancy, lesser cost, increased efficiency, and solid technical know-how. Banks can then reduce their structural costs, promote regulatory compliance, and provide more time for value-added tasks for the employees (Rutherford & Zaman, 2017). The unified effort could create a solid financial system that is workable for all. Thus, such engagements need to work with a strong level of security, highest integrity, and greater transparency with the aim of reaping the full benefits of the next wave of technological innovation.

In conclusion, the presence of an increasing number of new online payment opportunities and different payment institutions offers individuals several alternative payment platforms where they can make their own choices. Some of the main reasons why Fintech has triumphed within the financial sector is that it is easy to use, able to adapt to customers' needs, flexible, and could be accessed in comfort without having to travel long distances. Organizations such as JPM need to adjust to the new landscape in order not to lose customers and market share. They could achieve this through collaborations and partnerships with fintech startups. Through collaborations, they have the opportunity to leverage the full potential of the technology offered by Fintech, thus enabling them to meet the demands of most of the digitally savvy users.

References

Boot, A. W. (2017). The Future of Banking: From Scale & Scope Economies to Fintech 29. European Economy, (2), 77-95. https://usfl-new.wp.hum.uu.nl/wp-content/uploads/sites/232/2015/09/Boot-The-Future-of-Banking-European-Economy-2017.pdf

Dubey, V., Sonar, R., & Mohanty, A. Fintech's Impact on Payments Domain. https://www.researchgate.net/profile/Vivek_Dubey6/publication/342663281_Fintech's_Impact_on_Payments_Domain/links/5eff37cca6fdcc4ca4477cdb/Fintechs-Impact-on-Payments-Domain.pdf

Rutherford, L., & Zaman, S. (2017). Unleashing the potential of Fintech: Developing effective working relationships with the private sector. https://thecommonwealth.org/sites/default/files/inline/FMM%2817%29%28BG%292%20-%20CCBG_Fintech%20Discussion%20Paper.pdf

Trütsch, T. (2016). The impact of mobile payment on a payment choice. Financial Markets and Portfolio Management, 30(3), 299-336. https://link.springer.com/article/10.1007/s11408-016-0272-x