Welcome to Ekata’s Executive Series. In this series, our CEO Rob Eleveld will be outlining the dynamics we see developing in the global identity verification (IDV) market and highlight Ekata’s response to continuous market demands.
Today, we write in response specifically to a recent report on the existential threat facing the fintech market and respond accordingly – and optimistically.
Let’s get started!
An Existential Threat to Fintech?
From my perspective, the fintech market has created more innovation in the global payments and financial services sector in the past five years than has been seen in an entire generation. That innovation is exciting for all of us in the space, but more importantly for consumers and small businesses who want more flexibility, speed, and choice for their payment, remittance, and banking needs.
In September, the Financial Times published an article which caught my eye: Europe’s fintechs facing an ‘existential threat’, says McKinsey. I know the McKinsey payments team fairly well, including partner Tunde Olandrewaju quoted in the article. These folks know the business, and I won’t begin to question their data. However, I believe their analysis is less applicable to the one segment of fintech and more applicable to venture-backed segments going through economic cycles generally. I have witnessed these cycles personally (and painfully!) from a first-row seat as a CEO in 2001 and 2008.
My summary of this portion of the investment cycle is those companies who chose to build capital-intensive business models (or capital-intensive cultures) and constantly burned capital to buy revenue will struggle at times like these; when economies contract and investors begin focusing more heavily on quality.
McKinsey’s report states just that for the European fintechs:
“Even before the Covid-19 crisis, their challenges in getting to profitable scale were non-trivial. Given the contracted funding environment, many digital banks cannot sustain a cash consumptive business model in the medium term.”
Innovation in Payments and Financial Services
What we will not see, in my opinion, is a slow-down in the disruption and innovation occurring in payments and financial services. The innovation momentum already exists and will push through any short or medium-term economic challenges due to this trifecta of underlying drivers:
- The pull of end-customers expecting faster, more streamlined customer experiences.
- The push of regulators requiring “open banking” compliance from large financial institutions. Open banking requires financial institutions to provide third-parties access to consumer data via secure APIs. This unlocking of data will open the doors to large-scale innovation.
- The exposed state of large financial institutions, which generally did not keep up with the market-driven innovation during the first generation of eCommerce and internet-related services. The fintech market is now filling this innovation gap.
There is a key enabler for all those consumers as well as the fintechs providing the services underpinning all the innovation: security. As the number of fintechs and their connections to traditional financial services firms via open banking proliferate, there is an increasing number of nodes (consumer and small business accounts) on the grid for fraudsters to exploit.
Ekata: Innovation in Account Opening / Know Your Customer (KYC)
As account security within the onboarding process has become increasingly critical, the term KYC is now being used to refer to the entire process flow and associated security measures. The process now engulfs far more beyond the traditional regulatory definition that requires a deterministic evaluation, including national identification numbers and birth dates. In the new colloquial use of the term, it also refers to the initial sign-up and onboarding experience; here Ekata does play in the “KYC flows” and works with “KYC teams” for probabilistic analysis and IDV for their machine learning models.
We saw a market need when observing companies trying to balance security and friction during the account sign-up for financial institutions, payment service providers, and eCommerce vendors. To address that need, we have launched Account Opening API, a new global product targeted exactly at the need of providing probabilistic, precision identity verification (IDV), and fraud signals for machine learning models and rules into the market.
Continued Global Expansion with Another Data Center: Singapore
Ekata’s global expansion and global support for our customers continues. As our Singapore office continues to grow, we have successfully launched another virtual data center in Singapore to better support our APAC customers. Along with virtual data centers in Germany and the United States, we continue to expand and provision our API endpoints nearer to where our customers are in the world.
Our objective with additional data centers is, of course, redundancy but also, just as importantly, lightning-fast API responses. Our internal target is for no customer to experience more than 30 milliseconds of wire travel time on an API query from anywhere in the world. Minimizing wire travel time aligns with our strategic product objective for a total round-trip API response to be less than 100 milliseconds, or well within the ~200-millisecond requirement we consistently see for pre-authorization decision-making in payments and eCommerce.
Meanwhile, Ekata is celebrating the collective hire of 25-30 new folks across our Amsterdam, Singapore, and Budapest offices. As soon as travel is again permitted, I cannot wait to meet them all personally.
In the meantime, I invite you to contact one of our representatives to learn more about how Ekata can help your business.