The payments ecosystem isn’t fit for the pandemic recovery economy

The emergence of the Passion Economy has made it even more apparent that the payments industry is ripe for disruption, writes Luke Massie, CEO of VibePay.

The Covid-19 pandemic has been a catalyst for many trends across the globe, but one of the major growth areas in 2020 has been dubbed the ‘passion economy’. Think Substack newsletters and other ways creative individuals can capitalise with the help of technology. The only problem? The current payments system isn’t up to scratch to serve it.

Digital platforms, such as Shopify in the e-commerce space and StreamElements in the gaming industry, are driving the trend, resulting in the emergence of entrepreneurs creating new businesses based on their individual skills and personalities. All of these platforms share one key commonality: they’re accessible to everyone. This means it is possible for anyone to be an entrepreneur and earn a living, while at the same time feeding the passions of their community.

The trend isn’t going to stop. A recent study found that 58 per cent of Gen Z want to own a business, and with this generation being highly driven and creative, this will become a reality for many.

However, when we see the acceleration of new trends, it shines the light on other industries, highlighting their flaws. This has happened in the payments space.

Payments for a new generation

With the passion economy fueling a new model of internet-powered entrepreneurship, it has become increasingly apparent that the payments industry is still serving dated solutions. Some of the most creative entrepreneurs using traditional payment methods where they are burnt by unfair fees and have to wait days, or even weeks, to receive funds. This shouldn’t be happening as these entrepreneurs expect seamless digital services. The payments industry needs to respond by providing a frictionless experience with instant settlements. And even more importantly, solutions that will bring added value to their business.

China and other parts of Asia are ahead of the curve addressing this issue via services such as WeChat and AliPay, embedding account to account payment functionalities in their apps. And on the other side of the pond, the US is following closely behind with Cash App and Venmo. If these markets are making headway, why is Europe still playing catch-up?

A fragmented market

Quite simply, Europe is a fragmented market and implementing these types of payment services has been difficult for many years, resulting in China and the US leading the charge. However, Open Banking has levelled the playing field. Thanks to the drastic reduction of barriers within the financial industry, we are now seeing the birth of new products and services to put Europe firmly back on the payments map.

Open Banking still remains in its infancy but the financial industry is becoming increasingly accepting: 73 per cent of UK banks are more positive toward Open Banking in 2020 compared to 48 per cent in 20192. This positive outlook will see the creation of new opportunities and partnerships, while also building consumer confidence. Making Open Banking a part of everyday payments behaviour drives our business forward at VibePay.

Payments for the Passion Economy

The payments industry now needs to take advantage of the opportunity Open Banking provides to start building solutions for the passion economy. Fintechs no longer have to focus on creating the plumbing as Open Banking offers the foundations to build on top of this. Instead, fintechs need to focus time and attention on the solutions for the new wave of entrepreneurs, looking to other parts of the globe to build on the successes achieved elsewhere.

While we may see life slowly turn back to normal in 2021, some of the new trends that cemented themselves within our lives during 2020 are here to stay. Social commerce will continue to boom and we believe the Passion Economy will evolve and expand into new markets and areas.

We need to celebrate and encourage creativity during these difficult times and payments can play a critical role in powering this new economy. Rather than payments being an inconvenience for entrepreneurs, we must create an environment where they can focus on the things that they love doing the most and earn a living.

Luke Massie is CEO and founder of VibePay. The views and opinions expressed are not necessarily those of AltFi.