As the digital payment ecosystem continues to develop, New Vision 3 makes sure to keep abreast of the recent developments and newest fintech startups out there. Today, we would like to share with you the conversation with our Partner, Aleksandar Terziyski, in which we discuss the current state of the digitalization of payments and its future potential.
In the interview, we talk about what drives and holds back the development of digital assets and payments, the most exciting and overhyped sub-verticals in the industry, and the positioning of Bulgaria and the CEE as a fintech destination.
Q: What’s the current state of digital payments in 2023 and what do you expect to see next?
Aleksandar Terziyski: There's already a lot of adoption of digital payments, globally, regionally, and locally, and I don't think it is going to stop in the next 5-7 years, or at least until it reaches its maturity where approximately 70% of payments become digital. We are only on the way to it, but so far it seems to be following the same trajectory as e-commerce.
In 2023-2024, I think, we will see a boom in mobile POS systems. The two biggest mobile operating systems IOS and Android are contributing to this adoption process by acquiring or working with companies providing this technology. Moreover, more and more banking institutions and partners are starting to use digital payments technology with the goal of delivering it to their end business and corporate client, i.e. merchants.
Another trend is a bigger adoption of digital wallets. In my opinion, each more or less big e-commerce store or app will have the option of receiving payments through such personal wallets that you, as a consumer, will be able to top-up and withdraw from which will make it unnecessary to use your card’s information for every single transaction.
The third one is the adoption of the “Buy now, pay later” option which was especially trendy last year but primarily as a payment option only. What’s changing now is that it is also becoming a great marketing tool for e-commerce companies but also for big players like Visa and MasterCard. The last two are switching towards this option as a defensive strategy since more and more options towards no card usage, like Afterpay and CashApp in the USA, are being introduced.
Full-on cashless payments scenario I see maybe about 20 years from now.
Q: What are some unsolved real-world problems you believe would drive innovation in payments?
Aleksandar: From the global perspective, one of the challenges is the fact that there is still a big part of the world with a not so developed digital infrastructure, and this, in turn, does not allow a wide adoption of digital payments just yet.
Another challenge is the fees that payments through cards like MasterCard or Visa have. They work with big margins and that’s why their profits are so high. This gets solved with the help of closed-loop solutions like Revolut, PayPal, and Square, where a merchant or a consumer does not pay fees the way they do through POS terminals. The whole merchant ecosystem through apps like Square is being built around this which resolves the issue of high payment fees and helps businesses save some money.
Q: Digitalization of assets has been growing significantly over the past few years, despite the current state of the crypto market, where do you see this segment going? And what are the most promising new opportunities and business models it opens?
Aleksandar: In my opinion, within the next 10–15 years almost every single asset will be digitalized in one way or another, whether it is tokenization in the form of NFT or anything else.
We’re talking about a trillion and beyond industry here (tokenized/digitized assets) and despite the fact that it is generally a trend, there are also a couple more things that contribute to its spread. Those are transparency and real-time settlement which are also the top two benefits coming from blockchain as a technology. Most likely, based on conducted experiments, the first two asset classes to be digitalized are real estate and equities bringing digital asset security or something of the sort.
There are already some interesting startups out there that offer the technology to banks and other financial institutions for them to hold digital assets like crypto today, but things like real estate or vehicles tomorrow, also serve as a form of collateral for a loan. Such transformation will potentially allow better conditions for taking a loan and the further development of financial services.
Q: Is there something that holds back the mass adoption of all types of assets getting fully digitalized?
Aleksandar: Definitely. First of all, there are still regulations to be introduced. Though I’m a person supporting the free market there are still industries that need regulations just so every big institution feels safe enough to do business legally. After all, no one knows how big the liquidity of these types of assets compared to equity markets or real estate is. Nevertheless, it is undoubted that both in the U.S. and Europe mass adoption is already taking place in the sphere of the digitalization of assets.
Q: What are some sub-verticals in payments you’re excited about and others that you believe are overhyped and not that interesting?
Aleksandar: One of the things that I have already mentioned is the ‘buy now, pay later’ option which I believe is here to stay in one version or another.
Another sub-vertical that is now getting popularized is payments with biometric data which, in my opinion, though I might be wrong, do not seem to come out as something very successful long-term from the point of simplicity in adoption, and the cycle of one payment. This type of payment is mostly promoted as an extra layer of security but I believe that our phones have already become secure enough with all the biometric levels introduced, which makes this way of payment kind of redundant.
There is also, or at least there used to be, a hype topic of NFTs, and while there is still practice use to them, they will stay to be the big thing, probably in the digitalization of assets especially.
At last, as interesting as the concept of super apps is, in my opinion, it won’t find worldwide popularity due to the political and geopolitical situation, as too many things can be tracked through them.
Q: How do you see the positioning of Bulgaria/CEE as a potential destination for digital payments and in general fintech startups? What is the country currently missing - in terms of talent, regulation, partners, etc.?
Aleksandar: In general, I think more or less Bulgaria and the region have already established to have a strong fintech environment. This has come from the reputation of the companies with local roots that are globally recognized, like FintechOS, Payhawk, Paynetics, or Phos. Moreover, according to Dealroom reports, in the past year or two, fintech has been the most financed vertical in Bulgaria, both in terms of the amount of financing, as well as the number of deals. Naturally, now these successful startups are starting to develop fintech talent. This fintech talent brings in new talent and more startups.
With the right steps and initiatives, I believe Bulgaria and the region can eventually, truly become a fintech hub. If we are visionary and persistent enough in topics like the digitalization of assets, if we are among the first ones to establish regulations, we can attract more talent from the outside, more startup founders, given that as an EU country, we possess good credibility and fintech history.