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Fintech innovation, open banking, fraud and bubbles: an interview with Maxpay CEO Artem Tymoshenko

Fintech innovation, open banking, fraud and bubbles: an interview with Maxpay CEO Artem Tymoshenko

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Below, you can find an interview with Artem Tymoshenko, the chief executive officer of Maxpay and, with more than 12 years of industry experience, an expert in international acquiring, payment systems, processing systems, e-money, risk management, network & system security, digital self-service, and e-billing.

In a nutshell, Maxpay is an international payment service provider, primarily focused on catering to the needs of online business owners - but what makes you different from other payment service companies?

Our motto is Merchants First and it describes us perfectly. We build the services by dedicating maximum resources to solve merchants' problems: from Merchant account opening to using VMPI services and Ethoca alerts for chargeback management that can be detrimental to a merchant's revenue and reputation. Furthermore, we cover fraud prevention, including payments, payouts, and refund checkups, using AI and Machine Learning. Also, we provide incorporation services. Thus if the client needs a legal entity in the EU, we offer various solutions from company incorporation to VAT MOSS scheme reporting.

What's your business model - is it simply based on commission per transaction, or is there more to it?

Aside from commissions, as I said previously, we provide risk management, chargeback prevention, PCI DSS certification, and incorporation services. I believe these services became crucial for businesses' needs. Our clients have more time to grow their business rather than spend time on meticulous documentation preparing for getting an entity in the EU or PCI DSS certificate. We'll handle that.

As we learned in our recent research and during our event on the State of European Fintech, there is a massive amount of funding flowing to digital payment service and gateway providers, giving them enormous valuations to boot.

Does that intensify the competition in this space - for investment, but also for hiring talent, getting customers, breaking into new markets etc.?

I would say that retention of the existing client is more crucial than getting the new one.

As you said, business owners started having higher expectations of the provider, so it is vital to provide excellent service in the highly competitive market and foresee the problems. Common example: PSP should warn the client about possible MID closing due to the high chargeback ratio, by providing risk analysis. That’s why we develop an additional value for our clients to build stronger relationships.

Also, there are plenty of issues with banks collapsing abruptly. Thus many companies from the high-risk businesses industries were left without Merchant accounts and operational revenue. Therefore, the submission process to open Merchant accounts has slowed down.

 Maxpay is not a public company, and it is a self-invested project. From the beginning, we understood that the business model should be profitable without extra investment attraction.   

In such a fierce competitive landscape, is it an opportune time to raise financing to boost growth, rather than strive for profitability? 

We can observe that many government donations for business owners were reinvested in various stocks, including Tesla, Revolut, and others that continue to defy efforts at sober valuation. Investments from shareholders are growing, while companies' profitability is not, so the dangerous bubble arises. A lot of financial specialists are warning the market about the crisis.

Another observation is that the COVID-19 crisis has been quite a boon for fintech companies, and payment processors in particular, with an ongoing boom in e-commerce, online trading and banking, the rise in crypto-currency attention and usage, and so on. Has the effect been positive for Maxpay?

We were working with e-commerce initially. This area involves payment processing from the beginning. I would not say that it has improved directly, but the situation is now slightly worse due to the traveling industry collapsing. You see, the fintech ecosystem is complicated, and each side strongly depends on the other. Every bank has a portfolio that consists of 70% low-risk and 30% high-risk businesses. With the travel industry falling, the banks' low-risk portfolio's significant part has dropped. As a result, it becomes harder to stick to the threshold demands that every bank sets. This has directly influenced merchants, as Visa and Mastercard charging banks for thresholds, in turn, banks charging business owners. 

And yes, because of lockdowns, many businesses switched to online: from e-commerce to high-risk companies. For instance, the iGaming, subscription, and dating industries did well during this period also because the online format of the business requires a payment processing service. It has a positive impact on Fintech at first sight, but it has consequences correlated to the security questions if we dig deeper. Switching the business online prompts more fraudsters activity that requires additional security measures. It requires additional development of risk logic or partnerships with companies that can develop and implement it. 

The coronavirus pandemic is also accelerating the digital transformation of the traditional banking players as we move quickly towards a cashless, app-centric future - is this a good thing for startups in the space?

No doubt. Traditional banks already started to catch up because they need to implement digital services to satisfy their clients. And the main source of the new technology is coming from startups, so that's good for the new players. New initiatives and instruments will arise to push the digital transformation of banking:

  • Open banking
  • Central bank digital currency
  • Cashless payments and technologies
  • Alternative payment methods

The popularity of cash has been dropping little-by-little for years, and the pandemic greatly affected its usage. We can expect that more physical shops will install cashless equipment, and people will start using alternative payment methods for online payments more frequently. 

We're also witnessing an increased need for regulatory compliance tools, infrastructure, security, open banking technologies, etc - do you think the supply can keep up with the demand on that front?

The business transition to online caused more fraud cases that resulted in requiring more tools like risk and chargeback management. Companies should consider integrating with third-party providers to cover their needs in security questions or build the infrastructure internally to keep up with the demand. We have created a risk platform back in 2016 that grew in a separate company Covery. Now the platform provides  KYC, AML procedures, transaction monitoring, etc. Still, despite that, we partner with several companies in chargeback management as it is impossible to have all the necessary instruments in one place.

New rules and technologies emerge daily and it is essential to keep up. So expanding partnerships is a way to stay on the market. More countries plan to start working with open banking legislation and implementation, following the EU experience and the need for more digital banking services. The same goes for the central bank digital currency initiative: some nations can follow to cut down the cash usage. 

From your standpoint, what are some interesting trends in the fintech space, and where is the innovation within the financial services value chain truly happening?

Due to the pandemic fraud traffic increase, the PSD2 regulation that emerged at the same time complicates their activity. It is a challenge for business owners as well. Besides, not all financial institutions are ready to work within these rules. The competition between traditional banks and Fintech will intensify by offering the latter more flexibility. That refers to a better customer experience, as the race for clients’ retention refreshes the stale banking services.

Also, the Open Banking concept is undergoing in the EU now, we believe this initiative is a natural answer to a rapid digital transformation. And the events of 2020 only pushed this need for convenience and security further. Open Banking is something that can benefit all the parties involved. Fintechs get more opportunities to grow and develop, traditional banks are pushed to higher standards and start taking digitalization and competition more seriously.

Customers get more convenient ways of paying, using online banking, and more diverse features to manage their finances. And merchants can experience new anti-fraud technologies and an increase in customers, who switch to online shopping.

Fintech startups and scale-ups don't operate in a vacuum, and often partner with each other and/or the traditional banks and other financial services companies. What is your view on this, and how do you think this interdependence will evolve in the future?

Market demands are different these days, and people are getting used to the fact that the card can be ordered or a business account can be opened online without branch visiting.

Therefore, traditional banks will have no other choice than to cooperate with fintechs to improve their services for the end-user. So the game will be defined by customers who need faster and safer services. As I said before, the real challenge is user retention, which requires excellent 24/7 support, fast business solutions like IBAN opening, business or merchant accounts providing in the shortest terms, etc. 

What are your thoughts on the regulatory landscape in the fintech sector, in Europe and beyond? Is it generally startup-friendly, or can we do better when it comes to policies?

It is never easy when things come to banking, as the industry itself requires many regulations like AML policy, KYC procedure, and licensing.

For example, from October 2021 Visa monitoring program will be updated with leads to tighten up the chargeback ratio. Also, the program’s fraud-to-sales amount ratio and disputes-to-sales count ratio thresholds will be modified. Acquirers should take precautions to make sure they maintain adequate risk controls to stay below program thresholds, including close monitoring of the fraud and dispute metrics of their portfolios. So as a pendulum swing it will positively impact end-users, but it will be tough for merchants and acquirers. 

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