The emergence of fresh, lean start-ups using powerful technology to speed up financial processes and cut costs has had a disruptive effect on the traditional banking landscape, threatening the robust position banks have held in the global financial services market for generations.
According to PwC’s 2016 Global FinTech Survey, 76 per cent of banks perceived part of their business to be at risk to fintech, with the main concern that start-ups will go directly to the end-user and bypass banks altogether. This looming threat has actioned banks into a “if you can’t beat them, join them” attitude – to the extent that banks are now the most active of all financial sectors in partnering with fintechs, with 42 per cent of banking respondents now joining forces with them.
After a few years of competitive rivalry, banks and fintechs are slowly coming to the realisation that by working together, they are able to provide more consolidated services, more efficient processing and have a much higher chance of dominating the market. Rather than limiting the scope of financial services, banks and fintechs are chipping away at the dualistic enmity that has stereotyped the industry, and are working together to focus on opportunities that leverage each other’s strengths.
It’s a binary partnership: without the technology, banks will lag behind as fintechs provide slicker, more user-friendly interfaces, yet without banks, fintechs will be thwarted as they rely on the back-end processing required to move money around. While fintechs are capable of offering product simplicity and seamless integration, they lack the sufficient data security, compliance and regulatory solidity that banks possess.
Banks also benefit from vast existing customer bases and have the legacy systems which are proven to work. Fintechs are riskier for consumers and businesses, because they aren’t built upon proven methods and they lack the financial integrity that banks have. What is attractive, however, is the innovation, flexibility and problem-solving approach with which they can address the key issues experienced by the end-users, ultimately providing a solution with mass appeal.
The industry is seeing a shift where both sides are coming to the realisation of a new, mutually beneficial relationship – ultimately, it’s the end-user who will benefit from this, and it’s the end-users who help to grow the market share.
The strengthening relationship between banks and fintechs is a development which is likely to only continue growing. In the recent past, there has been conflict and competition between banks and fintechs, but now we are coming to the realisation that together we are stronger.
Banks possess the global power and knowledge of the back-end processing, while fintechs are building the software at the front, refining the user interface, and providing solutions which effectively and coherently manage payments processing and failed payments, etc.
Fintechs deal with the rules and routing at the point of entry, ultimately providing more transparency and control of the front-end to the payment remitter. This is exactly what businesses want because they have lacked control and transparency in the past. In turn, this then benefits the beneficiary because less things go wrong – payments are faster and more accurate as errors or issues are flagged up and corrected earlier in the payment process.
Technology is helping to improve straight-through processing and enhance the customer experience, and banks are waking up to the fact that if they can’t innovate on their own, they are better to outsource the innovation. Banks have waylaid legacy systems and by working with fintechs, it makes for smoother processing and easier, slicker payments. It reduces the risk of charges by utilising more efficient resources – really it’s a no-brainer, because simply put, it works better.
While cost-efficiency and speed are at the forefront of new banking technologies, the emphasis on this, combined with a need for high accuracy, is an even greater requirement when operating across a global marketplace.
International payments involve even more complex and complicated procedures, including all manner of compliance and mandatory checks, in-country regulations and currency exchange issues which can slow up the payments process and allow much more capacity for errors to be made.
Technology is an enabler here, because it can help legacy banks by offering functionalities and automated processes which make the whole international payments process much smoother. Even something as simple as changing the currency earlier in the process, capturing the right information and delivering it correctly, will ensure the payment process is more streamlined and efficient. The smart technology of fintechs coupled with the power of banks really is the future for payments.