By : Andy Brown
March 30, 2017 12:00 PM
Earlier in November, I attended an event discussion, Fintech Disruptors, in London. There was a lot of discussion about the relationship between financial service providers and fintechs, especially considering whether they are competitors or collaborators. Real understanding of this is hard to come by, so it was good to be at the launch of a recent report from MagnaCarta summarising their research into this topic based on interviews and surveys. Generally, the findings are that a bridge between the players is gradually being built, which is quite a change from the barrier mentality of a few years ago.
More than three quarters of banks and a similar proportion of fintechs identified partnerships with the “opposite camp” as an essential ingredient in overcoming the challenges of institutional inertia or scale. Each side brings their specific capabilities to the party to successful address the challenge that is meeting customer demands and expectations.
When you look at the responses to the questions on perspectives, it is easy to see why partnership is the only option here. For banks, the biggest challenges are meeting customers’ needs, establishing a culture of innovation and leveraging data and analytics. While, for fintechs, the biggest challenges from the survey results are achieving scale and reach, funding and finance and gaining visibility and awareness. Each side has something to learn and benefit from the other through collaboration. However, the differences in culture can be a severe barrier to overcome in collaborative working.
Well over half the respondents viewed payments as the area most likely to attract significant investor interest in 2017. And, not surprisingly, real-time payments were expected to be the dominant theme in financial technology. From the bankers’ side, 68% of those surveyed indicated payments was the top area for collaboration. As has been seen through other surveys and reports, consumers and merchants view that the actual payment element of the purchase transaction should really be an unobtrusive element of the process. For that to happen, the payment has to be integrated into the overall purchasing process making use of preloaded or predetermined information for the source of that payment. Fintechs are ideally placed to create those user experiences integrating the payment products and services of the banks.
So, it is not surprising that 46% of respondents indicated that open APIs are the biggest opportunity for banks. With the drive of PSD2 and activities like the UK Open Banking Project, APIs are clearly the way for banks to establish a structured interface to fintechs while being able to proscribe the services available, the controls on access and consumer permission needed before executing transactions. However, for some banks, servicing these requests is going to require significant enhancement to their technology to enable the real time response expected for these service requests.
It is good to see the industry has moved away from the concept of disintermediating the banks to a world of collaboration recognising the significant values of the different parties and that the majority of consumers still trust the banks to securely hold their funds.