Just as Singapore decided to disrupt itself by inviting a fintech in so that its banks could learn about AI and other new technologies, Wednesday’s Big Issues Debate on ‘Disruption in the payments landscape’ carried this idea forward by talking about the importance of collaboration to meet customer demand.
Banking is not enough
With these technologies and instant payments transforming the financial landscape, the Big Issue Debate featuring Michael Spiegel, Deutsche Bank’s Global Head of Cash Management carried an important reminder: It’s no longer enough to turn up and be a bank. In addition, factors including the regulatory drive for open banking and consumer demand for real-time payments has led to the rise of fintechs and new players in the industry, causing disruption in the once relatively unchanged payments sector. Banks need to engage in this new ecosystem and collaborate with others.
Spiegel joined Ulku Rowe, Technical Director, Financial Services, Google, Esther George, President and Chief Executive Officer, Federal Reserve Bank of Kansas City and Leila Fourie, Chief Executive Officer, Australian Payments Network to discuss how collaboration and the adoption of those technologies should be customer led.
Banks had been leapfrogged by the tech giants in innovation, while they were dealing with their post financial crisis strategic challenges. They are now catching up, said Spiegel. But these institutions should not wait to see what new technology comes in and then decide what to adopt and who to partner with. The reason for this is simple: something phenomenal is happening with the rapid evolution of technology creating a level playing field for everybody, and providing lots of access for interactions with clients that have never been possible before. The time to act is now.
Old with the new
The balancing of legacy and new technology was also discussed. New tech rails have come up, but it’s a question of how they will work with legacy infrastructure, which is still used extensively. Illustrating this, George reminded the audience that the infrastructure for cheque processing is still being used, with about 18 billion cheques moving through the system.
Spiegel explained that some legacy is always required even if for the simple reason that it creates opportunities to have some connectivity with APIs. The way payments and settlement are done won’t change but the communication with customers will change a lot. “The challenge is that we don’t know where payments are going to land but the good news is that we are working with the fintechs and offering the same services as they are on a retail basis.” Examples of working together to overcome this challenge were explained in a whitepaper titled Piecing together the global payments puzzle.
Echoing the words of Mark Twain, who said that reports of this death were greatly exaggerated, Spiegel said that the threat of complete overhaul of the banks by the fintechs were “greatly exaggerated”. “Instead, the industry is now in a connected ecosystem that will drive a better environment. We need everybody’s support and help in the future.”
And this includes the regulators’ visibility of the payment system because new technologies and incumbents also carry a risk. If a wallet provider suddenly disappears there is a different challenge to protect the customers, said Spiegel. “It’s about how technology is going to change future customer demands, so we need to work with regulators to create a collaborative environment.”
Secrets of success
To that end, it’s less about whether fintechs or banks will dominate the space but there are a few characteristics of success: those who own the front end of the customer relationship, those who are agile and can respond to customer demands and those who use artificial intelligence, machine learning and are able to store, manage and manipulate data in a meaningful way.
What are corporates demanding? Instant payments are important in the ecommerce environment. It keeps customers super happy. But it needs collaboration between banks and fintechs to add value since 50% of corporate customers want to work with fintechs, but they want a bank to help choose them. “Corporate treasurers cannot easily incorporate a fintech, so we go to them and say here is the trust element we can provide,” said Spiegel. Echoing his article in the Sibos Insider newsletter, where a survey conducted with the Economist Intelligence Unit revealed that corporates value trust and safety over speed, he said that these customers are more likely to use a fintech if incorporated within a bank’s platform.
Spiegel explained this preference in a flow article: Most of the fintechs provide innovative and sound solutions but in narrow fields. Yes, in theory treasurers could replace a transaction bank, but they would need to onboard a multitude of fintechs, or work with a large technology player to cover off the equivalent services. If a provider ended up consolidating all these services onto one platform, it would then resemble and function as a bank, and may get regulated as such.
In that article he indicated that corporates are looking to the banks to design and influence solutions that give them the right experience and called on banks to on-board the right players, provide connectivity and work with other banks in areas where there is no competitive advantage.
The future is now, concluded Spiegel. “Expect the unexpected all the time. Create scenarios and engage in the developing new ecosystem.”