Partnerships with fintechs is necessary to create the “best of both worlds” approach - which customers will demand in 2019, according to Currencycloud’s CMO and head of product, Todd Latham.
“Customers expect a broad range of services from their bank, and they trust them to provide them,” adds Latham. “By partnering with fintech firms, banks can provide the best of both worlds - services developed by specialists in a particular niche with the best technology delivered through a trusted brand.” Latham believes this is something that a bank would be unable to accomplish if it pivoted into a fintech mindset.
Yet partnership might be the last thing in mind for banks. Data from a 2018 MoneyLive report recently revealed that 59% of bankers see intermediaries and fintechs as a “significant threat” to their relationship with customers.
Many banks are suffering from holding monopolies, says ACI Worldwide consumer payments lead Lu Zurawski. Challengers are forgiven their early teething problems, while incumbents are castigated by customers and media. “It’s an interesting paradox that while fintech companies have suffered availability problems – often due to IT outsourcing issues – customers and regulators have largely been willing to forgive [them].” That leniency is down to the benefits of agile services outweighing any issues caused by temporary outage.
“Fintechs represent a new way of engaging with customers who expect modern, mobile-first and always-available services," says Zurawski. "They focus on customer-centric, informative apps which help with budgeting and saving decisions, as well as secure payments.”
Speaking at Fintech Connect in London last year, Barclays managing director for digital, Ruchir Rodrigues, said that institutions which can capitalize on data will be the ones which “win the race”, but “if you don’t have the data there’s no point … it won’t work,” he said. “We look at the data day in and day out, it’s a substantial differentiator.”
80% of respondents to the MoneyLive survey said that holding customer account information is a major competitive advantage. An ability to control customer account information has served as an immunization for traditional banks, but Open Banking threatens to uncouple that advantage. Challengers, fintechs and third parties are being given greater access to a bank’s customers.
The regulation has given a boost to the confidence of digital challengers. December 2018 research from Cognizant revealed that 61% of fintechs consider PSD2 and Open Banking as a key step in their challenge towards incumbent firms. Only 36% of those based in banks, responding to the same survey, saw this regulatory empowerment as a threat.
The increasing need for banks to provide fintech-style solutions has led to a number of core systems suppliers building startup ecosystems into their retail banking platforms. Both Mambu and Temenos operate a marketplace, where – for a fee – fintechs can be listed for cooperation with the vendors’ clients. Finastra, too, pushes its Fusion Store as a way to integrate fintech solutions into a bank’s existing technology stack.