Banks must ‘speed up’ to match agility of fintechs, says Clearbank

Industry needs to evolve traditional business models

12 April 2021

Banks must accelerate their digital transformation to meet fintechs’ needs, particularly as they are considered critical to the success and regulatory compliance of their fintech partners, according to research led by Clearbank.

Whilst over half of fintechs expect their banks enabled them to maintain regulatory compliance, boost revenue and reduce operational costs, 49 percent of respondents said their agency banks did not help their business.

Simon Jones, chief customer officer at Clearbank, says the banking industry must become more agile to match the innovation and speed fintechs require to deliver faster services to consumers.

“It will create a much more competitive environment,” he says. “A lot of the banks are investing in cloud-based tech, but they are not necessarily moving their core infrastructures, such as the payment processing or the account platform. They are not moving those fast enough to cloud-based architectures.”

Despite beginning to offer dedicated coverage to serve fintechs, certain banks remain behind when it comes to digital transformation, according to Gurdeep Singh Kohli, SC Ventures UK and Victor Penna, head of cash management for Europe & Americas and global head of structured solutions development at Standard Chartered.

“The technology experience will be different when it comes to APIs and open banking – some banks are behind on this front whereas others have developed these capabilities,” they said, via email.

Both agreed that KYC expectations and meeting financing needs also requires a different credit approach that contributes to the failure of traditional banks in matching fintechs’ requirements.

Banks must “quickly evolve their traditional business models,” which includes educating fintechs on risk management practices, developing innovative and efficient solutions to support their banking needs, and providing market insights. Kohli and Penna also believe banking partners could enhance collaboration in the delivery of services to customers, drive real-time transaction processing and enable the co-creation of new products and services on the fintech platform.

Jones says fintechs’ rapid innovations, built from a cloud-based architecture, largely rely on banking partners to comply with regulations and collect clearing and payment systems.

“They may have a great front end and developed a fantastic new product, but if they have to rely on the technology to connect the payment systems of banks, then they will slow themselves down,” he says.

Clearbank’s survey revealed that 15 percent of fintechs delayed the launch of new products of services due to their agency bank – an issue partly caused by the significant focus of banks on lending products, according to Jones.

“A lot of fintechs don’t need that. They have equity capital, venture capital, and they want to create their idea of launch on the market,” he says.

KYC and onboarding rules required by regulators to onboard fintechs yet embody a complex process for banks, according to Kohli and Penna.

“In many markets today, the regulators require banks to perform additional due diligence on regulators that go beyond what is required for a corporate. If the fintech provides financial services, for example, this includes reviewing the fintech’s risk framework, processes, and controls.”

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