Two years ago, there was a degree of agitation between the new kids on the block, the fintechs, and those staid, suit-wearing bureaucrats – the bankers. The fintechs talked of eating lunches, kicking the banks in the rear and creating a new world that turned the old upside down. In 2016, there was something a shift towards working together and the word “collaboration” could be heard in dialogue between market players. Now, we are in the “summer of love” period, the year of reciprocity, of mutual respect and joint ventures.
The recent Money20/20 Europe event in Copenhagen showed just how much things have moved on since those first uncomfortable confrontations, where the banking community came through denial and fear to realise the world had to change. Now, fintechs and industry watchers alike are declaring that banks still have the trust of the public, despite the financial crisis, the bailouts and the well-publicised scandals, and they have the gravitas and the networks that fintechs truly need to work alongside.
This is probably good news, because it is in everyone’s interest that we create a strong, stable and robust ecosystem that feeds off the creativity, innovation, financial muscle and dynamism of banks, fintechs, governments, regulators and customers. In Copenhagen, there were signs that everyone knows what’s at stake.
It was interesting to hear people like Barclays’ CEO talk of inclusion, societal purpose and empowerment. He was genuinely excited about what he’s trying to create but importantly, it was a signal that banks have woken up. He was not the only bank official with a message – others like Rabobank and BVB are clearly grasping what’s required.
Whereas a couple of years back people feared for the future of banks, now they are saying that the banks will remodel, will keep their customers and will find a way to come through the various challenges they face. And there could be very significant hurdles ahead for them. Transaction banks have already seen their margins shrink, their regulatory costs soar and competition become more intense. As my colleague, Daniel Marovitz, said in Denmark: “The banks don’t know what is going to hit them and they won’t believe it when it happens. Although – as the crisis demonstrated – they are a protected species, what they do will undoubtedly change.”
And payments are at the heart of this change. We are all too aware that the old correspondent banking system is cumbersome, lacking in transparency and too expensive, so we can expect a multitude of options to emerge in the coming years.
In Copenhagen, the importance of a transforming payments landscape was at the heart of many discussions. Payments, said one innovative bank from the Iberian Peninsula, are pivotal in client relationships. This particular bank has identified that the sands are shifting and has invested in technology and its business model to transition towards becoming a truly digital bank. They are pretty much pointing the way for others to follow.
Payments have been something of a cash cow for banks but the revenues around this staple function of the industry have been significantly eroded. One solution, which was tabled on more than one occasion at Money20/20, was the commoditisation of payments. Of course, that cannot be achieved unless the right technology that enables lower costs and greater scale is in place. A good payment is one that is relatively invisible because all customers are interested in is the conclusion, they are not overly concerned with how the back-end operates or what the providers need to do. So, basically, those of us in the payments industry need to ensure the customer receives a “frictionless payment”.
Regulation is also playing its part in disrupting the ecosystem, although the intentions are to make sure the financial system is secure, safe and everyone is playing by the rules. Naturally, whenever there are obstacles or processes that are labour intensive, a micro-industry will spring up that helps make life easier – especially in this new digital age.
So we have ‘regtech’ – regulation technology – a sub-set of fintech that is out to make utilities that can handle things like Know Your Customer (bank and anti-money laundering regulations) in a much more systematic way. While fintech, generally, has seen investment drop, there is every reason to expect that regtech will be very active in the coming months. This is an area where artificial intelligence will come to the fore and many people believe that effective regtech can become a strategic advantage, and improve the relationship between compliance officers and their business colleagues. One complaint often heard is that too much regulatory technology is not interoperable and that really is not in the spirit of financial technology.
What, then, were the big takeaways from Copenhagen? The collaboration train has certainly left the station and is gathering momentum. Banks are gradually making progress and realise that they have the clients, the relationships and the trust that, when allied to the dynamism of the financial technology world, can create something quite compelling. The world may be changing for everyone, but equally, there is a place for everyone – defining exactly what that place is for banks, for fintechs, for regulators, is another issue. By the time we gather in Amsterdam for Money20/20 Europe in 2018, I feel sure there will be greater clarity on the future.
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