The growing influence of start-up financial technology or ‘fintech’ companies – and speculation about how this will impact on incumbent banking and technology players – has been a key discussion topic of the past couple of years.
Undoubtedly, the emergence of solutions that address problems in new ways offers significant attraction and benefit for both consumers and businesses. This has resulted in some erosion of services traditionally fulfilled by banks, particularly in consumer payments. The conversation has moved on from ‘disruption’ and bank disintermediation, however, to a focus on ‘fintegration’ – shorthand for how partners might work together to leverage their strengths to deliver on the potential that new technology offers. How can these technologies create new ways of collaborating and exchanging value across the ecosystem?
A mutually beneficial partnership
Much recent media speculation has focused on the potential for fintech companies – and those in related areas such as regulatory technology (regtech) and trading technology (tradetech) – to ‘disrupt’ or even replace bank services.
In reality, the disruption debate is distracting. These companies are not aiming to become banks; rather to build market share – and therefore profitability – by delivering a specific solution or service where they have identified a need. However, it is important to consider why these new entrants have emerged and how they have gained traction in areas traditionally dominated by banks
Looking at supply chain finance (SCF) for example; according to research by Standard Chartered while 90% of the supply chain was serviced through banks five years ago this figure has since fallen to 60%. There are various reasons for the decline. Firstly, corporates are seeking a standardised experience across banks, which those in the sector have been slow to provide. Second, as fintechs are not regulated, their onboarding process is often quicker, easier and more automated than banks that need to fulfil rigorous know-your-customer (KYC) requirements. Third, fintechs can provide 24/7 online training for buyers and suppliers, rather than relying on bank teams.
Finally, these companies are experienced in integrating multiple banks, while banks themselves support only their own platforms. Effectively, the benefits include simplification, standardisation and ease of adoption. In more general terms, as smaller and more nimble businesses, fintechs can bring new solutions to market far more quickly than banks, and can therefore respond to evolving customer needs more dynamically.
Fintech companies recognise, however, that the quickest and most effective route to market with their solutions is to work with those banks with an established network and trusted customer relationships, and embed their solutions into the corporate value chain. This is not a one-way benefit: banks are able to harness new and innovative solutions quickly to create differentiation with customers and respond to changing needs, while customers are able to leverage new capabilities without the need to find, acquire and implement separate solutions.
Consequently, highly credible, innovative companies are now approaching leading banks with solutions that address a wide variety of pain points across the corporate value chain. When deciding on potential partners, banks must not only carefully assess the quality of the company and the solutions they offer, but how closely solutions can be integrated within the wider technology infrastructure. This underpins the notion of ‘fintegration’.
Focus on fintegration
Fintegration will become an increasingly important concept to corporate treasurers and finance managers as banks establish partnerships and equity relationships with innovative fintechs. It is not enough simply for a bank to refer or recommend a fintech partner, as treasurers then need to go through their own due diligence, acquisition and implementation processes. Therefore, there is little more value to the referral than coming across a new solution in a conference exhibition hall. However, by integrating fintech solutions within their solutions, the supplier and integration risk remains with the bank, while customers gain the benefit.
An example of this synergy is mobile banking, which is becoming increasingly important in challenging markets across Asia, Middle East and Africa. These often have large unbanked populations and a less developed banking and regulatory infrastructure. Corporations doing business in these regions often need to sell to consumers or businesses over long distances and in remote communities, or source supplies from farmers and small businesses. While mobile banking offers a convenient, secure and rapid way of transferring value across the ecosystem, supporting mobile payment (and collection) services can be a major undertaking as companies need to work with multiple stakeholders, including banks and telecom providers.
Fintegration is therefore key to enable corporations to successfully embrace mobile banking, by embedding mobile payment and collection services into the bank’s core proposition, and eliminating the need for customers to engage directly with multiple telecom providers. Corporate treasurers and finance teams can then access mobile banking services directly through their familiar electronic banking solutions, using the same processes, controls and automation capabilities as any other electronic payment method.
Focusing on the payment/collection alone is not enough in many instances. As a result, banks are seeking to leverage innovative technologies that optimise the transaction as a whole. For example, Standard Chartered is the first foreign bank in China to integrate the WeChat Payments messaging app into its payments capability; a highly significant development for companies based in, or doing business with counterparties in that country.
Integrating new technologies also creates opportunities for bespoke customer and industry solutions. For example, a driver for a logistics firm can receive mobile payment on delivery at remote stores, supplemented with shipping data, value-added tax (VAT) monitoring and other details; all of which would previously have been exchanged and processed manually. The extension of this is to combine the internet of things (IoT) with analytic tools to combine financial and logistic information for customers. It is entirely conceivable, for example, that chips embedded on cargo will ultimately enable progress tracking, paperwork and transfer of value to take place through blockchain. Completed transactions, with all the relevant information, could then be provided to trade participants in real time via mobile devices.
This type of development challenges current concepts of transfer of value. Although at an early stage of evolution, blockchain, for example, offers the potential to transform established activities such as payments and trade finance. Collaborations such as Ripple, in which 15 of the global top 50 banks are key participants, are already taking major steps towards real-time cross-border payments.
While there are still questions and obstacles to address, such as identity management, the regulatory framework and trust in a distributed ledger, these emerging technologies will undoubtedly have a major – and possibly transformational – impact on cash management and trade finance, amongst other areas. However, innovation continues apace alongside, as well as in conjunction with these emerging technologies. As a result, we are seeing rapid and meaningful innovation today that uses the best of new and existing technologies to have a measurable impact on customers’ business.
A forward-looking view
Over the coming months, we expect that fintech – along with tradetech and regtech – will have a demonstrable impact on traditional working capital flow business, significantly improving the efficiency and integration of the global supply chain. Dealing portals are already familiar to treasurers, but there is similar potential for trade, such as bonds and guarantees.
Mobile solutions will also continue to expand, particularly in those emerging markets that lack convenient payment solutions such as Apple Pay and contactless card payments. While multinational corporations (MNCs) are already taking advantage of mobile payment and collection opportunities, it’s likely that adoption will increase further, including specific supply chain solutions.
Many opportunities for fintegration are most prevalent and valuable in emerging markets that are implementing technology for the first time rather than having to unpick or replace legacy technology and processes. With complex and interconnected supplier and customer ecosystems, and changing expectations amongst businesses and consumers alike, the most successful banks and their ‘fintegrated’ partners will be those that have the appetite and ability to invest in interconnected solutions across retail, commercial and corporate banking to provide a consistent and integrated experience across the ecosystem.
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