Open Banking: Big tech, bank tech or fintech?

Will the traditional treasury software suppliers and banks need to up their game in order to deliver relevant Open Banking solutions, or will we see the rise of fintechs and even big techs in the treasury space?

Date published
July 23, 2019 Categories

As we’ve discussed on The Global Treasurer over recent weeks, Open Banking is shaking up the world of payments and treasury. But who is likely to capitalize on this – banks, fintechs or big tech providers? Three experts in the field share their thoughts.

Shuvo G. Roy, Vice President & Head – Banking Solutions (EMEA), Mphasis:

“Most core bank and treasury solution providers are already in the path of providing mature APIs through an API store. Some even provide Explorer environments for firms / developers to build and test new products.

“Historically, Fintechs have been agile enough to plug an experience / product gap. Here we will see a middle path with lots of competition between Banks and Fintechs, with their individual ecosystems providing enough ammo to both sides to continue sparring. That, after all, was the intent behind the principles of Open Banking!

“There’s a lot of legacy, with traditional organizations sitting on large mainframe systems which are not anywhere near micro services and have huge monolithic blocks of functionality. The only way for traditional players to retain their competitive edge is to embrace business capability driven modernization.”

Mike Walker, Head of Sales Enablement – Corporate Banking & Payments at Finastra:

“Yes, traditional software suppliers will need to up their game; they have previously relied on being sticky through bespoke, custom built code that locks in the client and makes it difficult for them move away from it cost effectively. This has meant those providers have not been incentivized to improve customer experience or be more competitive on cost.

“However, open banking will bring a change in architectures, the need for open access to data and an expectation that new services are delivered at speed. The availability of technologies such as open APIs and cloud will make it faster and cheaper to switch solution providers, changing the competitive landscape for traditional software providers who will have to evolve to retain their relevance.

“We will continue to see a rise in fintechs and new providers in the corporate treasury space, as well as increased availability of financial services from non-banks, platform and big tech players. Banks will either need to compete with these providers or integrate their services into the bank’s offering.”

David Gardner, Partner at UK law firm TLT:

“There has been a rapid increase in the size and number of investments into UK fintechs. Interestingly, it is not just the VC/PE funds driving this; banks are also investing or in some cases, acquiring fintech companies outright.

“Essentially, established banks are looking at collaboration and acquisition of fintechs in order to remain competitive. As well as developing their own digital service offerings in-house, the pressure to innovate and keep competitors at bay has resulted in a flurry of bank-fintech partnerships, joint ventures and acquisitions. Through strategic partnerships, banks are able to benefit from specialist tech expertise and tap into the disruptive, customer experience focused and data-led culture necessary to deliver innovative Open Banking services.

“There are good reasons to believe that this trend will continue. Established lenders and financial services companies face increasing competition from new market entrants, including digital banks, challenger banks and fintechs (and fintechs can now compete directly in many more areas without becoming banks themselves, by obtaining registrations for Payment Initiation and Account Information Services provision under PSD2). As demand for digital banking grows, all providers are racing to offer new service propositions, disrupting the traditional banking model and shaking up how businesses bank and manage their finances.

“The dynamics of challenger banks working to take market share, established banks adapting to maintain their pre-eminence, and fintechs collaborating and competing with them all, means that the financial services sector is expected to experience significant disruption.”

“With digitization of banking services now well underway, it is not surprising to see that large tech firms are also making inroads into financial services, potentially introducing a further disruptive element into the Open Banking ecosystem.

“With their substantial resources and unrivalled expertise in Big Data, large tech businesses have an established track record of disrupting various industries worldwide. For several years their entry into financial services has loomed large on the horizon.  Customers already benchmark their online and mobile banking experiences not against other banks, but against the immersive, intuitive experiences already offered by big tech providers in other areas of their digital lives.

“We predict that big tech firms will start to take advantage of the option to register as Account Information Service Providers (AISPs) or Payment Initiation Service Providers (PISPs) under PSD2. This will mean that, with customers’ permission, they can access bank account information and perform payment transactions on those customers’ behalf in the EU, without the requirement to obtain a full banking license.

“Our industry-wide Open Banking survey identified big tech as the biggest perceived threat in this market and recent moves by Google, Amazon, Facebook and Apple suggest they will make further inroads into financial services where this can enhance their existing business models. For all the foregoing reasons, Open Banking looks like a logical place for them to move next – watch this space!”

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