• Tim Joslyn, CTO and co-founder at Pollinate


• 22.10.2020 06:45 pm
COVID-19 , Banking

For some time now, the future of retail banks has come down to two stark choices. Either they take a road less travelled, and fully embrace a digital transformation, or they continue to maintain increasingly outdated payment systems, making efforts to innovate their products.

Many banks are at risk of falling behind. With new entrants continuously snapping up market share, and big tech’s insatiable appetite for a slice of the payments industry, the situation has only been exacerbated.

And, of course, the world has changed recently. But by accelerating the need for banks to deliver the digital products their customers now want, COVID-19 may be the catalyst that leads them to greater collaboration with faster moving fintechs. In this period of great uncertainty, banks may have been given an opportunity to address the outdated processes and systems that, until now, have held them back.

Catalysts for transformation

Banks play a fundamental role in the modern economy, supporting businesses and consumers with essential capital and expertise. But they are under increasing attack from competing Fintech players and tech giants alike. The emergence of companies like Shopify, Square and Stripe, for example, is causing significant disruption to the payments industry. The sector suffered further shockwaves recently when Apple acquired Canadian start-up Mobeewave, allowing it to turn any iPhone into a payment terminal. Amazon has thrown its hat into the ring too, announcing a partnership with Goldman Sachs to provide business finance to merchants selling on its platform.

It’s vital, therefore, that banks step up and defend their territory by bringing more competitive products and services to the market - and now might be the perfect time. A number of catalysts have accelerated the digital transformation of the UK’s banking sector over the past 12 years: the widespread fallout from the Global Financial Crisis in 2008, the advent of Open Banking and APIs in 2016, the granting of 36 new banking licences, and now the Coronavirus pandemic.

The impact from the pandemic also means that we’re moving towards a global recession with many countries having officially entered a recession, along with potentially negative interest rates. Now more than ever, banks need to consider where their revenue is going to come from. There is value in the merchant relationship, through payments themselves in the first instance, but also the ecosystem around the data from payments. Banks are in a better position than anyone to lean on their vast data pools and use it to their customer’s advantage.

As the world grapples with the realities of living in the “new normal”, and the various restrictions enforced to curb the spread of the virus, business models and strategies that were viable only six months ago have now been turned on their head. Among the many effects of COVID-19, this unprecedented change has highlighted a need for greater collaboration between banks and fintechs. 

Trying times

Either unable or unwilling to visit their local high street shops under lockdown restrictions, many people turned instead to online retail. At the height of the crisis, global daily ecommerce sales rose by an incredible 66 percent. And with almost three quarters of British consumers reluctant to venture out in the run up to Christmas, 56 percent said they’d do more shopping online than they have in recent years. But for those that do brave the high street, concerns that the use of cash could spread the virus have led to an increase in the use of contactless payment methods. According to Barclaycard, 90 percent of face-to-face transactions carried out in April 2020 were contactless.

By working more closely with technology companies, banks can devise innovative solutions that will not only help support consumers and businesses in these trying times, but also facilitate their own digital development.

Banks across the world are realising the benefits of partnering with a collaborative Fintech. NatWest, for example, worked with Pollinate and software developers Endava to create Tyl by NatWest, a merchant payment platform that enables small businesses to accept contactless, and telephone payments either in-store, over the phone, or using a mobile terminal. The same team also created Payit™ by NatWest, which by allowing customers to make instant online payments to participating retailers, without the use of a debit or credit card, results in a fast, simple and, importantly in the current climate, safe payment experience. Most recently, National Australia Bank (NAB) entered a multi-year partnership with Pollinate to transform its merchant acquiring offering for SMEs across Australia.

Tipping point

Facing stiff competition from fintechs and more agile, digital-first newcomers to the industry, it could be argued that retail banks find themselves on the back foot due to a reliance on legacy technologies and established processes.

COVID-19, however, has radically changed the landscape for everyone, forcing banks, retailers, and consumers to rethink the way they act and transact in light of an ever-shifting raft of rules, regulations, and health concerns. In doing so, it has exposed strengths and weaknesses inherent in traditional banking and payment systems, and the fintechs looking to move into their space. At the same time, it has highlighted the massive demand from consumers for digital products and services, something banks are well positioned to leverage.

It’s during this period of upheaval, as with the financial crisis of 12 years ago, that banks find themselves at a tipping point. Banks need to digitally transform if they are to prosper. So, it’s likely that those forward-looking banks, bold enough to take a leap of faith and collaborate with fintechs to better serve their customers as well as for mutual advantage, will be the ones that weather the storm and thrive in the years to come.