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“Disruption was the order of the day for 2016 in the payments industry; 2017 is looking to be just as exciting. New regulation, improved support for non-bank players and increased collaboration are all set to further shake up the status quo.
Non-banks hold the key to the global growth of FinTechs
“Having access to cross border banking is a critical factor for businesses wishing to trade overseas, yet established payments businesses and up-and-coming new entrants are struggling to find a bank that allows them to open the necessary bank accounts. Impacted by regulations, and increased risk and competition, major banks have become reluctant to offer non-domestic business banking services and this is hindering the international trading potential of a plethora of enterprises.
“Thankfully, there are now alternative solutions available to businesses of any size, which typically offer faster cross border payments, at a much lower cost than banks. And I believe 2017 will be the year where we see these entities come into their own.
“Businesses looking for an alternative solution should begin the new year by looking for a provider that allows companies who are serving merchants in the digital space to open IBAN accounts in a wide choice of currencies.
Banks are retrenching
“Banks around the world are facing regulatory reforms and capital and profitability pressures in their home markets. As a result, they have reversed their expansionist policies, focusing their attention on geographies and products that remain profitable.
“What does this mean for cross border payments? Banks currently control nearly 90% of this sector, and it is well worth them holding onto it in their core markets, as it has an average CAGR of 4% for the period 2015-20, with B2B payments driving approximately 80% of cross border payments revenues. However, cross border payments must become cheaper, more transparent, and more efficient, and this is not possible with the existing correspondent banking model.
“Making changes to legacy infrastructure is therefore essential – albeit not easy - for the established banks. They must evolve - and quickly - to be able to keep up with non-bank players.
The emergence of the ‘utility’
“Open banking is an emerging term in financial services, driven by regulations that promote consumer choice and competition. With the advent of XS2A under PSD2 and Open Banking Standard, there are plenty of new opportunities for FinTechs, empowered by the freedoms of new legislation.
“However, doing everything ‘in-house’ won’t necessarily be the key to success. Both the tier two and three banks and established payment providers are aware that it makes no sense to build the utilities that underpin their service. And this, I believe, will result in the emergence of the stand-alone ‘utility’.
“Using a ‘utility’ will be the route to success for those operating in banking and FinTech in the next few years. Tier two and three banks could become more digitalised, relationship-driven and focused on the customer relationship by outsourcing non-core functions to third parties.
“And looking further ahead, the banking industry is likely to be even more fragmented, but capable of delivering ‘banking services’ in a much more dynamic way than we see today.