• Jonny Davis, Vice President of Global Client Management at Fraedom


• 10.01.2018 11:00 am
undisclosed

The commercial payments market is in flux. New fintech players are making their mark. Disruptive technologies are emerging. All this presents a challenge to the larger commercial banks. They need to do much more than just build technology solutions. They need to think about how they can actively use these solutions to address changes in the market.

Banks today realise they must embrace new technology. It won’t be easy, though, not just because of the in-house skills and time constraints but also because many of these institutions are intrinsically conservative, risk-averse and slow to take advantage of innovation.

They are understandably focused primarily on their core offerings and on network security. These areas are rightly their most urgent concerns. It is, however, difficult to be an early adopter and first mover in a new market when you have to take on the sole responsibility for ensuring that the new technology you are deploying is comprehensively tested and 100% secure.  Instead, the banks that achieve success in the future commercial payments landscape will be those that back the right technology partners to test their networks, and absolutely guarantee their security, and those that support the innovation their partners bring to the table and then commercialise and productise whatever those partners develop.

Rolling out an Approach

Partnering with fintech providers allows banks to tap into the rewards of successful innovation without taking the risky and time-consuming step of going it alone. Working with a fintech means access to the latest technologies and thinking. It is less of a leap and more of a step in the right direction. It helps banks test the water without plunging in out of their depth.

To avoid being left behind, banks need to outsource and partner. Launching a new brand may be option for some, but for many banks it is a shift to additional services rather than a completely new banking structure that will help them keep pace with change and retain existing business.

The rapid rise of fintech provides opportunities for banks to fulfil the market needs and plug gaps in their service offerings. It’s about identifying key, digital-driven services that will help retain customers and encourage new ones to join, not give customers a reason to abandon ship.

For example, the ability to offer card expenditure and balance transparency could improve card delinquency rates and therefore reduce risk and costs for issuing banks. It’s a simple but powerful service that can be tagged onto an existing business with minimum overhead.

Partnering is also an entirely prudent move given the significant shifts we are likely to see in the nature not just of banking customers but also of their employees moving forward. There is a growing expectation that the latest digital technology can and should play a key role in the delivery of banking services both to consumers and to businesses in the future. As business expectations of commercial banks change, due primarily to the new wave of millennial and Generation Z employees starting to impact decision-making, so banks will need to start introducing new digital technologies to match those expectations and partnering with fintech providers will in turn become more attractive.

We are already seeing a significant change in favoured payment patterns and that is likely to impact both retail and commercial banking over time. Confidence in mobile banking is growing among consumers. A recent report by Convergys, a market research company, on behalf of Bank of America, found 62 percent of Americans use a mobile banking app today. That’s up from 54 percent in 2016 and 48 percent in 2015. This sort of growth has yet to be realised in business banking but it will come.

It is also apparent that this focus on mobile banking apps is being driven by the young. A new report from Accenture, which polled 1,500 consumers in the US and Canada found that more than two-thirds (69 percent) of Gen Z consumers prefer to bank via a mobile app, making mobile the preferred banking channel for today’s youngest consumers.

For banks, the preferences of Gen Z consumers point the way to the future, As Gen Zs start in the world of work, payment practises, whether it’s expenses or invoice payments for products and services will seem alien, perhaps even dated. Mobility, flexibility, up-to-the-minute reporting and the ability to manage everything – cards, expenses, invoice payments - in one place, even from your mobile, will become increasingly essential services for banks to offer businesses. 

Reaping the Rewards 

These ongoing trends point the way clearly to the reality facing commercial banking in 2018 as more millenials and Generation Z individuals transition into business employees and bring their expectations of what banking should be delivering with them. For traditional banks, keeping pace with this kind of expectation shift can be expensive and difficult to manage, once again highlighting the benefits of partnering.  Tapping into the expertise and technological capability of a partner can help banks keep ahead of these emerging trends.

That’s far from the only benefit of partnering though. The enhanced agility the approach brings also helps banks accelerate service offerings and improve customer satisfaction. This way, they can get around the agility problems caused by legacy systems and avoid the huge outlay of a major implementation. Partnership is also a way of future-proofing operations. Banks buy into a product roadmap that will keep their technology – plus their products and customer service – ever relevant.

Banks need to embrace innovation and keep ahead of the technology curve - but that is not their core focus or forte. Success in banking tech is not about being first yourself. It’s about seeking out a successful route into the future. And in line with that, finding the right technology partner and taking the best that both parties have to offer to produce an outcome that is greater than the sum of its parts can be a low risk way of keeping ahead of the pack.