Banks not complacent in the face of the FinTech threat

Despite the booming FinTech industry, it is fair to say that Financial Tech businesses have so far caused barely a dent in the dominance of traditional banks. However, discussions with large and mid-sized institutions have revealed that these banks are stepping up to face the potential threat from FinTechs.

Earlier in 2018, Banking Circle commissioned MagnaCarta to carry out in-depth research into the changing landscape of the banking and payments industry. The research set out to understand the impact of FinTech and the disintermediation of the cross border transactions and payments businesses on mid-size European banks. A series of interviews with heads of correspondent banking, cash management and transaction banking at large and mid-sized institutions provide the insight.

Banks step up to the FinTech threat

The banks interviewed during this research are taking the FinTech competition seriously. They are gearing up to take on their biggest challenge in generations. As the international banking and payments map is redrawn, the winners will be those institutions – large and small – which can fully embrace a digital mindset and partner with financial utilities to deliver the best solutions for their customers.

Marc Recker, Global Head of Institutional Market Management, Cash Management, at Deutsche Bank confirmed that even the top Euro clearer and top Dollar clearer in Europe cannot take continued success for granted. “Deutsche Bank is preparing itself for competition. We cannot sit back and relax simply because we have critical mass.”

Mariia Khriachtcheva, Director Payments for ATB Financial, a local bank based in Canada, agrees: “Historically, banks were in this dome of protection, feeling a sense of protection, but this is no longer the case. At ATB Financial, we are currently in the process of partnering with universities on artificial intelligence and virtual assistant capabilities for payment, and also creating a digital-only challenger bank.”

Cross border banking, in particular, remains a relatively protected, rarefied marketplace, characterised by entrenched relationships and risk aversion among corporate treasurers. ATB Financial is keeping a close eye on this market, as Mariia explains: “We have very high demand for affordable cross border payments, from our business clients. As such, this area is of strategic interest to us. Unfortunately, our current model is based on the SWIFT wire service and we do not have a scaled solution due to stricter AML rules. We are not looking to differentiate between local and cross border transactions, we simply want to focus on offering our clients a smooth experience – we know they are looking for clarity, transparency and efficiency, so we are working hard to deliver on all of these key elements.”

SR-Bank, a small regional player, but the largest savings bank in Norway, is also seeing high demand for cross border services. Geir Gundersen, Vice President, Payments at SR Bank commented: “Demand for cross border payments is currently increasing across the board of our business clients – corporate customers, smaller corporates and retail customers alike. We are acquiring business from companies keen to grow internationally, and to both export and import – to support this vision, they need affordable cross border payments. As a result, a large proportion of out income is connected to foreign exchange transactions, and to continue that trend we are looking at different opportunities to make payments as smooth and cheap as possible.”

Customer expectations in consumer payments have changed dramatically in recent years, and these are spilling over into corporate payments. No longer are businesses willing to put up with slow, expensive cross border payments simply because that’s how it has always been. Greater commitment to understanding what business customers need, and how to match demands for lower transaction costs and greater transparency, are becoming the new competitive front line.

Marc Recker at Deutsche Bank added: “Margins for international payments will reduce significantly due to market pressure expectation from customers for transparency in everything. Unfortunately, international payments cannot be for free – because there is a cost base – but there has to be transparency. Payments are already digital, but the experience around the core payment itself needs looking at.”

Ireti Samuel-Ogbu, Managing Director, EMEA Payments and Receivables Head with Citibank’s Treasury and Trade solutions division commented: “Cross border in terms of SWIFT payments is just over 40 years old, and it’s clear that this market is ripe for change. Recently there have been significant steps forward with the launch of SWIFTnet, initiatives like gpi and the exploration of incorporation of new technology and FinTech partnerships into the existing SWIFT model. Around 11,000 banks are connected via the SWIFT network, this is a big positive for the current system in terms of critical mass, the path to scale of new solutions, technology and robustness.”

And the winners is…

As industrywide initiatives like SWIFT gpi gather pace, and the confidence of corporate treasurers to use non-bank payments alternatives increases, the de-coupling of international payments from previously dominant global providers is creating plentiful opportunities for smaller institutions to fill the gap. The winners will be those providers willing to work together with others in the industry, in an ecosystem model. Together, they will be better able to tackle the challenges and build the best possible propositions to effectively meet the changing needs of businesses trading around the world.

More insights in Banking Circle’s white paper - ‘Re-drawing the Map: The changing landscape of cross border banking and payments’.

About Anders la Cour

Anders la Cour is Chief Executive Officer at Banking Circle. He used his experience in legal M&A as well as in venture capital, coupled with a strong commercial acumen and entrepreneurial mind-set, to co-found Banking Circle (then known as Saxo Payments) in 2013, with backing from Saxo Bank. In 2018 he played a key role in arranging the acquisition of Banking Circle by EQT VIII and EQT Ventures. He is also a board member of YouLend and an adviser to other financial technology businesses.
Anders was named Entrepreneur of the Year in the 2016 Emerging Payments Awards and Gamechanger of the Year in the ACQ5 2018 Global Awards, in recognition of his leadership in bringing to market the innovative Banking Circle solution to tackle the cost and time challenges of cross border payments. He was appointed to the Emerging Payments Association Advisory Board at the end of 2016.

About Banking Circle

Next-generation provider of mission-critical banking infrastructure, Banking Circle is underpinning the service proposition of Financial Tech businesses, PSPs, FX providers and banks. By leading the rise of a super-correspondent banking network, Banking Circle is helping financial institutions to provide their customers with faster and cheaper cross border banking solutions, without the need to build their own infrastructure and correspondent banking partner network.