Where do fintechs fit into the global payments puzzle?

Ongoing technological and regulatory changes have made it difficult to see the big picture of the payments landscape. Yet it is crucial to understand this picture if industry players are to innovate effectively. So, where do fintechs fit in? While much of the change has been set in motion by traditional industry players, fintechs can also play an important role by focusing on the key needs of end users. These can be split into three broad categories: security; speed, efficiency, and transparency; and global reach.

Whether it’s supporting banks with cybersecurity and compliance, facilitating innovative payment models such as mobile wallets, or working on longer-term initiatives to improve global reach, fintechs can contribute as key pieces to the payments puzzle.

Deutsche Bank’s new whitepaper, ‘Piecing together the payments puzzle’, breaks down how fintechs can contribute to the global payments landscape.

Fighting cybercrime and facilitating compliance

One area where fintechs can add immediate value is to help banks combat cybercrime. Payment flows are becoming increasingly digital – driving efficiency, but also creating new channels for cybercriminals to exploit. As attacks grow in sophistication, fintechs can bring their innovative mindsets to bear – bolstering the industry’s defences against fraud and money laundering. Fintechs specialising in artificial intelligence, for instance, stand to make a big impact – enabling bank systems to identify anomalous transactions and patterns that could indicate fraudulent activity.

Specialised fintechs can also offer banks security and convenience when it comes to compliance processes. For example, some regtechs provide automated embargo filtering that instantly blocks scheduled cross-border payments covered by ongoing embargos – securing clients against legal infringements and sizeable fines. Regtech can also be extended to risk management, reporting, identity management, and control, compliance and transaction monitoring.

Upscaling speed, efficiency and transparency

Fintechs can equally lend a hand when it comes to meeting end-user demand for improved speed, efficiency and transparency of payments.

In collaboration with banks, fintechs can help open up new payment channels, such as mobile wallets. These not only allow users to make a payment in seconds – using contactless technology to pay using a mobile phone, rather than a card – but they also facilitate more efficient transactions, bypassing the need to input card details before online checkouts.

The benefits of this kind of bank-fintech partnership are mutual: the fintech boosts its credentials in terms of security and due diligence, while the bank opens up new sources of income. For instance, the US-based mobile payments provider Modo, in collaboration with Deutsche Bank, has allowed the bank to extend its digital B2B and B2C payments business into non-bank platforms, facilitating payments beyond traditional banking channels, including mobile wallets.

This is just one example. Bank-fintech partnerships can add value right across the value chain, including exceptions handling, reporting and client onboarding. The result should be an ecosystem in which banks can offer fully digitised end-to-end services, with efficient onboarding, real-time intraday analytics, and real-time surveillance controls.

Improving global payments service

Improving global reach is a more complicated matter. Currently, cross-border payments are run through a network of correspondent banks. This ensures payments reach their destination anywhere around the world, but not with the same levels of speed, efficiency and transparency as domestic payments.

While SWIFT gpi has made significant inroads, there is an opportunity for fintechs to identify a longer-term solution. Tech giants, such as Google, Amazon, Facebook, Apple, and Alibaba, have been successful in carving out new areas of engagement and behaviour in consumers’ social, commercial and financial lifestyles. In partnership with banks, tech enterprises such as these can offer new – potentially global – client networks, and a full business platform model with shared economies.

Whatever new technology or expertise fintechs bring to the table, however, it will only be valuable insofar as it can be applied to one of the fundamental client needs. So long as they address these directly – in harmony with other ongoing initiatives – fintechs can play an important role in the evolution of the payments sector.

This editorial was first published in the B2B Payments and Fintech Guide 2019 - Innovations in the Way Businesses Transact, which offers insightful editorials and use-case analyses on how to envision a proper regulatory and technological framework for safe and effective cross-border and instant B2B payments.

About Marc Recker

Marc Recker is Global Head of Cash Market Management, Corporate Bank, at Deutsche Bank. Prior to this, he held various senior product management roles, both with Deutsche Bank and other leading financial institutions.

About Deutsche Bank

Deutsche Bank is a leading transaction bank and the world’s biggest Euro clearing bank. Its trade finance and cash management offering supports corporates and FIs with domestic and cross-border payments and international trade transactions.