A year of global crisis: a year of collaboration

Wednesday 24 February 2021 08:23 CET | Editor: Oana Ifrim | Interview

The Paypers interviews Anders la Cour, co-founder and CEO of payments specialist Banking Circle, which is set to publish a white paper looking at how banks are working with third parties to futureproof – and pandemic-proof – their solutions.

Throughout 2020 we saw businesses demonstrate their versatility by rapidly switching their offering to serve new customer needs. What did your research reveal about how financial institutions responded to the crisis? 

Many businesses were able to move quickly, adapt to changing demands and provide their customers with what they wanted and needed. But it wasn’t so easy for traditional banks. Most found it a considerable challenge to innovate across numerous products and systems all at once, while also ensuring their own resilience and compliance with regulation. Beyond the core bank account, the ability to adapt, innovate and deliver appears to be more difficult, and this is putting banks at risk of losing clients – and market share.  

But while they were held back, banks did not stand back in defeat. Banks were already working on changing their business practices, culture, and technology to remain competitive and provide their customers with the solutions they need today. 2020 simply increased the urgency and fast-tracked digitalisation.

In the past, banks have been reluctant to work with external providers. We have heard it reported that the pandemic lead to increased collaboration. Did your research reveal the reasons behind this change?

Amid global crisis, anything but core services went onto the backburner. Product launches were postponed and plans for innovation and collaboration ground to a halt. Financial institutions had to focus all their resources on delivering the essential core banking services in ways their customers could access. However, now that the initial crisis mode has eased, and the world has become somewhat settled into a new normal, financial services providers are starting to re-focus their efforts on getting those big plans back up and running so corporate customers can be better served across the board.

When we surveyed 300 C-suite bank executives across Europe at the end of 2020, we found strong ambition for collaboration, innovation, and digitalisation. More than half have changed their IT infrastructure plans in response to the pandemic. And to get new solutions to their customers quickly, more banks than ever have recognised the valuable opportunity of third-party collaboration. Half of respondents already had partnerships or plan to work with an external provider within the next month; another third of banks have partnerships on the agenda for the next 12 months.

In 2020, collaboration with FinTechs and specialist providers allowed banks to deliver new digital and accessible solutions to meet the new digital needs of their retail and corporate customers, but without the same level of investment required for in house development. The most popular services to be accessed via a third party were Payment on Behalf of (POBO) and Collections on Behalf of (COBO) at 55%, followed by Payments at 54.6% and corporate treasury management services at 53%. 

Partnerships work well for banks and FinTechs.  Through partnerships with specialist providers, banks gain the agility and innovation of a FinTech, while FinTechs gain compliance and security processes. For both types of institution, the advantage is in enabling them to focus on building strong customer relationships.

Do banks still face barriers to innovation?

In the November 2020 EBA and McKinsey report, ‘The future of European Payments’, it was reported that two thirds of banks cited legacy technology as an obstacle to growing the value of their payments business. Other concerns were their ability to be agile, and the regulatory environment. Many banks have multiple core banking platforms and separate local payment scheme integrations due to expansion over decades all of which makes it difficult to roll-out updates and patches and deliver a consistent customer experience. 

According to the report, at the same time there is an urgency amongst European financial institutions to reduce the cost of payments and build resilience to mitigate against business and operational risk, as well as improve straight through processing (STP) and real-time payment capabilities. Adoption of API based, ‘cloud-first’ technology is, therefore, at an all-time high, seen by banks as enabling them to accelerate their digital transformation and access the level of functionality and speed to market essential to adapt and survive.

It goes without saying, however, that banks must agree internally what they want to transform, how they want to go about doing it, what is and is not possible and what the resulting ‘good’ offering will really look like. Even once everyone is on-board, and on the same page in terms of what the bank is out to achieve, the right people and resources must be lined up in the engine room as well as in support and front-line positions. 

An efficient back-office is another essential element in delivering streamlined, smooth, efficient new solutions. 70% of efficiency gains from digitalisation come not from improvements to the user interface but from increasing the efficiency of back-office processes.

Of the banks surveyed by Banking Circle in November 2020, 42% said existing IT infrastructure is one of their three biggest internal challenges. Lack of integration with customer-facing departments was a key issue for 40% of those we talked to. 

2021 brings with it many new regulatory challenges, particularly regarding cross border trade; are banks adapting to help corporate customers face these additional challenges?

The UK’s exit from the European Union is one significant change, and many of the details around the exit deal were still to be determined at the time we spoke to European banks for this study. On top of this uncertainty, CBPR2 electronic messaging requirements for card issuers come into effect in April, adding complexity and requiring compliance investment.  

Changes to VAT coming into force in January and July will impact profit margins, affecting small businesses’ ability and willingness to pay the usual high fees for traditional cross border payments. This could push SMEs to seek more affordable solutions from alternative providers, as it is essential for businesses of all sizes to have access to cross border payments in today’s a global digital economy. It is, therefore, unsurprising that 70% of the banks we surveyed consider cross border payment provision to be a core banking service.

As global trade levels begin to pick back up to pre-COVID levels, financial institutions must be ready to support businesses in their bounce-back. Access to affordable, friction-free cross border payments will be essential to the recovery, and those organisations able to provide this can empower even the smallest merchant to serve customers in any geography. Not only will this help small businesses and start-ups to thrive post-COVID, but it will also bolster international economies at a time when they are in great need.

What do you expect - and hope - to see as a legacy from the pandemic within financial services?

Now that banking customers have had first-hand experience of the benefits of greater digital provision, we believe the shift is here to stay and that it may even continue to accelerate. Traditional banks realise they cannot keep pace with that acceleration on their own but can stay in the race if they join forces. That is an important change that we expect will prove to be a permanent shift.

As the respondents to our survey reported, working with external providers, can deliver a more positive customer experience. Collaborating with a third party allows a bank to deliver the latest solutions quickly, without the need to invest the significant time and funds required to replace legacy systems and overhaul their infrastructure. 

To see how the banking industry stepped up and responded to the crisis has been truly inspirational. Priorities and budgets were shifted overnight, digitalisation plans were dramatically fast tracked to deliver the solutions customers needed. It was far from easy, but the pandemic brought about a revolution in banking and the wider financial services sector. It has also helped traditional banks find the motivation and direction they needed to successfully futureproof their processes and solutions through collaboration. 

Looking ahead to 2021 and beyond, the new challenge is to ensure the innovation and collaboration that became necessities in 2020 become the norm, not a passing phase or memory.

The results of the latest Banking Circle research will be published in a white paper, Better business banking: Collaborating for success. 

Click here to access the report.

About Anders la Cour 

Co-Founder and Chief Executive Officer of Banking Circle, Anders la Cour used his experience in legal M&A and venture capital, and strong commercial acumen, to co-found Banking Circle in 2013. In 2018 he orchestrated a USD 300 million management buy-out with EQT and secured a Banking Licence in 2020. Anders is the inaugural Chair of the Emerging Payments Association EU, having been on the EPA Advisory board since 2016. He is regularly invited to speak and present at industry events around the world, has won multiple awards and had thought leadership articles published in a range of industry publications. 

About Banking Circle 

Next-generation provider of mission-critical financial infrastructure, Banking Circle is leading the rise of a super-correspondent Banking network. Banking Circle is a fully licensed Bank able to deliver compliant and secure financial infrastructure at low cost. Clients, including Banks and Payments businesses, can now access real-time payments regardless of borders and regardless of size, allowing them to seize market opportunities without having to commit to significant investment in their own internal infrastructure. 

Free Headlines in your E-mail

Every day we send out a free e-mail with the most important headlines of the last 24 hours.

Subscribe now

Keywords: Banking Circle, digital payments, fintech, financial institutions, real-time payments, digitalisation, banks
Categories: Banking & Fintech | Payments General
Countries: World
This article is part of category

Banking & Fintech

Industry Events