How licensed fintechs change the B2B payment game | Articles
Bankingblocks’ CEO, Daria Rippingale, shares her view on how licensed fintechs change the game of B2B payments, core banking, trust and putting lipstick on pigs.
Traditional banks lose their shine
Brick and mortar business models are hopelessly outdated, and the advancements in technology and digitisation of traditional services have created a huge shift in all world markets; even transforming entire industries. Investors have been pouring billions of pounds into financial technology businesses, which means there has been an explosion of modern, consumer-driven technical products hitting the market. Banks, however, have not been on the same trajectory; traditionally the dominant players, they were now faced with increasing regulatory pressure and changes, and have not been investing in infrastructure at the same speed as the fintech industry. Banks are only just now realising the heavy impact this is having on their market position, and that serious changes are needed urgently if they still want to be – and stay – relevant in the 21st century.
Driven by new regulations like GDPR and PSD2, consumer demand and the threat of new fintech players, banks are finally making some changes. They are, however, weighed down by old infrastructures and old ways of thinking, which spawned a huge opportunity for challengers and licensed fintech players to swoop in.
Fintechs and challenger banks are making their move
Licensed fintechs and challenger banks are targeting primary B2B pain points by focusing on ways to improve their businesses; higher speed transactions and lower costs, more readily available information and transparency. Advanced technology and financial licensing make it possible for these fintechs and challengers to offer their clients the best of both worlds. Their use of advanced technology allows them to flexibly adapt to new trends and/or regulations, easily integrate with worldwide networks, focus on reporting, connectivity and modularity, and to reduce the cost of services while speeding up on-boarding and customer support.
Financial licensing on the other hand, allows for direct provision of payment services without a banking license, grants access to SEPA and SWIFT transfers, card schemes and alternative payment methods, and allows licensed fintechs to replace the banks in B2B payments.
The solution is not to slap lipstick on a pig
Banks have joined the race to modernise their core banking later than many challengers. This means they are currently facing serious internal decisions; do they overhaul their entire core banking technologies, or try to wrap new ‘modern’ ‘lite-banking’ wrappers around their out-of-date platforms? With the pressure of open banking and PSD2-driven APIs, many banks are taking the path of least resistance; adding ‘modern’ layers for external access to their back-end infrastructure.
Unlike banks, disruptors aren’t weighed down by these legacy issues – they started fresh with modern technology and immediately invested in new-age core banking, which now provides them with a head-start when it comes to B2B payments. Updating systems in line with new regulations is easy for these players.
A large part of why challengers and fintechs are so poised to monopolise this market for good are their advanced technology and API-driven core banking services. Core banking benefits B2B payments in multiple glorious ways:
- Lower cost payments and banking services
- Additional security around transactional risk
- Faster reconciliation and real-time information about payments
- Faster access to instant payment methods
- Integrates financial data into internal systems for better control
- Reduced need for management of multiple banking services
- Smarter business management & analysis
- Reduces internal resources needed
- Open APIs (full integration of multiple services)
- Reduces number of partners needed
Time for banks to start taking core banking seriously! As Rippingale stated during her presentation: “Until banks modernise their core banking platforms, and stop trying to tie new tech layers to old infrastructures, they might as well be putting lipstick on a pig.”
The benefits of licensed fintechs and challenger banks are significant and clear, so why would businesses still rather bank with a traditional bank than with a fintech? The answer is equally short as simple: trust.
But, is this a real issue, or an issue of perception? These new players are… well, new. The wider business market is not a ‘finance’ market, and their perceptions of banks and banking are mostly quite traditional. The new regulations surrounding these challengers give businesses the same level of financial security as they get from traditional banks, but not all corporates understand this yet. Another reason that companies are still using traditional banks, is the perception of their own (B2C) customer’s trust. Some corporates might feel that using unknown or smaller players like licenced fintechs and challenger banks may reflect poorly on the business’ reputation. The benefits they offer will, however, start to outweigh this perception soon.
We are very curious to see how this “battle of the payment titans” will play out in the years to come…