Traditional banks are still not meeting the expectations of their customers because of the legacy core systems that most financial institutions are saddled with, preventing innovation.
Torsten Pull, Senior Vice President & General Manager for Corporate Banking at Finastra, believes that whether they like it or not, banks will have to leverage the offerings that third parties are providing, rather than seeing these fintech companies as a threat. The future is in partnerships, but where should corporate bankers start?
With cash management being a fundamental part of the financial lifecycle, it would be assumed that this area would be innovated first. Pull highlights that after innovations in retail banking and payments, “auxiliary services like cash management are naturally next in line to be innovated.” He continues:
“Thanks to open APIs, we can expect corporate banking to change quite significantly over the coming years, but not all banks and providers have fully embraced open banking yet and this is holding back innovation.”
Alongside this, the Second Payment Services Directive (PSD2) has been perceived simply as a compliance project, rather than an opportunity to innovate. “Only some of the tier one banks have been using the investment they made into PSD2 as a springboard for innovating across the whole of corporate banking - including cash management.”
However, Pull predicts that in a post-PSD2 world, more banks will be driven to develop open APIs to keep up with an increase in demand from their corporate clients and collaborate with fintech firms to form a mutually beneficial partnership. “Banks hold a lot of IP [intellectual property] and the data, and if you can combine this with the expertise of a fintech in harvesting that data, you can deliver the best experience for the end user.
“For me, it’s about collaboration - collaboration between the corporate, the corporate bank and the fintech. At Finastra, we’re seeing increased demand from banks for hackathons involving their corporate clients; there’s an acceptance from banks that they can’t do everything and they’re keen to explore the best use cases for their clients.” Today most corporate banks do not offer a great mobile experience; Pull says that the next best action will be one based on data, especially if banks want to remain competitive against Big Tech giants.
“Having built their businesses on modern technologies and following a data-centric approach, tech giants have a clear advantage over some banks. They also have a lot of expertise when it comes to AI and machine learning, and as a result, these tech giants are starting to play more of a role when it comes to corporate banking.” Pull adds that these players do not have the incentive to provide end-to-end banking services because complying with financial regulation is more trouble than its worth. “Many are offering specific banking services, such as Amazon Lending, but we’re yet to see a Western firm providing the end-to-end banking service offering that some of the Asian players have been doing.
“If you look at cash management and what it entails, for example sweeping, pooling and cash forecasting, it is rather complex and requires significant investment to be successful. But banks will need to start thinking, acting and operating more like tech firms in the future. Banks see fintechs as friends today - there is room for both to be successful.”