The payments landscape has seen some major changes in the last decade thanks to innovations from new entrants to the market. Consumers have benefitted from better rates, lower fees, improved customer experience - all driven by new technologies. I can’t help
but wonder if incumbents would have invested in digital as heavily without the disruptive non-bank players coming onto the scene; the way in which people used financial products remained the same for years, and even though technology was evolving at a rapid
pace, banking was slower to catch on, as there appeared to be no reason to embrace it.
B2C has come on in leaps and bounds, yet the B2B space is still lagging behind. Significant changes have been made to payments models within the B2C space, but B2B is relatively untapped. To quote the Deutsche Bank, Global Transaction Banking white paper,
FinTech 2.0 - “Fintech innovation is, by its very nature, a constant force. It will continue to change the way we interact and conduct business, not least because we have only just embarked upon the first wave of exciting developments in its application for
the B2B space”.
The opportunities in the B2B payments space are huge
Up until very recently, incumbents had the monopoly on B2B payments but since non-banks have entered the space with innovative technologies that meet the demand for lower costs, improved efficiency and convenience, banks are beginning to feel the pressure.
There is a need for banks to cooperate with innovators, particularly in the B2B payments arena. It is estimated that B2B revenues in 2020 will be double those of B2C, and with increased competition from FinTechs, the banking industry needs to take action
now in order to protect its interests in B2B payments.
Collaboration is key
Although non-banks are more agile than their incumbent counterparts, they often struggle as they try to scale. The lack of an established client base, issues with licensing and financial regulation, and crucially, a lack of direct access to banking rails,
are all barriers to growth. The need for FinTechs to be able to access existing payments infrastructure to deliver a consistent and reliable service is something that is planned for the future with PSD2 and the Faster Payments network being opened up, but
in the interim, FinTechs will continue to encounter issues if they go it alone.
Although collaboration may be difficult, it is clear that it can benefit both sides. Banks are able to provide a wealth of market insight and experience, and are able to remove regulatory barriers. FinTechs can offer technology solutions that can enhance
existing financial products, helping banks to break out of their traditional financial mindsets, giving them the opportunity to experiment with, and understand, new innovations.
Typically, the broad range financial products and services incumbents provide are siloed. While FinTechs are used to operating in agile and creative environments, it can be a challenge for banks to offer the flexibility required to develop new products.
Banks are also rightfully hesitant to undertake activities that could jeopardise security, negatively impact profitability or alienate their existing client base. To alleviate these concerns, incumbents should provide sandbox environments where FinTechs can
test new products.
The time it takes for Fintechs to take new products to market is significantly shorter than it would be if developed by an incumbent. By partnering with FinTechs, who are able to implement and very quickly roll out new products, banks can provide a better
service to their the end users. It's not just consumers who want improved access to financial services, a better user experience, cost savings and flexibility - businesses are demanding this too.
Collaboration between banks and FinTechs in the payments sector is bound to increase, and as the financial industry begins to accept that collaboration is key, together, banks and payments innovators look set to revolutionise the ecosystem.